BMO Low Volatility U.S. Equity ETF (TSX: ZLU) aims to invest in a portfolio of low-beta U.S. stocks. The fund has a 0.30% MER and yields 2.0%. But beta isn’t necessarily always a reliable guide to potential future volatility or long-term performance. Here’s why you should treat claims to “low volatility” using beta with caution.
North American stock markets lost ground on the week, as June month-end on Monday brought both traditional quarterly window dressing by funds and large investment pools unwinding losing positions combined with sometimes over-the-top media blather about the Greek debt “crisis,” as if it were a thunderclap out of the blue. By week’s end, stock markets had stabilized and even recovered a bit of lost ground, prompting some puzzled media types to wonder why markets weren’t “freaking out more” over the Greek government’s decision to default on its debt! Canadian investors didn’t need any other reason than Canada’s declining economic output, which shrank -0.1% month over month in April, its third consecutive monthly contraction, weighed down by the shrinking energy sector. The S&P/TSX Composite dropped nearly -1% on the week, losing -3.0% overall in June, and retreated -2.3% in the second quarter.
Q – I received a Notice of Reassessment from the Canada Revenue Agency, which hiked my 2014 tax payable by a couple of thousand dollars. In addition, I’m told that in September, I’ll have to start quarterly income-tax instalment payments for 2015. They’re threatening to levy penalties and interest if I don’t pay up right away. I think there’s been some sort of mistake, but I can’t ever seem to contact anyone at the Canada Revenue Agency to sort things out. Do you have any advice on what I can do? – Jill B., Newmarket, Ontario
Investing in exchange-traded funds (ETFs) used to be pretty straightforward. All you needed to do was figure out what asset class you wanted to gain exposure to, and then buy the fund or funds that provided exposure to those indices. It was pretty simple really. You had your big market-capitalization indices like the S&P/TSX Composite, S&P/TSX 60, S&P 500, and MSCI EAFE for your equity components, and then there were ETFs based on the various PC Analytics DEX indices (now called the FTSE/TMX Canada Indices) to cover your fixed-income needs. But about 10 years ago, with the invention of something called “smart beta,” that all started to change.
“Rules of thumb” are just that – general concepts or strategies that can be useful most of the time. But in every situation, these general rules must be checked against the facts. You never know what you might find when you dig into a specific situation. One of these arose recently to challenge the “rule” that you should always maximize your contributions to a Tax-Free Savings Account. Turns out, this isn’t always the case.