# Purpose Investments : Managed ETFs ?



## dogleg (Feb 5, 2010)

I wonder if there are folks on this board who have experience with this firm. Evidently they offer ETFs but with a twist; they are 'managed'. The MERs are low it seems but they have a short history. www.purposeinvest.com


----------



## GoldStone (Mar 6, 2011)

The MERs are not low. 0.45% for a bond fund? 0.55% for a plain vanilla dividend fund? No thanks.


----------



## uptoolate (Oct 9, 2011)

+1 on Goldstone

This is one of the reasons Jack Bogle doesn't like ETFs.


----------



## Butters (Apr 20, 2012)

I hold PBI, it has done okay... but the volume is so low on them, that you have to pay an extra 5 cents/share just to get in... so you could be losing half a percent right there, plus the MER, its the same as any other mutual fund(as in 1% fees)

Not a fan, but I already bought it, so will just let it sit


----------



## dogleg (Feb 5, 2010)

But I guess the selling feature of the 'Purpose' ETF funds is they are to some extent managed more or less like a mutual fund is said to be. Whether it is worth the money is the question. Jack Bogle was mentioned saying he doesn't like ETFs. My reading of him is that he doesn't think individual investors should buy focused ETFs but likes index ones.


----------



## Eclectic12 (Oct 20, 2010)

This seems to be a contradiction in terms.

Most will choose an ETF as they believe that a manager can't beat the index over the long term. If one thinks this - then what's the benefit of adding a manager to the ETF?



Cheers


----------



## My Own Advisor (Sep 24, 2012)

Agreed Eclectic12. If an investor fully believes in indexing, then why seek out active management products whatsoever?

On that note, I suspect there are _very few pure indexers _around. 

I'm not a pure indexer, largely because there is an appeal for me to dividend stocks: there is a psychological "high" of seeing those dividends deposited in my account that will probably never go away.

I think if you're going to index 100%, avoid owning a number of focused or sector ETFs. If you're going to index, buy and hold some of the broadest available products that charge next to nothing to own them, i.e., XIC, VTI, VXUS, VXC and a handful of others.

If you want to spice it up with a REIT ETF, an income-oriented ETF like XEI, that's OK but those wouldn't be the cornerstone of my portfolio. Just my take.


----------



## cashinstinct (Apr 4, 2009)

ETF is a new buzzword.

It might be more sexy to sell an ETF on stock exchange compared to mutual funds ?

Not all ETFS are equal in terms of fees / active Vs passive / etc... many investors don't know / forget that.

____

Note: I am a pure indexer myself.... for now 34% Canada, 32% US, 34% International (26% Developped, 8% Emerging)... I aim 33%-33%-33% with new contributions.


----------



## dogleg (Feb 5, 2010)

Some excellent points have been made. I think I am convinced the 'Purpose Funds' pitch that they 'manage' their ETFs is oversold. Thanks to all.


----------



## MoreMiles (Apr 20, 2011)

dogleg said:


> But I guess the selling feature of the 'Purpose' ETF funds is they are to some extent managed more or less like a mutual fund is said to be. Whether it is worth the money is the question. Jack Bogle was mentioned saying he doesn't like ETFs. My reading of him is that he doesn't think individual investors should buy focused ETFs but likes index ones.


Not really... and everyone here has not even mentioned about a very important selling feature... Corporate Class.

They are the FIRST ones in Canada to set up corporate class investment outside of a mutual fund. In a corporate structure, you are buying a "share of corporation" so you can switch as you wish.

In a big sell-off day like these days, you can sell your stock ETF and change to bond ETF to hide without triggering capital gain tax! There is no other ETF that allows it. This allows compound accumulation without capital gain in the middle.

Not everyone has enough space left in RRSP and TFSA... for those who have more money to save than the registered account limits, these ETF's are great for taxable account.


----------



## GoldStone (Mar 6, 2011)

MoreMiles said:


> They are the FIRST ones in Canada to set up corporate class investment outside of a mutual fund. In a corporate structure, you are buying a "share of corporation" so you can switch as you wish.
> 
> In a big sell-off day like these days, you can sell your stock ETF and change to bond ETF to hide without triggering capital gain tax! There is no other ETF that allows it.


Can you do such a switch if you hold their ETFs directly at a discount broker?

