# Why not ZMI instead of VBAL?



## james4beach (Nov 15, 2012)

VBAL has become very popular, since it's a low fee balanced fund, but I'm curious why nobody talks about BMO's ZMI.

ZMI is _also_ a self contained balanced fund which has been around much longer, since 2011. It also has geographic diversification, but the notable difference is that it pays a large distribution with *4.3% yield*. The total return performance is identical since VBAL was introduced. See attached image to see how closely they track each other.

ZMI is basically like owning VBAL, but also pays large distributions. To me it seems like it could be very useful to a retiree who wants automatic, regular distributions if the intention is to live off capital and get cashflow. In fact one could hold VBAL until ready to start withdrawing, then swap it for ZMI to "turn on the faucet" so to speak.

ZMI has 0.61% MER instead of 0.25% for VBAL, but perhaps the extra 0.36% fee is worth it for cash distribution convenience.

Remember that some people see the value in the diversified VBAL but can't bring themselves to sell shares, which they see as depleting capital.

What do you think? I would think that an income-focused investor is better off in ZMI (which is diversified and similar to VBAL) than trying to do things like picking individual dividend stocks and being too heavy in equities, loading up on bank stocks, or going into exotic fixed income.

In other words, it could let income focused investors get a properly diversified portfolio with zero effort, plus significant cash distributions -- surely there is value in that?

Chart shows ZMI in purple and VBAL in black. The total returns are the same since VBAL's inception.


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## ddivadius (Apr 28, 2017)

See BNN discussion as well:

https://www.bnnbloomberg.ca/investing/video/daniel-straus-discusses-bmo-monthly-income-etf~1633908


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## Beaver101 (Nov 14, 2011)

^^ I think you partly answered your own question with


> VBAL has become very popular, since it's a *low fee *balanced fund, but I'm curious why nobody talks about BMO's ZMI.


 and my answer is because the herd likes to follow the popular stuffs.


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## Topo (Aug 31, 2019)

There are some similarities, generally in terms of having 60% equity exposure, but there are a few notable differences too. ZMI's portfolio relies more on covered call and dividend investing strategies. It seems more concentrated and at the same time more complex than VBAL. ZMI contains 50% Canadian investments.

ZMI is a good ETF for the income oriented investor. But the advantage of VBAL (and similar ETFs) seems to be its low fees, simplicity, and broad diversification.


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## agent99 (Sep 11, 2013)

James, Have you looked at the taxes on ZMI? Seems to me those Canadian all-in-one etfs are convenient, but there are downsides. 

For 2018 taxes see here: https://api.kurtosys.io/tools/ksys3...ZMI_Distribution_History_Tax.csv&locale=en-CA

There is a fair amount of ROC in the distribution along with foreign income. Only small amount of eligible dividends. I have read that premium bonds held in ETFs can also be a tax drag in a taxable account (can't use capital losses)

In my own case, everything in my taxable accounts pays dividends. And, having held all long term, have high capital gains. So best to hold and only trim when time is right. I did buy one ETF in taxable account after tax-loss sale. It is VDV. Almost all dividends. 

In Registered account, what drag would ZMI have because of withholding/MER? WT would be lost. James Bender has a spreadsheet that covers drag on this type of fund, but doesn't include ZMI - Maybe because it has high MER?

I am considering replacing individual stocks in my RRIF with an ETF, but it will likely be a Canadian only one. Maybe a balanced fund. however, an all in one like ZMI (or others) might work, if the drag is not significant. It would supplement the individual bonds/gics and replace about 8 stocks that currently yield 4.9%. My foreign content is in 5 ADRs. I will keep those for now. 

This is an interesting article on all-in-one vs individual etfs, https://www.michaeljamesonmoney.com/2019/07/canadian-etfs-vs-us-etfs.html


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## AltaRed (Jun 8, 2009)

The last Annual Management Report of Fund Performance https://www.bmo.com/assets/pdfs/gam/etf/a-mrfp/en/A_MRFP_ZMI_E.pdf provides a breakdown of the financial highlights for year ending 2018. A lot of moving parts with very high portfolio turnover.

This ETF, correctly named as an income fund, is likely only appropriate for retirees withdrawing from their portfolio and most likely best placed in registered accounts with its premium bond content and high yield. It competes with all the other income funds out there. Certainly has not received much in the way of asset growth since inception in 2011 and can't imagine this being very important in the BMO stable of ETFs with ~$110M in AUM.


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## james4beach (Nov 15, 2012)

Thanks, lots of good points raised above. I would agree that between the two, VBAL is the superior "pure balanced fund" with simpler index holdings, lower fee too obviously. No question that ZMI has more complex holdings including more moving parts. It's not what I'd point someone to if they asked me for a good, simple balanced fund. 

Taxes - good question, and I don't know how this would work.

However... if we're talking about income focused investors, and there are tons of people like this, then I would think that ZMI would be better than many other alternatives they have. People who demand income solutions currently either invest in high MER mutual funds, or piece together their own dividend portfolios and high yielding fixed income, which is extremely hard to do correctly.

Wouldn't ZMI be better than most other "income investments" people tend to use? And it does have diversification. And matches VBAL performance.

What I can't really understand is why ZMI has such little AUM (only $110 million) whereas there are billions of dollars invested in tons of 'monthly income' mutual funds at much higher MERs. ZMI slashes the costs versus a mutual fund. And as shown in the chart, it is performing exactly on par with VBAL.


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## AltaRed (Jun 8, 2009)

Maybe because it is difficult to understand the large suite of ~16 underlying ETF holdings and a number of fancy names and words like 'covered calls', puts, hedged, etc. Clearly, BMO is writing puts and covered calls to generate additional income to offset the fat MER, but still my eyes glaze over...... 

In the link I provided, BMO has raised the number of Independent Review Committee members from 4 to 6 in the last half of 2018. Why is it necessary to have an IRC of 6?


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## Topo (Aug 31, 2019)

james4beach said:


> Wouldn't ZMI be better than most other "income investments" people tend to use?


I think it is. Under those circumstances, there a multitude of ways to mess up the portfolio and do worse. ZMI would be better.

If I were to decide for their investments under those conditions, I would prefer to put them in a well-diversified, low cost balanced mutual fund. I would turn on the re-investment of dividends option. Then I would arrange for scheduled withdrawals in dollar amounts (not number of units) at every interval. Every 2 or 3 years, I would review and adjust for inflation. It would look like an income fund, but with better fundamentals to support that income.

Having a solid portfolio is the very first step in achieving financial success. I would even be willing to do the above gambit using MAW 104, 105, or 130, since those have good portfolios.


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## james4beach (Nov 15, 2012)

AltaRed - yes, and I'm not thrilled about all the option strategies, but it's a legitimate way to generate income (really a sleight of hand to sell the securities without calling it liquidation)

Topo, I have a relative in mind here. I would like to recommend she buy MAW104 or another solid balanced fund and regularly sell off units. It's what my parents do... they are fine with it. This is a great course of action, but many people can't bring themselves to sell units.


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## Topo (Aug 31, 2019)

james4beach said:


> ...but many people can't bring themselves to sell units.


Yes, it is difficult to change one's mindset for accumulating to withdrawal. That is why I suggest doing dividend re-investment (to mix the income with the principal) and then to sell dollar amounts (which looks like taking income rather than selling shares). This approach looks like income investing, but with good fundamentals.


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## james4beach (Nov 15, 2012)

Topo said:


> Yes, it is difficult to change one's mindset for accumulating to withdrawal. That is why I suggest doing dividend re-investment (to mix the income with the principal) and then to sell dollar amounts (which looks like taking income rather than selling shares). This approach looks like income investing, but with good fundamentals.


I didn't understand this at first but I think I understand now. This is a nice idea.

