Listen to Warren (Monthly Perspectives – March 2017)

Listen to Warren – Praising Vanguard’s Founder Jack Bogle in Berkshire’s latest annual report: “If a statue is ever erected to honor the person who has done the most for American investors, the handsdown choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in our bet, less than nothing – of added value. In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me. 

Buffett –  then went on to lament the $100 Billion of wasted fees in America in recent years … before logically observing that he’d happily write big checks so long as it delivers value to Berkshire : “And, finally, let me offer an olive branch to Wall Streeters, many of them good friends of mine. Berkshire loves to pay fees – even outrageous fees – to investment bankers who bring us acquisitions. Moreover, we have paid substantial sums for over-performance to our two in-house investment managers – and we hope to make even larger payments to them in the future. To get biblical (Ephesians 3:18), I know the height and the depth and the length and the breadth of the energy flowing from that simple four-letter word – fees – when it is spoken to Wall Street. And when that energy delivers value to Berkshire, I will cheerfully write a big check”.

Otherwise reiterating: “Over the years, I’ve often been asked for investment advice, and in the process of answering I’ve learned a good deal about human behavior. My regular recommendation has been a low-cost S&P 500 index fund. To their credit, my friends who possess only modest means have usually followed my suggestion.

I believe, however, that none of the mega-rich individuals, institutions or pension funds has followed that same advice when I’ve given it to them. Instead, these investors politely thank me for my thoughts and depart to listen to the siren song of a high-fee manager or, in the case of many institutions, to seek out another breed of hyper-helper called a consultant.”

Latest Developments:

  • Goldman Sachs –  downgrades Tesla
  • Back to Warren – He earlier known as a skeptic as far as technology has embraced … Apple, to the tune of a $18 Billion position, on which he is richer by about $1.6 Billion…
  • BMO – Warns of bond sell-off
  • and Again Warren – Is out of Walmart … too much competition from likes of Amazon…
  • Gluskin’s Rosenberg – At current levels of valuation and complacency, and the long lag since the last corrective phase, to say we are overdue would be an understatement of historic proportions …
  • BoC – The glass is still … far from full. Rates remain where they are, and risks continue to be a preoccupation – including potential negative impact of US protectionism…

ETF Industry highlights – February 2017

February – saw the AUM CAD 120 Billion mark surpassed, with assets rising some $4.5 Billion on the month, on a combination of continued strong net issuance (+$2.7Bn), respectively further market gains (+$1.8Bn).

Breakdown of net new creations – Tier 1 players (iShares; BMO ETFs; Vanguard; and Horizons ETFs) claimed 80.1% of net new creations, Tier 2 (RBC GAM ETFs; Purpose Investments; PowerShares; and First Asset) 16%; and Tier 3 (11 providers) a paltry 3.8%.

Canadian ETFs – Aggregate assets  across the Canadian ETF industry rose $4.5Billion in Feburary (3.9%) versus their January 2017 level. It is coincidental, but noteworthy nonetheless, that one month AUM increase – in that case February’s – can aggregate to more in AUM terms than the combined AUM of all providers safe the top 8 …

Continued strong aggregate creations (+$3.7Bn vs $3.4Bn in January) were offset by modest retractions (-$970MM vs -$1.8Bn for January), with the resulting net new creates blowing past last month’s creations (+$2.7Billion for Feb / +$1.6Billion in January).

ETF industry Highlights – Flows for February 2017

  • Equity flows – TINA (?) is that you again? While concerns over the sustainability of the Trump bump, respectively heightened valuations receive daily press, investors pushed $1.7 Billion into equities in Febuary (or more than double January’s +$809.4MM).
  • Fixed income flows –  Inflows into Bonds were steady relative to January – +CAD673MM in February vs January’s $610MM.
  • Preferred Shares – Flows into Preferreds continue to demonstrate renewed commitment to the asset class, with RBC’s pref remaining the bank’s best seller … and now iShares/Dynamic also competing for investors dollars in the space – on an actively managed/high conviction basis…

Summing up creations/redemptions versus market impact in February 2017:

 

Latest market share numbers (with/without XIU):

 

ETFs by the numbers: February 2017

  • 19 ETF providers. Tier 1: 90.6% of AUM ($109 Bn); Tier II: 8.3% of AUM ($10 Bn); Tier III: 1.0% of AUM ($1.3 Bn).
  •  35.9% y/o/y AUM Growth, with year ago (Feb 2016) numbers negatively impacted by significant market turmoil at the time…
  • Aggregate AUM: $120.3Billion (28/2/17)
  • +$4.5 Bn: AUM increase from Jan 31, 2017 (iShares: +$1,03Bn; BMO ETFs: +$2.04Bn; Vanguard: +$572MM; Horizons: +$143.5MM;  First Asset: +$261MM; PowerShares ETFs: +$26.6MM; RBC GAM ETFs: +$205MM; FT Portfolios: +$22MM; Purpose Investments: +$99MM).