They describe the switching process here:
http://www.purposeinvest.com/purpose-corporate-class-fund/etf-mutual-fund-switching-process/

My impression is that only an advisor can handle a tax-free switch.


----------



## MoreMiles (Apr 20, 2011)

GoldStone said:


> Can you do such a switch if you hold their ETFs directly at a discount broker?
> 
> They describe the switching process here:
> http://www.purposeinvest.com/purpose-corporate-class-fund/etf-mutual-fund-switching-process/
> ...


Discount brokers also have live person phone line... as you as you can talk to a live person, you should be able to make that switch. The only thing is that your discount broker may consider such transaction as a "telephone trade" so the commission is higher.


----------



## leslie (May 25, 2009)

I'd ask "Why go to the unknown provider when you can get what you want from well-known, respected, with a track-record, etc firms?

Any MER under 0.5% is just fine with me. Any reduction down to (say) 0.1%) is only a yearly diff of 0.4%. Who cares. The asset's returns are waaaaaaay more important.

Bogle (sp?) is anti ETFs and pro low-cost passive indexed mutual funds. It is the 'trading' aspect of ETF structure he does not like.

Most bond ETFs are in fact actively managed because there is no way for any provider to replicate the index's holdings. The provider chooses a selection that he hopes will mimic the index.

A lot of equity ETFs exist that are factor-weighted (and thus actively managed).


----------



## MoreMiles (Apr 20, 2011)

leslie said:


> I'd ask "Why go to the unknown provider when you can get what you want from well-known, respected, with a track-record, etc firms?
> 
> Any MER under 0.5% is just fine with me. Any reduction down to (say) 0.1%) is only a yearly diff of 0.4%. Who cares. The asset's returns are waaaaaaay more important.
> 
> ...


Purpose is not "unknown"... it's created by the same guy who created Claymore. After he sold Claymore to Blackrock ETF and made a big fortune, he continued his investment experience to create Purpose.

We are talking about tax-advantaged difference here. This is a BIG deal for many people... that is why Canadian Government changed the laws in 2013 for character conversion loophole in ETF. For some people, they only see MER.... for the more affluent investors, tax saving is waaaaaaaay more important than the few basis points you try to save from MER. Purpose ETF's don't use character conversion but their concept is the same, allowing net worth accumulation and trading, without losing capital taxes during the accumulation phase.


----------



## GoldStone (Mar 6, 2011)

Tax-free switches between ETFs is a big *selling* feature, no doubt. Just because they sell it, doesn't mean that you have to buy. The actual value of this feature is open for debate. I can see how it can be valuable for traders and market-timers. I don't see as much value for the long-term, buy-and-hold investors.


----------



## GoldStone (Mar 6, 2011)

Added:

Character conversion ETFs delayed dividend taxation, by converting dividends into capital gains. This is a valuable feature that is fully consistent with sound investing practices.

Purpose products do something else entirely. Tax-free switches is an open invitation to engage in trading or/and market timing.


----------



## cannew (Jun 19, 2011)

"Get diversification at a low cost". A sales pitch is a sales pitch! Even at very low mer's, calculate the income Vanguard or iShares earns each year on the Trillions of dollars people invest. That's the thing they like, they earn it year after year after year.


----------



## andrewf (Mar 1, 2010)

Usually you have to pay a lot for the ability to get tax-free switching, such that all the benefits accrue to the fund manager. I would rather pay such a tax to government of Canada than Purpose Investments Inc.


----------



## MoreMiles (Apr 20, 2011)

andrewf said:


> Usually you have to pay a lot for the ability to get tax-free switching, such that all the benefits accrue to the fund manager.* I would rather pay such a tax to government of Canada than Purpose Investments Inc.*


Good for you. Wait a minute.... Mr. Harper, is that you? :biggrin:


----------



## donald (Apr 18, 2011)

If your going to be following the markets that 'close' ie:market timing switching back and forth fr equities to bonds(taxes aside)why even bother with etf?
That advantage from purpose is obviously to attract active investors but......if your doing all that homework why the hell not just deal in individual stocks?
I think this option would likely be counter-intuitive and lead to more mistakes ie:trying to time when to 'step' out of the equity markets and when to re-enter


----------



## andrewf (Mar 1, 2010)

MoreMiles said:


> Good for you. Wait a minute.... Mr. Harper, is that you? :biggrin:


My first preference is to not pay the tax, of course.


----------

