Build Wealth Canada Podcast

One resource that I check out every year is MoneySense’s “Best ETFs in Canada” guide.

They bring on a panel of experts to find Canada’s top ETFs for DIY index investors (like myself). I found this guide extremely helpful when I was first getting started in investing, and now, many years later, I still read it when it gets updated annually, just to be “in the know” of what’s happening when it comes to index investing in Canada, and to stay up to date on any significant changes like the updated fees, new ETF offerings, and any changes to existing top ETFs that you and I have in our portfolios already.

This podcast interview is different from you just reading the written version of the guide because we actually do a deep dive into the different ETFs that are in the guide. 

Definitely check out the written version of the guide as well, especially since it has some really useful tables that nicely summarize what the top ETFs are, in the different categories. But, definitely still listen to this interview as the writer of the MoneySense guide is on the show today to dive deeper into the findings, along with one of the top panellists and experts, Ben Felix from PWL Capital to provide his analysis on the different top ETFs.

Questions Covered:

  1. Bryan, can you start by telling us about your background, as well as this annual initiative led by MoneySense to determine the best ETFs in Canada? Ben, can you tell us a bit about your background and the work that you do?

  2. Bryan, how does voting work among the panellists before an ETF is admitted as one of the “Top ETFs in Canada”?

  3. Bryan, there are a lot of different investing strategies out there. When you and the panellists are evaluating what the best ETFs in Canada are, what is the goal and strategy that you are all focused on and what kind of investor is this top ETFs list for?

  4. Ben, before we get into the results, what should someone do if they are holding a past ‘top pick’, and now they no longer see that pick on this year’s list? In other words, when should we actually really consider swapping to a completely different ETF if we already have a good diversified index portfolio in place?

  5. Ben, when it comes to switching from one ETF to another, what are the trading costs that we need to be aware of? The $5-$10 trading commissions are the one I think most people are familiar with, but what about the bid/ask spread, how much of a cost impact does that have? And are there any other costs we need to be aware of, when for example someone is tempted to switch ETFs because let’s say, a top pick for this year has a slightly lower MER?

Top Canadian ETFs:

  1. Alright, let’s take a look at the top Canadian, total market, index ETFs that give you exposure to the Canadian stock market. I noticed that all three of the top picks have the same management fee.

    We have BMO with ZCN, Vanguard with VCN, and iShares with XIC. Ben, BMO’s ZCN and iShares’ XIC look almost identical to me. Are there any key differences between these two that we should be aware of?

  2. The other thing that jumped out at me is that Vanguard’s VCN has fewer holdings, 181 vs 240 compared to the iShares and BMO ETFs. Would this be considered a concern by implying that the Vanguard ETF is less diversified than the BMO and iShares versions? i.e. Why would you go with Vanguard when you can get more holdings and be more diversified with XIC or ZCN?
  3. Bryan, another top pick in this category is Horizons’ HXT ETF, which covers the S&P/TSX 60. You mention in the article that “it’s tax-efficient; and has a rock-bottom 0.04% fee after the rebate, until at least Dec. 31, 2022”. Can you explain what this rebate is, and why the “at least Dec 31 2022” timeline?

  4. Ben, Horizons has this unique tax structure with some of their ETFs, like HXT, where you don’t receive the dividend payouts as income, but instead they get added to the fund so that you instead receive more capital gains. I realize that I’m maybe oversimplifying things a bit here, but essentially by holding an ETF like HXT in a personal taxable or corporate trading account, some Canadians save money by reducing their clawbacks when it comes to things like CPP, OAS, the Canada Child Benefit (CCB), and avoid the high tax rate when investing in a corporate account.

    Now in the past, the government closed this, (what I would consider a) loophole, but Horizons figured out a way to restructure their ETFs so that Canadians can still get these tax savings.

    This raises the concern of: What if the government changed things again, closes the 2nd loophole, and Canadians that were holding Horizons ETFs like HXT start selling off ETFs like HXT in large quantities because it no longer has this tax advantage? In this scenario, would the ETF plummet in price? Or no, because the ETF is still holding companies (in a way), and it’s not like the value of all those companies will drop because there is a massive sell-off of the Horizons ETFs.

  5. The last time this closing of the “loophole” happened where the government changed the rules, I recall Horizons doing a press release where they said that if they can’t find a workaround, they may have to close down those ETFs. If that was to happen in the future, would Canadian investors be hurt by this?

  6. Bryan and Ben: The other concern with HXT, is that it is only 60 Canadian companies, and I think most Canadians (myself included) would rather go for the total market approach with an ETF like ZCN, where they are now getting the entire S&P/TSX index with its 240 stock holdings.

    Do you think this tradeoff is worth it? (where you’re getting less diversification, but some potential tax savings and/or clawback reduction on government benefits).

