Unlike Mackenzie, which opted for a strategy of attacking the enemy, Invesco Trimark is adopting a strategy that can only be described as “if you can’t beat them, join them”. As Jon Chevreau reported yesterday, Invesco Trimark has launched mutual funds that hold US-listed PowerShares ETFs and pay a trailer fee, which would make it attractive for the advisor channel.

It is hard to get excited about these new-fangled mutual funds because rather than providing investors with a genuinely better product, Invesco Trimark’s approach smacks of a fund company trying to cash in on a hot trend. The first thing you notice about these funds is that five of the six new funds track narrow, niche sectors such as Agriculture, Water, Precious metals, Clean Energy and China –hardly the first, or for that matter, last, choice of index investors.

The funds are also pricey — the cheapest fund sports a fee* of 1.65% and all the funds are front-end loaded. The new fund line up has just one fund that can be called broad market: the PowerShares FTSE RAFI Emerging Markets. It has a fee, excluding operating expenses and taxes of 1.90%. In comparison, a financial advisor licensed to sell stocks and charging a 1% fee would be able to capture emerging market exposure for less than 1.5% including MERs and trading commissions.

Investors should keep in mind that the ideal ETFs track broad-market indices efficiently at a very low cost. All other ETFs or mutual funds holding them should be approached with caution.

PS: Rob Carrick says these mutual funds are taking ETFs to the masses.

PPS: Michael James isn’t impressed with the new funds: “they walk and talk like mutual funds, but advisors can call them ETFs”.

This article has 14 comments

  1. These mutual fund companies (BMO included) sure are busy unloading all these new products. They must feel that investor sentiment has changed and investors are ready to get back into the market.

    Too bad nearly all these products are expensive on any fee basis. Here’s to hoping that investors do their homework and understand the real costs associated with them.

  2. So they buy a broad spectrum of ETFs?!?

    This is really confusing, since Funds are supposed to allow you to buy a broad spectrum of investment devices yet these are collections of collections?

    In programming I always worry about Pointers to Pointers, this smacks of that kind of “cleverness”.

    Why not just buy the ETFs?

  3. The range of opinions on this one is interesting. CC is somewhat negative, Jon Chevreau is somewhat positive, I’m very negative, and Rob Carrick is mostly positive. Of course, I think I’m right, but I’m probably biased 🙂

  4. Canadian Capitalist

    @Brad: BMO’s ETFs are not bad really. They are low-cost, broad-market index funds. They have low volumes but that is to be expected from a product just released.

    PowerShares falls in the “naughty” ETF list. I mean “Clean Energy ETF”? Give me a break.

    @Big Cajun: No. The mutual fund just holds *one* ETF.

    About 1/2 of financial advisors in Canada are licensed to sell mutual funds. They cannot sell stocks or ETFs. By wrapping up an ETF as a mutual fund, Trimark is trying to sell these ETFs to Canadians who invest through an advisor. I should have made that clear in my post.

  5. Canadian Capitalist

    @Michael: I should clarify why I’m only “somewhat negative”:

    (1) Invesco Trimark is saying that it is planning to launch more funds and I’m hoping that broad market funds will be among them. If advisors build portfolios around these funds, it will be an improvement on the current state of affairs.

    (2) The average fund costs investors 2.5%. When Invesco Trimark gets around to launching more broad market funds, these hybrid funds will cost around 2%. That’s a move in the right direction.

  6. CC: I agree that lowering costs from 2.5% to 2% is a move in the right direction. Viewed in terms of change like this, it is a positive development. However, just looking at a 2% MER in absolute terms, it is terrible. Compared to a 0.5% MER, over a 40-year investing lifetime, the 2% MER leaves the investor with just over half as much money. Feeding your kids at McDonald’s twice a day may be better than doing it 3 times a day, but it’s still bad.

  7. Don’t forget that half of the 2% mer is going to the advisor (more than half for the cheaper funds). People who don’t want to do it themselves have to pay someone to do it for them.

    That’s the way life is.

  8. Canadian Capitalist

    @Michael: I don’t disagree that 2% is a very high cost and is likely to be a significant drag on returns. But, you are comparing DIY investors like us with investors who will not (for whatever reason) invest on their own. So, the right comparison is tacking 1% for “advice” on top of 0.5% for a total of 1.5% against PowerShares costs of around 2%.

    It is an entirely different question if that “advice” is worth 1%. If an investor is in the hands of a competent advisor, it might well be. If the advisor is clueless, the fees are wasted. Personally, advice that costs 1% isn’t worth it for me, whatever its quality. Many investors think otherwise. I don’t say I like it, but that’s the way it is.

  9. As a financial advisor i think what we are missing here is that there is an F-Series version available without the 1% fee for advise. What we see as a result is a U.S. ETF with an MER of 0.60% adding Cdn GST and operating cost to get to the MER of 1.90%.

    I have seen their literature it appeals to me as a financial advisor not licensed to sell securities having cleints always coming in and asking for these products. Plus the product is tax efficient as they have wraped it in their corproate structure.

    This will never appeal to a DIY because they can buy the security – unless the tax efficiency is worth the mark up – for me and my clients it makes sense

  10. Canadian Capitalist

    @CFPME: I’m curious since you mentioned you are an advisor. Do you think advisors will utilize these narrow, sector ETFs in client portfolios? My concern is that advisors will end up using products that may not be suitable for the vast majority of investors. I’m thinking of products like the Clean Energy or Agriculture ETF.

  11. Wait a minute, you buy a Mutual Fund that holds a Single ETF? WTF?!?!?

    OK, I am a little simple in the more intricate areas of Investing, but that seems somewhat redundant if not dumb, or am I being too simple?

  12. You could try the broad index funds from Pro Financial. They are FTSE RAFI so they are Fundemental Index funds. Available to all of us mutual fund licensed advisors. Bonus is you get to chat with Preet!

  13. Pingback: Canadian Personal Finance Blog » Blog Archive » Random Thoughts: For a Parasitic Website

  14. 1)Preet would have to pay to talk to me 🙂 2)just pay by the hour for your “Advise”