Let's see if I have it right. You start with the solid balanced fund (e.g. MAW104) and make sure you reinvest all distributions. I have recommended BMO Monthly Income D series to friends as well, not because of 'monthly income' but because it's a competently run low MER balanced fund with a long history: 6.5% CAGR since 1999 ... about as good as it gets.

Reinvestment has eliminated the red herring of the income/distributions. Next, you enable a routine $ withdrawal. In fact, make it a nice integer multiple of perhaps $500 for elegance.

My aunt would be impressed by the resulting "income cashflow".

Do I have it right? Yes I think this provides the nice (psychological) effect of an income stream, while retaining the well diversified portfolio underneath.

This is also a very straightforward, easy to follow instruction that can be given to an attorney or other party administering a trust account. No room for attorneys doing stupid things: buy *this exact, single* fund. A couple similar backup fund names if the first ceases to exist. Reinvest distributions. Withdraw $X every month to the beneficiary's account. Very possible to leave instructions like this in a will, right?


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## Topo (Aug 31, 2019)

james4beach said:


> I didn't understand this at first but I think I understand now. This is a nice idea.
> 
> Let's see if I have it right. You start with the solid balanced fund (e.g. MAW104) and make sure you reinvest all distributions. I have recommended BMO Monthly Income D series to friends as well, not because of 'monthly income' but because it's a competently run low MER balanced fund with a long history: 6.5% CAGR since 1999 ... about as good as it gets.
> 
> ...


Yes, this is exactly what I am alluding to. 

Admittedly, there is a bit of financial engineering here, but it is better than what some of those "income" ETFs do.


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## AltaRed (Jun 8, 2009)

james4beach said:


> This is also a very straightforward, easy to follow instruction that can be given to an attorney or other party administering a trust account. No room for attorneys doing stupid things: buy *this exact, single* fund. A couple similar backup fund names if the first ceases to exist. Reinvest distributions. Withdraw $X every month to the beneficiary's account. *Very possible to leave instructions like this in a will, right?*


I think you primarily mean *Guidance* for a Power of Attorney? Not necessarily a Will where an Executor crystallizes an estate and distributes the proceeds, albeit it could be* guidance* for a Trustee operating a testamentary trust for beneficiaries that are minor children. 

Your Attorney has an obligation to do what is your best interests (or in the case of a testamentary trust for minors) and as such, you cannot restrict the Attorney from taking the necessary actions to meet appropriate living standards. That "Guidance" should be in the form of an IPS for your attorney/trustee.

FWIW, in my 'Guidance for POA', I include a section on investment management where I suggest a few ways to manage my investments, i.e. an IPS so to speak, to provide me with income for the rest of my living days. Whether they follow it or not is within their authority. I suspect they would hand it over to a % of AUM advisor, or annuitize at least a portion.

Going back some posts in another thread to 'tease' LTR a bit, if he had made me his Attorney for POA purposes, I would, within very short order, annuitize a good portion of his portfolio to ensure he had sufficient base income to support him for the rest of his living days. The rest (if anything left) would be in a balanced fund for those 'extra' purchases that might be needed to support 'one off' costs. As his POA, I have an obligation to cover, on at least a 99% basis, his needs regardless of the monte carlo outcomes of the marketplace. The exception would be catastrophic world events where the insurers and even Assuris collapses.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> Going back some posts in another thread to 'tease' LTR a bit, if he had made me his Attorney for POA purposes, I would, within very short order, annuitize a good portion of his portfolio to ensure he had sufficient base income to support him for the rest of his living days. The rest (if anything left) would be in a balanced fund for those 'extra' purchases that might be needed to support 'one off' costs. As his POA, I have an obligation to cover, on at least a 99% basis, his needs regardless of the monte carlo outcomes of the marketplace. The exception would be catastrophic world events where the insurers and even Assuris collapses.


OK, that's it, you're completely out of my will.

ltr


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## AltaRed (Jun 8, 2009)

like_to_retire said:


> OK, that's it, you're completely out of my will.
> 
> ltr


Hahahahaha!!!!

Added much later: IIRC, you have a pretty sizeable account and have a pretty conservative asset allocation (lots in your 5 year FI ladder). Probably more than enough just in your FI alone for a POA to annuitize for base living expenses. Remember the annuity replaces an equivalent FI component, meaning the rest of your portfolio can carry a much higher equity allocation. Which is what I effectively do by having DB pension payments.


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## james4beach (Nov 15, 2012)

AltaRed said:


> I think you primarily mean *Guidance* for a Power of Attorney? Not necessarily a Will where an Executor crystallizes an estate and distributes the proceeds, albeit it could be* guidance* for a Trustee operating a testamentary trust for beneficiaries that are minor children.


Honestly, I have no idea how these things work and I don't have a will. Perhaps what I was thinking of is more like guidance for a trustee for beneficiaries.

The reason I'm thinking about all of this is that I am likely to be the executor of one or two estates. I believe there is a desire by the owners (still alive thankfully) to provide financial assistance to a couple family members who are quite poor. They currently do this by occasionally giving them cheques. I believe they will want to provide those family members with ongoing income for the rest of their lives. These are older people who don't have the skill set to DIY or anything close to it, absolutely not a couch potato situation.

What those beneficiaries will need is some kind of arrangement to receive income in regular amounts, deposited to their chequing accounts, so they can live off it. We're talking here about providing supplementary cashflow to boost someone who's in borderline poverty (senior who is not well off). Even 1K/month perpetually would make a huge difference in quality of life.

Question related to this -- as I learn about things like annuities, would it be ethical for me to share the ideas with the owners of the estates? I don't want to tell them what to do with their money. But they do want to help these aging family members (their siblings) and they don't currently know the mechanism for doing this.



> Going back some posts in another thread to 'tease' LTR a bit, if he had made me his Attorney for POA purposes, I would, within very short order, annuitize a good portion of his portfolio to ensure he had sufficient base income to support him for the rest of his living days.


This seems very prudent, teasing or not. I presume you mean an actual annuity with an insurer.


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## AltaRed (Jun 8, 2009)

In this specific case as an Executor, you will have to do what the Wills say. If there are no provisions in the Will for a testamentary trust for the 'poor' family members, you cannot make one. If there are provisions in the Wills for such a trust, it will include some direction on what the trust is supposed to do and for how long. 

Those directions may be as specific as a minimum term annuity, or may be vague enough to permit use of conservative investments like bonds (which can also be a bond ETF) or a balanced fund of sorts for a defined period of time (probably cannot be the rest of those peoples' lives because of potentially insufficient funds. That trust can be run by a trustee including a trust company either directly as stated in the Wills, or as Agent of the Executor if the Executor is defined as the trustee, but wants to farm out that possibility.

I think the only thing you can do is wait until you are specifically asked if you would be willing to be the Executor of either/both of the Wills. Only then would I, in the same conversation before agreeing, ask if there will be any provisions in the Wills for trusts for certain beneficiaries and whether they will have their lawyer include some guidance for trust provisions, i.e. intentions. I don't think you can take it any further than that, nor do you want provisions to be too prescriptive. No one knows how the world will unfold between now and when the time comes. The poor members could die in the meantime, could win the lottery, etc, etc. 

As to your last sentence, yes, an annuity from an insurer. Obviously what an Attorney would actually do depends on how the portfolio is structured and risked, how large the portfolio is relative to living needs, age of the person, etc. Annuitizing some portion of the portfolio would likely be prudent. 

Added: If the person has an IPS, its contents would also be a factor. It comes down to good judgement on behalf of the person the Attorney is responsible for.