ETFs in February 2017: Aggregate Creations/Redemptions across ETF providers:

equities fixed income preferreds portfolios commodities Feb-17 Flows by Category
$435,077,409 $48,356,063 $45,768,580 -$485,623 $- $528,716,430 ishares
$25,362,360 -$7,954,373 $12,427,200 $11,334,113 $- $41,169,300 ishares claymore
$5,706,772 $37,183,047 $3,686,285 $8,923,386 $46,348,758 $101,848,249 horizons
$696,191,452 $403,396,678 $89,529,989 $1,613,038 $- $1,190,731,157 bmo etfs
$36,559,125 $63,438,450 $60,784,375 $- $- $160,781,950 rbc gam etfs
$- $2,939,010 $- $- $- $2,939,010 td am
$188,222,311 $10,967,916 $2,194,893 $2,601,296 $- $203,986,415 first assets
$18,381,691 -$26,150,416 -$795,077 $1,055,020 $- -$7,508,782 powershares
$248,664,169 $63,191,167 $- $- $- $311,855,335 vanguard
$4,715,861 $12,751,041 $- $- $- $17,466,901 ft portfolios canada
$27,656,046 $50,457,700 $- $- $- $78,113,746 purpose
$- $- $- $- $- $- auspice capital
$2,269,328 $2,059,490 $- $- $- $4,328,819 questrade
$4,128,762 $4,128,762 lysander
$7,238,090 $- $- $- $- $7,238,090 hamilton capital
$3,627,870 $- $- $- $- $3,627,870 sphere etfs
$6,529,005 $12,255,135 $- $- $- $18,784,140 mackenzie etfs
$5,465 $5,465 Wisdom Tree
$27,839,750 $- $- $- $- $27,839,750 Harvest Portfolios
$17,960,110 $- $- $- $- $17,960,110 AGFiqAssetMan
$1,752,006,813 $672,890,907 $217,725,007 $25,041,230 $46,348,758 $2,714,012,716

Top creations; Top redemptions – by provider (with tickers):

ETF Provider Net Creations: Top Creations: Top Redemptions:
bmo etfs $1,190.7 ZCN; ZSP; ZAG; ZEA; ZLU; ZPR; ZEB; ZBK; ZCS; ZCM ZLB; ZLH; ZLC; ZDM; ZDY; ZLI; ZLD; ZLE
ishares $528.7 XIU; XIC; DXP; XEG; XEF; XUS; XAW; XSH; XSC; XSE XFN; XSP; XBB; XCB; XMU; XST; XIN; XMV; XGD; XDV
vanguard $311.9 VCN; VFV; VDY; VSC; VCE; VEE; VUN; VUS; VSB; VSP VBG; VBU
first assets $204.0 RWW.B; FXM; FLI; TXF; RIT; FIG; FAO; FCY.B; FPR; FUT WXM; RWU.B; RWC; FCY; DXM;UXM.B; UXM; FQC; FXM.A; CIC
rbc gam etfs $160.8 RPF; RBO; RID; RLB; RQF; RUD; RQH; RQI; RQJ; RQG N/M
horizons $101.8 HNU; HXS; HSL; HXX; DLR; HFR; HPR; HAC; HVU; HXE HND; HOU; HXQ; HXU; HAZ; HXD; HTD; HFP; HGD; HUF/U
purpose $78.1 PSA; PID; PDF; PHR; PBD; PEU; PYF PBI.B
ishares claymore $41.2 COW; CBO; CLG; CVD; CIF; CYH; CDZ; FIE; CUD; CPD CLF; CMR; CJP; CIE; CSD; CLF.A; CEW; CBQ.A; CYH.A; FIE.A
harvest portfolios $27.8 HHL; HHL.U N/M
mackenzie etfs $18.8 MUB; MGB; MUS; MKC; N/A
AGFiqAssetManag $18.0 ETFs launched Jan 30, 2017 N/A
ft portfolios canada $17.5 FSL; FHQ; FHD EUR; FHM
hamilton capital $7.2 HFY; HBG N/A
questrade $4.3 QCP N/A
lysander $4.1 PR N/A
sphere etfs $3.6 SHC; SHU; SHE N/A
td am $2.9 TDB N/A
wisdom tree $0.0 DGR.B DGR
auspice $- N/A N/A
powershares -$7.5 PSB; PDC; BKL; PXC; PXS PGL; PFH; ULV.F; PTB; TLV
$2,714.0 Total Source: ETFi DB as at Feb 28, 2017

 

  • Min/Low Vol; Risk Weighted ETFs –  Outflows in the aggregate, still, but moderating further overall at -$64MM (at -$82MM Jan; -$283MM Dec). That said, notable outflows in the category at BMO ETFs: ZLB in particular; versus inflows at First Asset RWW.B – which looks to be a multi-month phenomenon that has seen the AUM of that ETF growth to a $373MM Fund as at Feb 28, 2017 (was a $5MM Fund last summer …). Bottom line: CI likes a “Risk weighted” World ETF …
  • Dividend ETFs –  Inflows picked up in February: +$265MM (+$152MM Jan).
  • High Yield  – Inflows moderated versus January: +$85MM (Jan: $119MM)
  • EM flows – Picking up: +$49MM (vs +$13MM in January; and +$15.8MM in December).
  • Europe – Inflows still modest, but picking up in February: +$49MM vs  January: +$18MM.
  • Sectors – Some flows into the Energy sector at iShares despite recent weakness, but also noteworthy outflows (more sizeable) out of Financials … Horizons: inflows into Nat Gas bull; outflows out of Nat Gas bear …

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