Archive for August, 2008

This and That #107

August 28, 2008

  1. The big banks announced earnings this week but TD Bank was the only one to raise its dividend. Canadian Banks and Insurance blog has extensive coverage of earnings from our banks and insurance companies.
  2. The Dividend Guy discovers the joys of not checking how his portfolio is doing.
  3. Million Dollar Journey on the “pitfalls” of index investing. Ha!
  4. Four Pillars is holding a giant book giveaway (ends tomorrow).
  5. Being an engineer (we really take Dilbert’s maxim that “a well-dressed engineer has no credibility to heart”), I’ve never heard the expression “dark suit, grey suit and blue suit”. Thicken my Wallet applies it to personal finance.
  6. Preet continues his DFA series with an explanation of the CAPM theory and a slight problem with it.
  7. Money Grubbing Lawyer on five places not to scrimp and five places not to spend.
  8. Congratulations to Gail Vaz-Oxlade, whose Til Debt Do Us Part show has been nominated for a Gemini award.
  9. Ellen Roseman reveals a sleazy tactic employed by Direct Energy agents.
  10. Steadyhand’s Tom Bradley is the Dos Equis man of mutual funds.

Have a great weekend everyone! Regular programming will resume on Tuesday.

Claymore Global Real Estate ETF (CGR)

August 28, 2008


Claymore Canada has introduced a couple of ETFs that track interesting asset classes: Claymore Global Real Estate ETF (CGR) and Claymore Global Infrastructure ETF (CIF). CGR tracks the Cohen & Steers Global Realty Majors index, which is composed of 75 securities representing the US (40%), UK (10%), Japan (13%), Hong Kong (10.5%), Australia (11%) and minor weighting to other countries. The MER for the ETF is 0.65% and yields 4.4%. The major alternatives, all of which trade on the US exchanges, are: Cohen & Steers Global Realty Majors ETF (GRI, tracks the same index as CGR and has a MER of 0.55%, First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund (FFR, MER of 0.60%) and SPDR DJ Wilshire International Real Estate ETF (RWX, MER 0.60%).

While CGR is much more diversified than the iShares CDN REIT ETF (XRE) and has a decent yield, I wonder if it is appropriate to add foreign real estate to a portfolio, considering that most investors’ allocation to REITs is already small, say 5% to 10%. In any case, there is reason to adopt a wait-and-watch stance because according to the prospectus, the ETF will track the underlying index’s returns through derivatives and incur expenses in addition to the MER. Moreover it is not clear if a market for CGR can be sustained because global real estate is cooling (down 20% over one year) after extremely good returns over a five year period.

Interesting Report on RESPs

August 26, 2008


After reading Rob Carrick’s article in the Globe and Mail on a study commissioned by the Federal Government on Registered Education Savings Plans, I went looking for the report. Fortunately, it is available online (Update: The report referred here is no longer available online. Contact me with request for industry_practices.pdf if you need a copy), provides a wealth of interesting information and explains various RESP options available to parents in a clear and straightforward manner. As Mr. Carrick has highlighted the shortcomings in the design of group RESP plans in his column, I am going to focus on interesting tidbits in the report:

  • Participation in RESPs is low: only 35.2% of children aged 0 to 17 years received a Canada Education Savings Grant.
  • The Canada Learning Bond provides $500 for low-income families to establish a RESP account and allows for an annual contribution of $100 thereafter but the participation rate is a miniscule 8%. The CLB program has paid out a paltry $24 million to date.
  • The biggest “complaint” against RESPs offered by banks and brokerages is that they are not “vigorously” marketed.
  • It is shocking that 3.2% of group RESP plans were cancelled or terminated in 2006. Even more shockingly, 1.9% of group scholarship plans were closed by the group RESP vendors and subscribers paid the price: “When the group scholarship provider closes a group plan, the subscriber can reclaim the contributions, and these are then returned net of fees and without the investment income. Closing also means the grant and bond are repaid to the government, and these cannot be earned back later if new contributions are made for the same beneficiary.”
  • The report notes two benefits of group scholarships: the mandatory contribution schedule may force some people to save for their child’s education and the proactive marketing of these plans may result in higher participation in RESPs.
  • Corporate governance of scholarship trusts leaves much to be desired and there is no disclosure of executive compensation.
  • The criticism that scholarship trusts have high fees is justified. The report notes that in 2006, some 20% of gross contributions went towards fees. Granted some of the enrolment fees may be refunded but the present value of the refund is quite small.
  • If a group RESP subscriber is unable to continue contributing, they can transfer to an individual savings plan instead of terminating the program and keep the principal, grants and income. Termination, on the other hand, will result in refund of contributions less the enrolment fee. The report points out that 1.9% of plans were terminated even when a better option is available.