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## humble_pie (Jun 7, 2009)

AltaRed said:


> Going back some posts in another thread to 'tease' LTR a bit, if he had made me his Attorney for POA purposes, I would, within very short order, annuitize a good portion of his portfolio to ensure he had sufficient base income to support him for the rest of his living days. The rest (if anything left) would be in a balanced fund for those 'extra' purchases that might be needed to support 'one off' costs. As his POA, I have an obligation to cover, on at least a 99% basis, his needs regardless of the monte carlo outcomes of the marketplace. The exception would be catastrophic world events where the insurers and even Assuris collapses.




what an irresponsible idea. An attorney also has an obligation to respect the wishes of the person who is under his care. Said person presumablly planned his final years wisely, has a last will & testament, has heirs.

the heirs are important here, at least they were & are important to the person who is now living under a POA. IMHO the wishes of the living patriarch & the existence of the heirs impose a burden upon any attorney, such that far from radically & impulsively destroying a well-thought-out existing portfolio, the attorney must instead proceed carefully "in the place and stead" of the living person.

a small portf would perhaps have to be annuitized. But not a larger portf. Not LTR's portf.

often, one of the heirs, an offspring usully, is also the attorney. Often, also, an attorney is an executor of the future estate. In such cases there is a natural check & balance upon the odd chance that an isolated attorney with an annuity obsession will run amok.

.


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## james4beach (Nov 15, 2012)

I find myself in an interesting situation as the "family banker" which is another reason I'm thinking about all of this. Here's the situation:

We have a close knit family and a range of people at different levels of wealth. I'm good with record keeping and money. A couple family members (who aren't so great at all this) have some sums of money "on deposit" with me, which I record as liabilities on my personal balance sheet. The "deposits" they've given me of course get rolled into my overall money management, asset allocation, etc.

I am increasingly finding myself in the position of turning lump sums of money into regular payouts. This is all informally done, which I don't particularly like. Good example: my aunt comes to me and says "I've got this 100K in USD but I don't know how to convert currencies. Can you convert it and pay it out to my sister in multiple payments?"

So then I go and do the gambits, which you've undoubtedly seen the traces of on this board, and help pay it out later.

No problem and I like helping, except I am worried about things like having a common law partner / spouse (who could say *the family money is hers?*). My other big fear is personal liability, such as I am sued, and the family's money gets paid out as it's seen as part of my net worth.

I am searching for ways to clean up these kinds of informal arrangements. These family members, especially the aunts, are all very casual. They don't do well with paperwork and they don't manage money well. They do have some money, and if it's redirected to the right places (their sisters) in annuitized form -- NOT lump sum form -- it can do a lot of good. Their current approach of giving me 100K and letting me deal with the conversions is extremely easy for them.

They are not able to do the lump sum --> regular payment conversion themselves. They know the money should be invested but all of this is just too complex. I think something automatic is required here. Which is why I kind of like ZMI.

The question is, how can I clean up that situation and remove myself from the position as banker/insurer? What kind of structure or arrangement can make that happen? I would like to help set up the structures they need, and I'm happy to do the work of transactions, but don't want to mix their money into my own net worth.


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## AltaRed (Jun 8, 2009)

Have them set up separate accounts in their names giving you trading and Attorney rights for those accounts. Merging their money with yours IS a potential recipe for disaster.

Added: Also ask them to give you in writing what their general intentions are for those accounts so that you have a record from which you are exercising your good judgement. In a formal sense, those would be called Letters of Direction (as one would give a bank or a brokerage) but they probably don't need to be quite that formal.


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## james4beach (Nov 15, 2012)

AltaRed said:


> Have them set up separate accounts giving you trading and Attorney rights.


Interesting. Is it really that simple? So then they are the owners (or perhaps joint owners, the two sisters). And I'd have trading rights.

Does this insulate them from the situation where I get sued and someone takes all my money?


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## AltaRed (Jun 8, 2009)

james4beach said:


> Interesting. Is it really that simple? So then they are the owners (or perhaps joint owners, the two sisters). And I'd have trading rights.
> 
> Does this insulate them from the situation where I get sued and someone takes all my money?


Yes, it is that simple, but I should have been more clear. You have to have Attorney rights to remove funds from accounts. Trading rights only give you the right to buy/sell within the account.

With them as owners of the accounts (not including you as a joint owner), these are protected from creditor actions against you and your assets...simply because you have no ownership!


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## fireseeker (Jul 24, 2017)

Further to the above, I help both my parents and my in-laws manage their savings.
They each have multiple accounts -- RIF, TFSA, cash, etc. The accounts are held in their name at the same online brokerage I use.
I have trading authority on the accounts. So I can change allocations, reinvest, etc. I do not have a PoA (although that may soon change), so I cannot make withdrawals. 
These accounts are connected to my umbrella ID at Investorline. So I can manage them as simply as my own accounts.

I concur with the above in that you definitely want to separate the funds from yours -- keep them invested in the aunt's name(s).


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## humble_pie (Jun 7, 2009)

james4beach said:


> I find myself in an interesting situation as the "family banker" which is another reason I'm thinking about all of this. Here's the situation:
> 
> We have a close knit family and a range of people at different levels of wealth. I'm good with record keeping and money. A couple family members (who aren't so great at all this) have some sums of money "on deposit" with me, which I record as liabilities on my personal balance sheet. The "deposits" they've given me of course get rolled into my overall money management, asset allocation, etc.
> 
> ...




i'm surprised that you would ever have co-mingled anybody else's funds with your own. It might be OK in your personal books but what are you going to do if the CRA audits you?

unrelated people occasionally ask me to gambit currencies for them. Of course i say no. I offer to teach them but usually they don't have discount broker accounts. Only once it worked, her son had a DIY account. He learned.

jas4 a few years ago you elaborately described your parents' search for a financial advisor. You told us in detail how the 'rents ended up with an advisor of whom you approved. Is this advisor still on board? could he not be recruited to look after the aunts as well?


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## Topo (Aug 31, 2019)

james4beach said:


> I find myself in an interesting situation as the "family banker" which is another reason I'm thinking about all of this. Here's the situation:
> 
> We have a close knit family and a range of people at different levels of wealth. I'm good with record keeping and money. A couple family members (who aren't so great at all this) have some sums of money "on deposit" with me, which I record as liabilities on my personal balance sheet. The "deposits" they've given me of course get rolled into my overall money management, asset allocation, etc.
> 
> ...


Interesting dilemma. The time frame would be extremely important here. If the distributions are clustered in a one to five year time period, then even ZMI would be risky, given all the equity and corporate bond exposure it has, unless the beneficiaries are okay with that risk.

The best way to replicate an annuity would be a ladder of strip bonds. So if the 100k is to be distributed in 5 years, the funds are invested in zero coupon bonds that mature from Y1 to Y5. If you buy face value of 20k for each rung, you will have a bit of change left because you are buying at a discount. A 5 year GIC ladder will also work fine. In this scenario equities and PS would be risky in my opinion.

I second the above suggestions to keep the funds separate and preferably in the name of the beneficiaries, particularly if they are in a lower tax bracket.


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## james4beach (Nov 15, 2012)

Thanks for all the useful info above. The arrangement AltaRed and fireseeker describe sounds like what I need to do. And humble_pie that's a good idea about the advisor. I will look into whether he does things along these lines, but the last time I talked to him he started trying to sell some mutual funds (which I didn't like).

I'll describe to these relatives that I am happy to keep helping them with their needs (the mechanics, trades) and will do the money management at no cost, but that we must keep it in accounts owned by *them*.

The problem until now has been that they are not proficient with things like discount brokerages and computers. If I added the Attorney rights, I presume this would let me do all the operations needed to deal with the discount brokerage (including phoning into the agents) and transferring $ to external beneficiary-owned chequing accounts. Does this sound right? I need to make sure the older family members are not stuck having to do any "management" of the discount brokerage. We tried it in the past and they couldn't do it; it's too foreign to them.