  7. Bryan and Ben, most Canadians do have a home country bias when it comes to their investment portfolio. Even when we look at asset allocation ETFs from all the major providers, they definitely hold more of Canada than Canada’s percentage of the world equity markets. Why is that, and what is your stance on what percentage Canadian stocks should make up of a Canadian DIY investor’s investment portfolio?

US Market ETFs:

  1. Alright, let’s jump to the US market. XUU still appears to be the favourite here among the panelists, as far as Canadian listed, US total market index ETFs go. The runner-up seems to be VUN which is comparable in terms of US stock market representation, but has a higher fee of 0.15% vs XUU’s extremely low fee of 0.07%.

    Do you guys have any thoughts and comments on this one?

International ETFs:

  1. Alright, let’s jump to international stocks. Can you give us your thoughts on these, while touching on some of the nuances when it comes to choosing the different combinations, from the different providers, when it comes to emerging and developed international markets?
Direct download: Best_ETFs_in_Canada_-_Featuring_MoneySense_and_Ben_Felix.mp3
Category:general -- posted at: 8:32am EST

If you’ve done any sort of research on index investing and ETFs, then I’m almost certain you would have heard of Vanguard, as they are one of the pioneers in this space.

They have a very impressive massive following in the US and have really established themselves in Canada as well, where they are the 3rd largest ETF provider. 

I always wanted to interview them because I’m sure, like you, as one invests, you begin to wonder about certain things when it comes to index investing, and ETFs in general. 

I’ve been accumulating this list of questions for them over the years and it’s exciting to finally get a chance to interview them. 

Questions Covered:

  1. Asset allocation ETFs have become incredibly popular here in Canada so I thought we could start our conversation there.

    First, for anybody just getting started in DIY investing, can you briefly explain what asset allocation ETFs are?

  2. One of the key appeals of asset allocation ETFs for many Canadians, is that the funds within the ETF are automatically rebalanced. Therefore, DIY investors don’t need to use tools or a spreadsheet to do this themselves.

    How often are the Vanguard asset allocation ETFs rebalanced? And when we have something like the large but brief crash from COVID, are the asset allocation ETFs rebalanced at a different interval during such significant events?

  3. A dilemma that I’m sure many Canadians face is whether they should use an asset allocation ETF for their entire portfolio, or whether they should split it up and buy individual ETFs instead, to get a slightly lower cost and increased tax efficiency by being able to place the individual ETFs in the account type that is most efficient for that ETF.

    Is there a certain threshold in terms of portfolio size, or something else where you think Canadians should consider switching from an asset allocation ETF to individual ETFs?

  4. When it comes to your asset allocation ETFs, I noticed that your allocations definitely differ from your main competitor iShares. Can you take us through how your asset allocation ETFs are different from iShares, and why you believe your methodology is superior?

  5. DIY Investors that classify themselves as total market index investors often hear that their equity asset allocation should be based on market cap weights. For example, since Canada is only 2.4% of the world markets, then only 2.4% of our portfolio should be in Canada (source).

  6. However, when we look at the asset allocation ETFs of Vanguard (and your competitors), we notice that Canada is overrepresented (i.e. a home country bias), and the US is underrepresented with respect to just their market cap weights.

    I know there is a reason you do this and Vanguard has done research on this so can you take us through why your weights don’t actually try to exactly match the market cap weights that we see across the world?

  7. One particular ETF that I’m sure has caught the attention of many retirees (or soon to be retirees) is the Vanguard Retirement Income ETF (VRIF). Can you explain what this ETF is, and the pros and cons of using it vs just holding a more traditional core total market index portfolio (like VGRO or VBAL for example).

  8. One of your popular ETFs is VUN (the Vanguard US Total Market Index ETF). Traditionally, Vanguard and iShares tend to have almost identical fees (MER), when it comes to total market index investing.

    However, I’ve had several listeners ask why in the case of VUN, its main competing ETF (XUU from iShares) is at a 0.08% MER whereas Vanguard is double at 0.16% MER.

    Now I realize that these are both still really low MERs, especially when we compare them to traditional mutual funds that tend to have MERs of 2%+, but I was wondering if this uncommon discrepancy in fees is something that is on Vanguard’s radar, and is Vanguard considering matching iShares like it has in the past with many of its other ETFs?

  9. This next one is a bit technical, but for Canadian investors that are really trying to optimize their portfolio: Whether stocks are held directly or through an ETF in another country like the US becomes important, due to the two layers of withholding tax that we have to pay if we’re holding international stocks through a US listed ETF.

    With the Vanguard international ETFs (VEE and VIU), are the international companies now held directly instead of through a US listed ETF? And if not, is that something that Vanguard is looking into changing in the future so that Canadian investors no longer have to endure those two layers of dividend withholding tax?

