Archive for October, 2011

Where are the financial plans?

October 24, 2011


Most of my friends and family invest with a financial advisor. I use the term “advisor” very loosely here because all the pretty much every one of these clients got for their typical 2-1/2 percent fees are a hodgepodge of mutual funds thrown together. It is very rare to see a client with basics like a written financial plan and a well-thought out investment policy. It appears that my circle of friends and family are not uniquely unfortunate; most Canadians who work with an advisor do not have these basics in place.

Jon Chevreau recently reported from a financial planning symposium that even Certified Financial Planners (CFPs) do not routinely create financial plans for their clients. One industry insider said she often sees documents with “Your Financial Plan” cover pages with a simple asset allocation recommendation on the inside. Mr. Chevreau closed his piece with the simple suggestion that ALL clients should routinely get comprehensive financial plans.

The more I see investors indulging in self-destructive habits like panicking, chasing performance, not working from an investment policy, trading too much etc. the more I’m convinced that many investors would be better served working with a financial advisor who can bring some discipline to the investment process. Unfortunately, competent advisors seem to be few and far between. Canadians pay financial advisors billions in compensation each and every year. Is it too much to ask that we receive the service we paid our hard-earned money for?

This & That: Moderate returns, donating stocks and more…

October 21, 2011


Modest Equity Market Returns: In this recent paper, Elroy Dimson, Paul Marsh and Mike Staunton authors of Triumph of the Optimists update their research into stock returns relative to bonds in 19 different countries. They estimate that the expected returns from stocks will be a rather modest 3% to 3-1/2% relative to bills.

Modest Asset Class Returns: The Economist magazine points out that it is not just stocks; all asset classes are priced to provide low returns going forward. It seems to me stocks are the best of the bunch. A real return in the range of 3% isn’t too shabby (assuming valuations remain comparable to today).

Donate shares, not cash: Tax expert Tim Cestnick explains why donating publicly-traded shares or flow-through shares is better than donating cash.

Changing Investment Strategy: Should you abandon buy-and-hold and adopt a market timing strategy? Asking the question after markets have fallen is a clue to what the answer should be says Preet in his Globe column.

Around the blogs

Money Smarts Blog is not convinced that paying directly for investment advice alone will make much of a difference.

Why we pay more for dairy products: Larry MacDonald writes that not only does supply management forces us to pay more for dairy products, tax payers will also be on hook if highly-indebted farmers start to default. (NB: The post originally said we are paying more for “diary” products. Thankfully, we don’t have supply management of diaries in Canada.)

Canadian Couch Potato reported that QTrade is now offering commission-free ETFs.

Million Dollar Journey likes the ING Streetwise Funds for its simplicity. One potential downside with balanced funds is the inability to locate assets in different accounts based on their tax efficiency.

Estate Litigation: The Blunt Bean Countered featured a guest post by a lawyer specializing in estates on the top five areas that are the subject of estate-related litigation.

Today’s Economy Blog’s Kevin Press interviewed an Occupy Bay Street protester to learn more about the movement and comes away very unsure what the protest is about.

Thicken My Wallet offered some do’s and don’ts for holding an open house.

That’s it for this week. Have a great weekend everyone!

Does Horizons AlphaPro Gartman ETF (HAG) Add Value?

October 18, 2011


Dennis Gartman is a frequent fixture in the media circuit (some examples here, here and here) and his Gartman letter is apparently widely read and often quoted in the press. For instance, the Financial Post ran a story today that Gartman is warning “very real damage” to the gold market. It’s all fascinating stuff but Mr. Gartman’s advice doesn’t appear to be all that profitable. Just ask the investors in the Horizons AlphaPro Gartman ETF (TSX: HAG) which says that it provides “access to one of the world’s most famous traders”. The access comes at a steep price: the fund’s management fee is 0.75% plus a performance fee of 20% payable when the fund exceeds a high water mark set by the Government of Canada 1-year T-bill rate. The ETF can employ leverage up to 125% of its NAV and employ long/short strategies. The ETF turns over its portfolio at a manic pace: in 2010, the portfolio turnover rate was 284%.

The predecessor Horizons AlphaPro Gartman Fund (TSX: HAG.UN) was offered to investors at $10 per share and launched with much fanfare on March 26, 2009. Mr. Gartman even provided a statement in the fund prospectus:

Each investment is made with specific risk management parameters in place. The goal is to enhance profits by quickly and, as we can, repeatedly adding to successful investments and by promptly and decisively reducing exposure to losing investments. We take no pleasure in being right or wrong, only in positive absolute returns. We are, as we like to say, “investment mercenaries” seeking to fight on the winning side and risking little real or mental capital in fighting losing battles. We are in the business of buying assets high and selling higher believing that strength begets strength and weakness begets weakness. While it is critical to understand the macro-economic fundamentals that drive the market, it is equally critical to understand the technical indicators, investing bullishly or bearishly only when these indicators support such action, always cognizant of Lord Keynes warning that “markets can remain illogical far longer than you or I can remain solvent.” As such, risk management is of primary importance. We are in the business of generating profits but always remain mindful of the critical importance of first and foremost protecting principal

So, what returns have investors in the ETF received for steep fees, furious trading and rather flowery statements? Not very much even though one would think that the Canadian T-bill rate isn’t all that high a hurdle to clear. The ETF closed today at $7.83 and no distributions were made in the past. Now let’s see: a fund launched pretty much at the bottom of one of the biggest bear markets ever manages to lose 21% of its capital in the roaring bull market that followed. If you want to keep score, the TSX Composite opened at 8,939 on March 26, 2009. It closed today at 12,053 for a gain of 34% not including dividends.

There is a bright side to the story: investors seem to have clued in to the effectiveness of Mr. Gartman’s trading strategies. The fund, which raised $55 million at launch, has seen a steady stream of redemptions and now has just under $12 million in assets.

PS: I shamelessly copied the title of today’s post from Larry Swedroe who frequently asks if some actively managed fund or other adds value on his blog. I can’t think of a better headline.