For example, let's say in this account which is owned by them (where I have trading & attorney rights), can I still phone into an agent to do a gambit, or journal shares, or verbally request an EFT to external?



Topo said:


> I second the above suggestions to keep the funds separate and preferably in the name of the beneficiaries, particularly if they are in a lower tax bracket.


Thanks. I will start discussing this the next time I see them. The main beneficiary (the one who really needs the cashflow) would not be paying any taxes at all.


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## humble_pie (Jun 7, 2009)

james4beach said:


> Thanks for all the useful info above. The arrangement AltaRed and fireseeker describe sounds like what I need to do ...
> 
> I'll describe to these relatives that I am happy to keep helping them with their needs (the mechanics, trades) and will do the money management at no cost, but that we must keep it in accounts owned by *them*.



what a fine relative you are, willing to go the limit to help out in a challenging situation without any fee for yourself (although hopefully you might be an heir eventually.)

the case is typical of the vast majority of elderly or dependent canadians who can't afford the astronomically high fees which a formal trust setup would cost (last i heard it takes a few million $$ for a trust to break even after professional trustee fees, which usually have a minimum dollar amount)

my takeaway is that your case is complicated by the fact that one of the beneficiiaries is low-income while the other one is helping the low-income one financially with gifts from time to time.

tentatively, my takeaway is that things could also get worse, possibly much worse. I don't mean financially, i mean the capability of the aging beneficiaries to cooperate, let alone be grateful (meanwhile you will be carrying out the work of a hero!)

i wish i had an excellent low-cost solution. Alas i don't believe there is such a solution.

enter the annuity for the low-income relative. It's true that annuities have high hidden fees. However, one extraordinary advantage is that the annuity recipient can never outlive her income. 

every other plan involves drawing down savings/investment account income & possibly invading the capital as well. Only an annuity will guarantee equal distributions for a recipient's lifetime, even if such recipient lives past 100 years of age.

perhaps a partial or 50/50 solution at present? half the capital pool belonging to the low-income relative to be used now to buy an annuity, the remainder to be managed by jas4 until things become more difficult healthwise.

meanwhile the entire capital pool of the higher-income relative could continue with jas4 as attorney of record & de facto manager; again with the proviso that health circumstances could change considerably & the arrangement should be re-confirmed at least annually.






> The problem until now has been that they are not proficient with things like discount brokerages and computers. If I added the Attorney rights, I presume this would let me do all the operations needed to deal with the discount brokerage (including phoning into the agents) and transferring $ to external beneficiary-owned chequing accounts. Does this sound right? I need to make sure the older family members are not stuck having to do any "management" of the discount brokerage. We tried it in the past and they couldn't do it; it's too foreign to them.
> 
> For example, let's say in this account which is owned by them (where I have trading & attorney rights), can I still phone into an agent to do a gambit, or journal shares, or verbally request an EFT to external?



you should have all those powers ^^ if you have a P/A drawn by a lawyer. Mine for my mother did have full powers. Beware though. The POA i held for my mother also included "my" liability for "her" debts, heh. Check with the lawyer; if his boilerplate includes such an article you could ask if it can be deleted.

i also feel you should go over all or at least many of the details of the proposed attorney arrangement with the broker who will be involved. Not just any old licensed rep who answers the phone. By now you should have a sense of who has seniority & who speaks with authority. Have a "meeting" with this person even if it's only by phone, in order to go over all your questions (if you will have a lawyer-drawn power of attorney, this senior rep would need to see a copy first.)

the brokerage itself will have a trading authority form & they may have a boilerplate power of attorney form. The lawyer-drafted version will likely confer much broader powers. At least here in quebec it does.

best wishes with all of this. You are a brave & generous soul.

.


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## dubmac (Jan 9, 2011)

I've been following this thread with some interest, as I am looking to move manage some funds myself - 2 trust accounts. I have a question about ZMI.
Some background: Earlier this year we moved these assets from an advisor who was charging a hefty fee (1.5%), along with some additional hidden fees (Manulife funds). She made us some money, but also did well herself. The funds have been moved to MD Mgmt, and MD Mgmt was recently sold to Scotiabank. MD Mgmt has a few options available which I am currently weighing. I have not re-invested as I am still of the opinion that markets tend to drop in election years - 2020 being an election year. 

I have been wondering whether to go:
1. the Robo-advisor route - the fee seems to settle in the 1% range. MD Precison Portfolios, very similar to MAW104, would be the choice. 
2. Another choice is to go MAWER or similar funds - fees typically settle in the 1% range
3. Go Vangard VBAL or VCNS with ZMI. This would be most efficient, but also the "buyer beware" route. MER would be in the 0.2-0.3% range.

I'm not in a rush, but I plan to get to get this $ moved into one of these 3 by earlier 2020.

I am wondering about ZMI and income funds in general. Where does the distribution (currently in the $0.06 per unit) ceom from, and what happens if/when markets go down? Does the ETF take the distribution from cash held in the account to make up for any loss of income experienced in a down market? 

Any input warmly rec'd


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## Topo (Aug 31, 2019)

dubmac said:


> I have been wondering whether to go:
> 1. the Robo-advisor route - the fee seems to settle in the 1% range. MD Precison Portfolios, very similar to MAW104, would be the choice.
> 2. Another choice is to go MAWER or similar funds - fees typically settle in the 1% range
> 3. Go Vangard VBAL or VCNS with ZMI. This would be most efficient, but also the "buyer beware" route. MER would be in the 0.2-0.3% range.


In my opinion choice 3 is better than choice 2 which is better than choice 1. The reasons are 2 fold: better diversification and lower fees. In the long term, both those attributes are winners for investors.



> I am wondering about ZMI and income funds in general. Where does the distribution (currently in the $0.06 per unit) ceom from, and what happens if/when markets go down? Does the ETF take the distribution from cash held in the account to make up for any loss of income experienced in a down market?
> Any input warmly rec'd


The distributions come from dividends (dividend stocks and preferred shares), premium selling (covered calls and puts), and interest (mostly corporate bonds). These are generally good sources of income, but capital appreciation is less than owning equities. There is substantial downside risk, but not as much as equities.

If you are in the accumulation phase, it would be beneficial to decrease the taxes you owe currently and defer them into the future when you would likely be in a lower tax bracket. Owning broadly-diversified stock index funds (and gold) are good ways to accomplish this. You need a buffer to dampen the volatility of your portfolio too and high quality bonds can perform that function. This gets us to asset allocation ETFs such as VCNS, ZBAL, or XGRO, depending on your stock/bond allocation, which itself depends on factors such as your age, time to retirement, and time in retirement.


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## james4beach (Nov 15, 2012)

humble_pie: thanks for the kind words. All good ideas, but I'm going to have to first go and learn more about what the family members want. So far, they have not articulated it very clearly.

dubmac: do you require an arrangement where cash is paid out (extracted) from these accounts? Or are you talking about holding capital so that it can grow over time? The only reason to consider ZMI is if you want cash payouts to happen.

Are there any particular services or assistance that you got from that advisor which you will need going forward? While I'm not a fan of advisors and their high fees, I've seen cases where they do provide a service that is a benefit to an investor. It might be worth thinking about this before rushing into a totally do-it-yourself scenario.


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## dubmac (Jan 9, 2011)

I don't pay taxes on these accounts - taxes are paid by the individuals in which the trusts are held. These are my sons 22 and 24 yrs.
I want a portion of these funds to provide a source of capital for their future - perhaps a home/condo to get started. I also would like a portion to generate the income - not necessarily a large amount - to help pay for some of their rent, phone bills etc as they gradually find their way. Both have the bulk of their education done - but one may look to go to get a grad degree - in which case - another 1.5-2 yrs. 
Bottom line: Capital preservation and income are preferred for these accounts.