  10. Vanguard is seen by many Canadians as the pioneer when it comes to passive, total market index investing, especially with your founder Jack Bogle being such a strong supporter of total market index investing. I noticed however that Vanguard also has an active investing division. Can you tell us more about that as typically active investing is viewed by DIY passive index investors as the complete opposite of passive total market index investing.

  11. Why does Vanguard believe that having a combination of both active and passive funds plays a critical role in a well-diversified investment portfolio?

  12. Can you tell us about the different resources available on your site for investors?

Today I have Brandon Beavis on the show who runs one of, if not THE largest YouTube channels on investing, specifically for Canadians. He has over 187,000 subscribers, and also runs the channel with his dad who has decades of financial planning experience here in Canada. 

Since Brandon and I have each been optimizing our finances and investments for so long, and since we each specialize in this, we thought it would be fun to do a collaboration where we each share how we’ve optimized our investments and finances so that everybody watching on his channel and listening on my podcast can get two different perspectives and ways of doing things. Then you can pick and choose whatever you think is a better fit for you, and what you think will have the biggest impact on your finances.

Come join me at the Canadian Financial Summit:

Before we get into the show, I wanted to invite you to join me, for free, at the Canadian Financial Summit this year. It’s a fully online educational event, you can stream all the talks for free, it starts this October 12, 2022, and you can get free tickets to stream the talks for free over at BuildWealthCanada.ca/summit

We have over 35 speakers this year, there are already over 22,000 Canadians registered for the event, and we'll be covering investing, real estate, financial planning, early retirement, and much more.

We've got some really high-profile guests again this year including Brandon Beavis and Benjamin Felix who each run one of, if not the largest YouTube channels in Canada on investing. We have Rob Carrick from the Globe and Mail, many of the top writers from MoneySense are presenting, along with some of the largest Canadian personal finance bloggers and writers like Robb Engen, Mark Seed, Ed Rempel, Jason Heath, and many more.

Here's the link for your free tickets: BuildWealthCanada.ca/summit

I hope to see you there!

And now, let’s get into the interview.


Today I have one of, if not THE largest financial literacy educators in Canada on the show, and we’re going to go over some practical tips to deal with this horrific inflation that we’ve all been experiencing here in Canada. 

 

These tips and education covered in the episode are of course, applicable right now as we go through this high inflation period. But, even if you end up listening to this episode years after it’s been launched, we made sure that they are still relevant and applicable long term as well.  

 

You might have seen our first guest on Dragon’s Den, where literally all the dragons were bidding to partner with him. His name is Kevin Cochran and he is the founder of Enriched Academy, which is a company that teaches financial literacy, and does financial coaching for everyday Canadians like you and I. They are also now in many schools across Canada, teaching financial literacy as well. 

 

Also from Enriched Academy, we have Arian Beyzaei back on the show. He’s one of our really popular past guests, and you might have seen him featured on Financial Post, Globe and Mail, and other news sources. 

 

I’m really excited to get things going here as both Kevin, Arian, and myself are actually born in different generations so I thought it would be fun and insightful to have the 3 of us on, as that way you get a unique perspective, no matter which age group you fall into.

 

Free Tickets to the Canadian Financial Summit:

Before we get into the show, I wanted to invite you to join me, for free, at the Canadian Financial Summit this year. It’s a fully online educational event, you can stream all the talks for free, and it starts this October 12, 2022 (so only a few days away). 

 

You can get free tickets to stream the talks for free over at: buildwealthcanada.ca/summit 

 

We have over 35 speakers this year, there’s already over 20,000 Canadians registered for the event. We'll be covering investing, real estate, financial planning, early retirement, and much more.

 

We’ve got some really high-profile guests again this year including Brandon Beavis and Benjamin Felix who each run one of, if not the largest YouTube channels in Canada on investing. We have Rob Carrick from the Globe and Mail, many of the top writers from MoneySense and some of the largest Canadian personal finance bloggers and writers like Robb Engen, Mark seed, Ed Rempel, Jason Heath, and many, many more.

 

I hope to see you there! Here is the link again for the free tickets:

buildwealthcanada.ca/summit 

 

Resources Mentioned:

 

The free assessment call mentioned on the episode is available here: buildwealthcanada.ca/call

The Ultimate Phone Script PDF is available for free download here: buildwealthcanada.ca/script

 

Questions Covered:

  1. What is the dynamic of inflation and interest rates?

  2. What is the right mindset for Canadians to help them through these challenging times without creating stress and harm to themselves?

  3. What are some defensive financial strategies to help Canadians get through these times?

  4. What are some financial strategies to help Canadians thrive during these challenging times ie. Investments?
Direct download: How_to_Protect_Yourself_From_Inflation_-_93_.mp3
Category:Investing -- posted at: 10:14am EST

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