Canadian Interest

Vanguard’s Wishy Washy Take on Active Management

June 6, 2011


US Mutual Fund giant Vanguard announced today that it is setting up shop in Canada and will announce its product line-up once it has submitted a preliminary prospectus with regulators. Vanguard’s reference to providing “sound solutions for Canadian advisors and their clients” suggests that its initial focus will be on the advisor channel. As most Canadians invest through the advisor channel where costs can be as high as 2.5 percent, it is a logical place to start. If Vanguard succeeds in driving down costs, it will make a meaningful difference for those Canadians investing through an advisor. DIY investors will have their own ideas of what Vanguard should do: my own wishlist includes a cheap REIT fund and currency unhedged US Total Market and MSCI EAFE index funds.

Oddly for a fund company that pioneered index investing, Vanguard’s website offers up a report that unsuccessfully attempts to make a case for both active management and indexing in a portfolio:

There is a strong argument in favour of combining the two approaches: Adding indexing to active-oriented portfolios can reduce costs significantly and can help temper risk as well. While a blended approach is likely to reduce the performance peaks, it is also likely to reduce the performance valleys, when investors are most at risk of exiting the market in unfavourable conditions. A combined strategy can help avoid the pangs of regret that your clients might otherwise experience when one approach trumps the other.

It’s not clear how one can avoid “the pangs of regret” since very few funds manage to beat the humble index fund in most time periods and it is nearly impossible to pick the winning fund in advance.

Other takes (mostly speculation at this point) on Vanguard coming to Canada:
Jon Chevreau says Vanguard will be introducing ETFs.
Money Smarts Blog on what he expects Vanguard to do.

What to Expect From the Conservatives?

May 3, 2011


Now that the Conservatives have won a long-coveted majority, what pocket book measures can Canadians expect from the new Government? The Election Platform put out by the Conservatives contains the following key proposals (the * represents proposals that will be implemented when the federal budget is balanced):

Children’s Arts Tax Credit: A $500 credit per child for participation in eligible arts or cultural activities. The Arts Credit was included in Budget 2011 and it is a good bet that we’ll see it in the first budget, so be sure to file those receipts away.

Family Caregiver Tax Credit: A $2,000 tax credit to support caregivers of infirm dependants.

Guaranteed Income Supplement Top-up: Extra GIS transfers of up to $600 for single seniors and $840 for senior couples.

Family Tax Cut*: Allow families with children to share up to $50,000 of household income for federal income-tax purposes.

Children’s Fitness Tax Credit*: Double the value of the tax credit for physical activities from $500 to $1,000 and make it refundable.

Adult Fitness Tax Credit*: A $500 tax credit towards fitness activities for adults.

Doubling the Tax-Free Savings Account Limit*: Annual TFSA contribution limit will be boosted from the current $5,000 to $10,000.

No Changes to the Canada Pension Plan: The Conservatives will instead implement a Pooled Retirement Pension Plan.

Most of the pocket book proposals coming out of the new Government in its first few years of office are likely to be very modest. The Conservative record on election promises is somewhat mixed. While they cut the GST and sent out “beer and popcorn” cheques, they also taxed income trusts and did not fully implement a capital gains exemption.

PS: I’m delighted that this blog has yet again been included in The Globe & Mail’s list of the best of the money blogs. Many thanks to Kerry Taylor (aka Squawk Fox) and Rob Carrick for the nomination.

Election 2011: Comparing Party Financial Platforms

April 25, 2011


KPMG has put together a handy table comparing the platforms of all the major political parties on the topic of corporate taxes, personal taxes, child and family care, education, environmental measures and sales taxes. The Conservatives are saying they will continue with the current plan of cutting corporate taxes to 15% by next year. The Liberals are proposing to cancel the planned corporate tax cuts for 2011 and 2012 and keep it at the 2010 rate of 18%. The NDP is proposing to increase corporate taxes to 19.5%, which according to their platform will provide the bulk of the funding for their spending initiatives.

In addition to the initiatives in Budget 2011, the Conservatives are proposing a slew of personal tax initiatives when the budget is balanced. That would include a doubling of the Tax-Free Savings Account annual contribution limit, income-splitting for families, a doubling in the Children’s Fitness Tax Credit and a new Adult Fitness Tax Credit. The Liberals are proposing a voluntary defined contribution plan within the CPP and the Dippers are promising an increase in CPP benefits with a stated goal of doubling the amount but the plan is light on details.

The KPMG article boils down the platforms into a few pages nicely but if you are so inclined here are the links to the entire platforms of the national parties: Conservatives, Liberals, NDP and the Greens.