MD Mgmt provides advice and an excellent advisor. No pushing of any products etc. I'm very happy with the relationship - it works. I just need to decide. Currently, I am considering an 80% VCNS and 20% ZMI, or, 100% VBAL if I go ETF route.

I have always held MAWER - and I'm a believer. But I think that MD charges an additional 0.4 on the MER for these out-of-house funds which drive up the costs.


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## james4beach (Nov 15, 2012)

dubmac one thing that's important to keep in mind (but this really throws people off) is that capital and income can't really be separated as distinct things. There is no clear delineation. A diversified portfolio can be viewed as something that generally goes up over time, the total return concept. If you have to put labels on the pieces, it's
Total Return = Capital Growth + Distributions

VBAL and ZMI have the same total return, but provide different breakdowns on the right hand side. That breakdown is somewhat arbitrary. The more you get as distributions (or income) the less capital growth you get.

Generally to maximize the chances of preserving capital (not going lower than the initial $ value) you would want smaller distributions. That's what MAW104, VBAL, VCNS do.

ZMI is somewhat at the other extreme. Much of the Total Return goes towards the distributions, meaning very little capital growth. With ZMI, it's more likely you would see capital drop below your initial investment amount.


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## Topo (Aug 31, 2019)

For any liabilities that are short term (in the next 5 years) and fixed, it is best to keep the funds in a super-safe instrument such as GICs or short term bonds. 

In the case of more distant, less-defined liabilities, more risky assets could be used. The difference between VBAL and ZMI is not very substantial in this instance. ZMI would pay you about 4% per year in distributions; VBAL would pay less in dividends but will likely have better capital appreciation so you could sell shares here and there to the same effect. It is hard to know which one would have a better total return in the long run, but VBAL is more likely to outperform given its lower fees and simplicity.

If in doubt, you could always split the difference.


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## Topo (Aug 31, 2019)

dubmac said:


> Currently, I am considering an 80% VCNS and 20% ZMI, or, 100% VBAL if I go ETF route.


Those two are not equivalent though. VCNS is 20%stocks/80%bonds, ZMI is 60/40 with special features, and VBAL is 60/40.

First and foremost you have to decide on the asset allocation that is appropriate for you. That would largely depend on your time frame. The more time you have, the more equity risk you can take.


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## james4beach (Nov 15, 2012)

Topo said:


> First and foremost you have to *decide on the asset allocation that is appropriate for you*. That would largely depend on your time frame.


This is a good place to start. Figure out your desired asset allocation, based on how much risk (potential loss) you are willing to tolerate and the time horizon of the investment. Once you've figured that out, there are enough "tools" out there (these various ETFs) to make it happen.

If a chunk of money is needed in the short term such as 2 - 5 years out, then this amount should be placed in GICs or short term bonds such as XSH.


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## dubmac (Jan 9, 2011)

yes I suppose I need to sort out asset allocation, risk tolerance etc.
but at the same time, VCNS is mostly bonds, and tho it might bounce around in response to interest rate fluctuations, I suspect it will chug along and deliver 2.1-2.3% yield in the future. Not much else - similar to GIC's.
If I go the MAWER (MAW104) route, and a 2008-9 event happens, I'd expect a 20-25% drop and then a recovery a year later - that is an assumption that the next one is like the last big one. Of course, no one has a crystal ball.
For now, I'll keep what I have liquid. GIC's don;t give much - rates are a pittance. I'll see what early 2020 looks like.


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## humble_pie (Jun 7, 2009)

ZMI is a derivative dogpatch. Look at its real investment holdings, not the advertising top 10 or top 20 holdings which, unfortunately, regulators still allow financial product vendors to publish in order to misinform their consumers.

ZMI holds nothing but other ETFs. ZMI does not directly hold a single stock or a single bond in outright ownership. Please find below a link to its official list of holdings on page 6 of the PDF "Management Discussion of ZMI Fund Performance 31 december 2018."

notice that 29.2% of ZMI's 3rd party ETF holdings are option funds. In all of the other ETFs named in the holdings list, representational & derivative positions would also be found, ranging from low to substantial. In the aggregate, derivatives could boost ZMI's proportion of synthetic holdings north of 50%.

all this without even attempting to inform the consumer, who alas still does not bother to read the audited official literature but contents himself with hearsay & marketing claims that are not truthful.

i for one do not think that engineered products such as this ETF are suitable for vulnerable low-to-medium income retirees who do not understand - not even remotely - what is the nature of the "investments" they have purchased. One of the ETFs that ZMI holds is a US dollar naked put write fund. Selling something like a naked put fund to vulnerable retirees who cannot even begin to understand it, is an absolute scandal, imho.

parties in this thread recommending these kinds of engineered derivative products to vulnerable retirees are advancing the scandal, imho.


https://www.bmo.com/assets/pdfs/gam/etf/a-mrfp/en/A_MRFP_ZMI_E.pdf


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## james4beach (Nov 15, 2012)

humble_pie said:


> notice that 29.2% of ZMI's 3rd party ETF holdings are option funds.


OK, that's a good point and I did not realize earlier the holdings were so heavily in derivative approaches.

I agree with your numbers and see 30% in option related funds. Yes, that's probably too high... it's too exotic.


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## james4beach (Nov 15, 2012)

Thanks humble_pie for bringing me back to reality here. I got a bit too wrapped up in the idea of the convenience of this wrapped up, all in one ETF product.

No problem with ETFs holding other ETFs, but this one does contain far too much in derivatives. Even though they achieve a higher income stream, this just isn't worth it.

Looking at it again, I think an investor is far better off (*and safer*) using a more "traditional" balanced fund, something like VBAL, VCNS, Mawer Balanced, or another well established traditional balanced mutual fund.

And then selling $ amounts out of it as Topo described to generate the required cashflow.

That's the right way, and the safe way. If I started helping out my aunts to produce cashflow from capital, this is how I'd suggest doing it. The BMO managers have so far done a good job managing their options strategies but we don't know how this will go during a severe bear market or crazy market volatility.


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## james4beach (Nov 15, 2012)

I will add, one alternative here which I don't see any problem with is the BMO Monthly Income (D Series) mutual fund that I've mentioned a few times, and recommended to friends before.

It's a traditional balanced mutual fund, similar in many respects to Mawer's etc, except it has a bit more weighted in Canada. Still international diversification. The holdings appear to be plain and derivative free from what I can tell. I just looked at the audited financial statements and didn't see any sign of derivatives or exotic holdings.

Normally I've suggested it as a regular balanced fund but it also does pay a high distribution, I think around 3% to 4%. That means you can get the strong fundamentals of a diversified balanced fund but an elevated payout versus VBAL or MAW104.

In the past I ignored that distribution because I didn't need it, but on this thread's stopic, it's completely relevant and desired. According to Morningstar the yield is 3.3% but this can change at any time of course. Still, it's a strong yield for a diversified fund.

The only downside I can see is the 1.02% MER. But I think when you remember you're getting a well performing balanced fund [ 6.5% CAGR since 1999 ], that pays a decent amount of cashflow, that doesn't look like a bad deal. This is a far longer history than VBAL, and it also has $4 billion invested in the fund.


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## dubmac (Jan 9, 2011)

humble_pie said:


> ZMI is a derivative dogpatch. Look at its real investment holdings, not the advertising top 10 or top 20 holdings which, unfortunately, regulators still allow financial product vendors to publish in order to misinform their consumers.
> all this without even attempting to inform the consumer, who alas still does not bother to read the audited official literature but contents himself with hearsay & marketing claims that are not truthful. Selling something like a naked put fund to vulnerable retirees who cannot even begin to understand it, is an absolute scandal, imho.
> https://www.bmo.com/assets/pdfs/gam/etf/a-mrfp/en/A_MRFP_ZMI_E.pdf


...thank-you. I get it. My spidey sense was that this ETF was questionable - but I didn't know which questions to ask! 
I will focus my investing choices on Vanguard, MAWER and GIC's. Nix ZMI.


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## james4beach (Nov 15, 2012)

dubmac said:


> ...thank-you. I get it. My spidey sense was that this ETF was questionable - but I didn't know which questions to ask!
> I will focus my investing choices on Vanguard, MAWER and GIC's. Nix ZMI.


Take a look at BMO Monthly Income (D Series) as well. The story here is that the series A is the parent mutual fund (the old one) that's been around since 1999. However they added the lower fee D series for self-directed accounts in 2014. They are actually the same mutual fund, with exact same holdings, and the only difference is the fee level. So the performance of the D series is the same as the old one, boosted by an extra 0.55% per year.

BMO Monthly Income Fund Series A with MER 1.57%
BMO Monthly Income Fund Series D with MER 1.02% code GGF31148

Therefore you can look at long term performance like here at Morningstar for the old one. It shows 5.90% CAGR since inception in 1999. You can then add 0.55 from fee savings, meaning with the D series you'd have 6.45% CAGR since 1999. A really solid return.

Since you want some income being paid out, if you think the income level from Vanguard or Mawer isn't enough, I think this would be your next best option.


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## dubmac (Jan 9, 2011)

thank you James - I will check these out as well


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## james4beach (Nov 15, 2012)

By the way, my parents hold MAW104 and I previously held GGF31148 at TDDI


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## humble_pie (Jun 7, 2009)

Black Mac as u know i'm alone out here, working on a giant story whose time has not yet come.

in full bloom the story would require editorial approval & direction (none so far) from several media, plus a small number of skilled investigative reporters working on different aspects of the same underlying theme, which is that ETFs are not holding the securities they are allowed to claim they are holding.

me i'm just a volunteer posting in an obscure financial chat forum ... but gradually over the years i am seeing the evidence creep up, albeit at a snail's pace.

FWIW i have no faith that the vanguard funds are any better. Nor blackRock nor any other ETF vendor. Include the growing list of new TD ETFs among the prevaricators as well. Certainly include BMO.

please allow me to say that i am not in the least opposed to funds trading & holding derivatives of some unreported nature, while promising to give investors "the return" of a computer-driven index model.

what i am against is the coverup. I'm against the pretence that such funds hold the exact securities listed in the index, when in fact they are engaged in representational trading using unnamed hidden securities, they are trading & holding options, swaps, futures & other derivatives without divulging details, & they are lending out unnamed securities to hedge funds for shorting purposes in exchange for fees starting at 2% & escalating rapidly to 5%.

re Mawer, my tentative view is that their tax-favoured balanced fund *may* be one of the few in canada that actually does hold what it says it holds.


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## like_to_retire (Oct 9, 2016)

humble_pie said:


> what i am against is the coverup. I'm against the pretense that such funds hold the exact securities listed in the index, when in fact they are engaged in representational trading using unnamed hidden securities, they are trading & holding options, swaps, futures & other derivatives without divulging details, & they are lending out unnamed securities to hedge funds for shorting purposes in exchange for fees starting at 2% & escalating rapidly to 5%.


Every time you post one of these revealing opinion pieces, I thank my stars that _all_ my equities are in individual company stocks. No funds, no ETFs, no derivatives, no engineered products. Yet people say it's too complicated to own stocks.

ltr


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## dubmac (Jan 9, 2011)

humble_pie said:


> please allow me to say that i am not in the least opposed to funds trading & holding derivatives of some unreported nature, while promising to give investors "the return" of a computer-driven index model.
> 
> what i am against is the coverup.


Understood HP. The process of looking closely at the holdings of these EFT's is daunting to say the least. I am no better at this than I was 15 year ago. I was never good at it - but I am getting a little better. I am rather skeptical of most things financial. 

Vanguard, however, impresses me because their VBAL is quite similar to MAW104. I am holding MAWER as the standard to beat in my point of view. VBAL, though only a few years old, at least has returns to date that are consistent with MAW104. (Yes, it's true, VBAL is full of Vanguard ETF's, and those Vanguar ETF's may well be similar to the house of horrors that ZMI reveals - only I lack the ability, or perhaps initiative to research it.) 

My point: VBAL seems to be very similar in returns and in composition to MAW104. Both are made up of 5-7 funds. Will the future tell the same story? I'm not sure - but I am focused on the "since inception" column - 8% for MAW104 and MAW105. If I go GIC's, that would be around 2-3%.

That doesn't mean that MAW104, VBAL and MAW105 are without their warts and shortcomings. I can only use the data and resources that I have. I'm not ready to put Vanguard funds on the "least wanted" list yet. (and BTW - I know that you didn't suggest this). Your message is clear - you focus on the clarity with which the financial industry and regulators permit certain practices (options trading, currency speculation etc) to go on, with undisclosed and possibly nefarious consequences.

Post Script: If* MAW105 is closer to transparency in its actual (not manipulated) holdings than most other funds, then does it not follow that all of the funds within MAW105 are also transparent?


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## agent99 (Sep 11, 2013)

james4beach said:


> I will add, one alternative here which I don't see any problem with is the BMO Monthly Income (D Series) mutual fund that I've mentioned a few times, and recommended to friends before.


At one time, I used TD Monthly Income Fund mainly to soak up cash in my registered accounts. It was the top rated monthly income fund at the time (and may still be). I recall it having a total return of about 8% despite MER of close to 1.5%. Then they disallowed i registered funds, so I moved on.

Just looked at it over 16 yr period since I retired. (I posted comparable figures recently for XIU/XIC over same period). TDB622 has performed almost as well as XIU/XIC equity etfs, despite the MER and the fact it includes 31% fixed income. (It is a balanced fund). Total Return is about 7.1%. 

I don't see how those funds can overcome the MER drag, so have stayed away. But they may be good for some. Especially those who don't have trading accounts.


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## Topo (Aug 31, 2019)

The derivatives used in ZMI are covered calls and cash-covered puts. While I am not a big fan of them, these strategies are generally safe and actually less risky than buying and holding the underlying, given the lower deltas. The question is whether one wants to achieve equity exposure by going long directly or indirectly through premium selling. I personally favor the former, but the latter is also a valid approach.


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## humble_pie (Jun 7, 2009)

like_to_retire said:


> Every time you post one of these revealing opinion pieces, I thank my stars that _all_ my equities are in individual company stocks. No funds, no ETFs, no derivatives, no engineered products. Yet people say it's too complicated to own stocks.




LTR i was thinking of you as i posted my comments above because you are a gold standard of successful wealth management. I say "a" rather than "the" gold standard because there are other somewhat related models; but your approach would be right up there near the top.

not that anyone ever needs to hold a large & elegantly crafted portfolio such as yours. For smaller or beginner investors, Argonaut popularized the 5-Pack approach, which eventually became a 6-Pack & then a 12-Pack. A bank, a telco, an industrial stock, a utility, a pipeline, a REIT. 

several years ago, cmffer Eder described a 3-Pack which he had funded for his then minor age daughter. As best i can recall it consisted of BCE, one leading canadian chartered bank plus one other important stock such as CNR. Today the daughter is an adult & you can just imagine how splendidly that portf has prospered. The sidebar advantage is that it was a no-brainer. The owner was a minor child. The portf required no financial analytical skill whatsoever.


* * * * *

a few years ago, when my partner-in-crime haroldCrump was an active cmffer, we used to e-mail each other how, when we were younger, we'd originally planned to retire with something like 4 basic ETFs. Something simple, along the lines of what CMF founder Canadian Capitalist used to call his "sleepy portfolio," which was a simple couch potato formula.

but gradually harold & i had woken up to the fact that cheap, ultra low cost ETFs are duplicitous beasts. They have mathematical models promising to give investors this index return or that index return, meanwhile holding & trading a dog's breakfast of undisclosed securities, including unknown stocks which are considered to "represent" an index, along with other unknown stocks chosen for the high fees they can generate when loaned out to hedge funds (vanguard has a paper for advisors describing how they specialize in lending risky high-fee loaners, which earn them 5% from hedge funds instead of the more normal 2% fee.)

consequently, haroldCrump & i said to each other, we were planning to hold real stocks in our old age. Common shares of high quality publicly traded companies. As Argonaut & others publicized, a sector selection would do the job just fine.

what we discovered is that a classic portf of these stocks is actually simpler to hold. The broker will do all the bookkeeping at zero cost. There will be one T5 tax slip per account.

large cap canadian stocks are in the news all the time, so it's easy to keep up with their news. They are analyzed to death, in full public view, by armies of smashingly brilliant CFAs, whose research one can easily find for free, so it's not necessary to attempt to do one's own individual "research." Punctually, every time an important company sneezes, those CFAs will deliver a full spectrum of opinion.

.


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## james4beach (Nov 15, 2012)

I do agree that individually held stocks can work out very well (and as mentioned elsewhere, I'm trying to do this with 30% of my equities).

But we should not under state the *unique and somewhat rare skills* of like_to_retire, Argonaut and eder. In Eder's case for example he guided his child on the investments to hold. I don't think the child was improvising from there and going and buying new stocks ad hoc.

In all of these cases, the actual stock picks were carefully considered, plus there has been good self discipline. There is management and maintenance of the portfolios. And there is also a survivor bias when we talk of these forum members who have had excellent results. We are not talking about all the other people who've come into CMF at some time and tried stock picking.

There are countless people in the world who try to buy "great blue chip stocks" on an _ad hoc_ basis, seemingly buying good stocks, but can't get good performance over the long term. This is still why going with an index ETF is generally a good idea for most people, despite the problems that exist with ETFs.


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## humble_pie (Jun 7, 2009)

james4beach said:


> There are countless people in the world who try to buy "great blue chip stocks" on an _ad hoc_ basis, seemingly buying good stocks, but can't get good performance over the long term. This is still why going with an index ETF is generally a good idea for most people, despite the problems that exist with ETFs.



aren't the above Just Your Opinions though. I know of no studies involving "countless people in the world" who exercised due diligence, bought high quality stocks & then, over very long term time frames, they all somehow mysteriously failed.

the real problems with today's synthetic ETFs will not surface unless a severe market collapse occurs. That's when derivative markets, all-risk counterparty swaps, futures & unsecured broker loans of stocks from ETFs will bottleneck. No one knows who or how many would survive. The world has never known the mega-trillions of derivative instruments that are traded today.

as haroldCrump e-mailed a few years ago, "People are not going to believe what's going on until a major global money centre bank fails. That's when all the unsecured derivative positions will surface."

deutsche bank - a well-known major derivative trader - teetered a few months ago but Merkel's gummint rescued the bank by merging it with commerz.

if, as & when a US based ETF held by a canadian fails in a global meltdown, who would be the regulator to whom a canadian beneficial owner might look? the US regulators will say they have no jurisdiction because beneficial owner resides in canada. The canadian regulators will say they have no jurisdiction because the holding is - or rather was - a foreign security.


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## Topo (Aug 31, 2019)

Even though one could potentially build a good portfolio from scratch using a subset of single large cap stocks, it will almost certainly have a lower risk-adjusted return than the market portfolio. Bill Bernstein describes this very eloquently:



> The reason is simple: a grossly disproportionate fraction of the total return came from a very few "superstocks" ....





> So, yes, Virginia, you can eliminate nonsytematic portfolio risk, as defined by Modern Portfolio Theory, with a relatively few stocks. It’s just that nonsystematic risk is only a small part of the puzzle. Fifteen stocks is not enough. Thirty is not enough. Even 200 is not enough. The only way to truly minimize the risks of stock ownership is by owning the whole market.


From the Efficient Frontier: http://www.efficientfrontier.com/ef/900/15st.htm


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## dubmac (Jan 9, 2011)

humble_pie said:


> the real problems with today's synthetic ETFs will not surface unless a severe market collapse occurs. "People are not going to believe what's going on until a major global money centre bank fails. That's when all the unsecured derivative positions will surface."
> .


but it does beg the question HP, if and when the conditions you describe above, what bank, telcom, utility, insurance or rail company could withstand the colossal mayhem associated with an event like this? A 6 or 12 pack would be consumed in no time (pardon the play on words). Perhaps it's just me, but this sounds worse than 2008-09, and on the scale of 1920's depression. What family could meet their mortgage payment in these conditions? 

Do banks, like some ETF's, have some financial skulduggery of their own that they use to manipulate stock prices? I am not informed enough to know what kinds of skulduggery - only that when I read headlines periodically, some banks have been implicated in stocks manipulations - usually in forex markets (Albeit these are US banks - not Cdn).

Would it really matter in a case like the one you describe that one's pf invested in XIU or invested in the top six holdings of the TSX? It sounds to me like, regardless whether it's XIU or top six in TSX, we'd be in an economic depression, and it likely wouldn't matter.


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## james4beach (Nov 15, 2012)

humble_pie said:


> aren't the above Just Your Opinions though. I know of no studies involving "countless people in the world" who exercised due diligence, bought high quality stocks & then, over very long term time frames, they all somehow mysteriously failed.


I think that a disciplined stock picker, who has a good method, and who sticks to their method (including when it underperforms for years on end) can end up with good performance. I am hoping to be one of these stock pickers and I am taking my shot at it.

However I think (this is a theory) that most investors will struggle with that in practice either on the 'discipline' part, the 'good method' part, or 'sticking to their method' part.

How many CMF stock pickers who emphasized energy and resource stocks have stuck to their method of holding quality stocks for the long term? And let's not just wave our hands and exclude this category because energy had a bear market. That would be survivorship bias.

The stock pickers we hear from today all have method that are _light_ on commodities. That includes all the X-packs including my own. I would argue that this is indeed survivorship bias and that we are only seeing a subset of stock picking, which happened to use methods that resulted in outperformance.


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## humble_pie (Jun 7, 2009)

dubmac said:


> ... those Vanguar ETF's may well be similar to the house of horrors that ZMI reveals




actually i don't find ZMI to be a house of horrors at all. It is no worse & no better than any other ETF. They are all engaged in cost-saving strategies of one kind or another - several of which i've named, over & over again - because the primary feature the investing public is slavering for these days is Ultra Low Cost.

the vanguards are in the same boat. The one i looked at closely - emerging markets - is based on a chinese all-shares index that includes shanghai & trades on london exchange. Vanguard states this in their prospectus. Yet they display a spreadsheet naming as "holdings" approximately 2,500 shares trading in some 30 countries around the globe - many politically disorganized - many with highly corrupt stock exchanges, participation in which demands careful & costly action by investors - & they represent that they are holding, re-balancing & exchanging those 2,500 shares with authorized participants all over the planet on a daily basis ... all this for a miniscule .15% MER ...

really as i type the above i continue to remain incredulous that sophisticated investors such as some of the CMF members on here are willing to believe such fantastic tales .each:

common stocks are subject to intricate & elaborate news coverage in both canada & the US. There is always a gallery of intelligent reporters who probe, exhume & report extensively on business & finance. You yourself, Black Mac, have found & posted some brilliant articles by the globe's europe bureau chief Eric Reguly here in cmf forum, for example.

but ETFs are not yet receiving the same kind of investigative coverage. So far, major media journos & the investing public at large are willing to swallow the ETF marketing KoolAid. This blindness will break down eventually, i believe, but so far this hasn't happened. 

haroldCrump's view differed from mine, though. Harold believed that the investing public will never know anything unless or until a major global money centre bank would collapse, exposing & destroying all its unsecured loans & derivative positions.


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## dubmac (Jan 9, 2011)

humble_pie said:


> actually i don't find ZMI to be a house of horrors at all. It is no worse & no better than any other ETF. They are all engaged in cost-saving strategies of one kind or another - several of which i've named, over & over again - because the primary feature the investing public is slavering for these days is Ultra Low Cost.


I follow your analysis HP. Not lost on me.
I did aks one question in post script that focused on MAWER. You suggested that MAWER's 105 may be actually hold what is reported in their holdings - without any of the smoke and mirrors that most/all MF's & ETF's possess on closer scrutiny. However, MAW105 is a collection of other MAWER funds. So *if* MAW105 is closer to transparency in its actual (not manipulated) holdings than most other funds, then does it not follow by extension that all of the funds within MAW105 (MAW102, MAW120, MAW108 etc) are also transparent?


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## humble_pie (Jun 7, 2009)

dubmac said:


> I did aks one question in post script that focused on MAWER. You suggested that MAWER's 105 may be actually hold what is reported in their holdings - without any of the smoke and mirrors that most/all MF's & ETF's possess on closer scrutiny. However, MAW105 is a collection of other MAWER funds. So *if* MAW105 is closer to transparency in its actual (not manipulated) holdings than most other funds, then does it not follow by extension that all of the funds within MAW105 (MAW102, MAW120, MAW108 etc) are also transparent?




actually i didn't number the relevant Mawer fund, what i specified was the Mawer tax-advantaged balanced fund, did i not? whatever its number, it's the one built for non-registered, therefore taxable, accounts.

the tax advantage is complicated. I've already described the strategy fully in another thread, something like a year ago. At the time jas4beach "got it" & he utilized the strategy to work around a taxable gain in his own account by switching to a TD index sector fund for the necessary 30 days.

also at the time another cmffer who i believe is a chartered accountant by profession, posted that he also advises the same Mawer strategy to his clients.

the strategy requires that a fund hold a decent selection of real stocks. Derivatives will not work in the Mayer tax advantage strategy. That's how i deduced that at least the tax-advantaged fund does hold a variety of real, publicly-traded stocks.

absolutely do not know about any other Mawer funds though. Remember, one swallow does not make a summer.

.


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## dubmac (Jan 9, 2011)

humble_pie said:


> That's how i deduced that at least the tax-advantaged fund does hold a variety of real, publicly-traded stocks.
> .


OK. Now I see. BTW, the Tax Advantage Balanced fund is MAW105. I seem to recall that MAW105 (Tax-advantaged) is invested in the same holdings as Mawer Balanced MAW104. If so, then MAW104 and 105 are composed of the same Mawer funds, and in the same proportions.


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## GreatLaker (Mar 23, 2014)

dubmac said:


> OK. Now I see. BTW, the Tax Advantage Balanced fund is MAW105. I seem to recall that MAW105 (Tax-advantaged) is invested in the same holdings as Mawer Balanced MAW104. If so, then MAW104 and 105 are composed of the same Mawer funds, and in the same proportions.


MAW104 holds other Mawer funds (7 holdings). MAW105 holds securities directly (229 holdings). They both follow the same benchmark. I believe holding securities directly is one of the reasons it can be more tax effective, because it gives the manager more control over tax loss selling.


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## humble_pie (Jun 7, 2009)

dubmac said:


> OK. Now I see. BTW, the Tax Advantage Balanced fund is MAW105. I seem to recall that MAW105 (Tax-advantaged) is invested in the same holdings as Mawer Balanced MAW104. If so, then MAW104 and 105 are composed of the same Mawer funds, and in the same proportions.




just checked ... Mawer is now calling it the Tax Effective Balanced Fund ... a few years ago when last i looked it was named the Tax Advantage Balanced Fund.

fund may have changed its name but appears to have retained the exact same approach. You can see its holdings in the 31 december/18 financial statements below. Nothing but individual publicly traded stocks plus major bonds pages 32 through 35. No other mutual funds as sub-holdings. 

there is a tax-related reason for this, as i've mentioned. To work the Mawer "tax effective" strategy, the managers require actual stocks & bonds, not derivative proxies. You can see all these securities in the linked financial statement below.

i've never been a Mawer client so i remain a bit indifferent to the code numbers they assign to this fund or that fund. I remember their funds stricty by name.

it's a nice-looking fund imho. The tax effective strategy means that the simple annual returns will be low, so some people avoid Mawer Tax Effective for this reason. Investors would buy it strictly for its long-term capital appreciation potential. Myself i would be a bit hesitant about anybody's L-TCAP these days. By that i mean i'd keep Tax Effective if i already owned it, but i wouldn't commit lashings of money as a new investor.


https://www.mawer.com/assets/Financ...ds-Audited-Financial-Statements-ENG-FINAL.pdf


PS it's remotely possible they re-orged the old Tax Advantage Fund & it still exists as a 3rd fund. But the fund i've been speaking of is the above, stuffed with what have to be bona fide stocks & bonds like a christmas pudding.

PPS best holiday wishes to Black Mac & Co


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## humble_pie (Jun 7, 2009)

GreatLaker said:


> MAW104 holds other Mawer funds (7 holdings). MAW105 holds securities directly (229 holdings). They both follow the same benchmark. I believe holding securities directly is one of the reasons it can be more tax effective, because it gives the manager more control over tax loss selling.



yes exactly


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## dubmac (Jan 9, 2011)

Thanks HP & Laker.
warm wishes east to you. 
I miss the old days with the cyber-cmf-ice-fishing derby. Not sure if you recall - it was a blast!


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## GreatLaker (Mar 23, 2014)

Not sure how this thread moved from ZMI vs. VBAL to Mawer, but it's a very edifying pivot from my perspective. I hold MAW105 and MAW120. Both serve a specific purpose in my portfolio. Mawer has some tidbits on its website on their balanced funds and the tax overlay strategy.

https://www.mawer.com/faq/



> What is the difference between your balanced funds?
> The Balanced Fund and the Tax Effective Balanced Fund hold the same allocation of securities. The difference lies in the tax overlay strategy within the Tax Effective Balanced Fund. The Tax Effective Balanced Fund tries to minimize distributions to unitholders to defer their tax liability and allow the investment to grow with less of a tax drag by holding the underlying securities individually (instead of holding funds as is the case for the Balanced Fund) and offsetting capital gains with capital losses. We recommend that investors hold the Balanced Fund in tax sheltered accounts (RRSP, SPRRSP, TFSA, RRIF, LIF, etc), and hold the Tax Effective Balanced Fund in non-registered, fully taxable accounts.





> Why would the Mawer Balanced Fund have a higher distribution than the Mawer Tax Effective Balanced Fund?
> Mutual funds receive a tax credit each year to offset any capital gains realized as a result of unitholder redemptions. The tax credit the mutual funds receives is proportionate to the level of redemptions within the fund (i.e., more redemptions leads to a higher tax credit). If the Mawer Balanced Fund has a higher relative level of redemptions than the Mawer Tax Effective Balanced Fund, this would lead to a higher tax credit for the Balanced Fund. The higher tax credit could offset any realized capital gains in the Fund which may not occur to the same extent in the Tax Effective Balanced Fund.





> The Mawer tax effective strategy
> 
> A tax-effective approach to investing makes sense because it can minimize taxes and provide investors with the ability to compound those savings in future years. At Mawer we use multiple strategies to manage taxable mandates in order to maximize after-tax returns.
> 
> Here’s what we do and how we do it: https://www.mawer.com/learn/investor-education/the-mawer-tax-effective-strategy/


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## mikeyrofl (Jul 12, 2016)

It seems to me like it would be worth the MER savings to buy VEQT + XBB rather than VBAL?


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