In this issue:
Taxation of ETFs
Compounding

We travelled to Toronto in October for the NBCN Annual Conference and also to meet with a number of Exchange Traded Fund (ETF) providers that we use in your portfolios. NBCN continues to invest heavily in technology to provide a more robust platform by which we manage your portfolios. In January they will be launching a new NBCN Portal: after spending some time at the conference working on the beta model we are looking forward to it. The conference was a comprehensive mix of presentations and panels on a variety of topics, including upcoming regulatory changes to the Canadian investment community, the evolution of ETF investments, and how NBCN plans to execute their ongoing commitment to enhance our client experience: with over $100 billion in assets under administration, NBCN has size and commitment to do so.

While in Toronto we met with senior representatives at Blackrock (iShares), First Asset Management and BMO Exchange Traded Funds. There are approximately 400 ETFs currently traded in Canada and over 1700 traded in the United States. The ETF market continues to evolve at an accelerating pace. Through ETFs, investors have access to a wide variety of securities including, for instance, stocks, bonds, commodities, infrastructure assets, leveraged long or short funds and mortgages. Now there are ETFs that have a set of qualitative attributes. These factor-based ETFs are adding a new dimension to the EFT market as they screen, for instance, for minimum volatility, momentum, value, growth, size or a combination of a group of these types of qualities. We use ETFs extensively in your portfolios, as they give us exceptional diversification with very low management fees. We find the emergence of ETFs with these qualitative dimensions quite intriguing and, thus, was the focus of our due diligence meetings. Adding a set of qualitative rules to an ETF could well provide another dimension to the diversification we seek to help increase the quality and lower the volatility of the portfolio. As we do further work in this area, you may see factor-based ETFs added to your portfolio in the near future.

Visiting First Asset Management, we also spent time discussing their Hamilton European Bank ETF. We have begun to add this ETF to portfolios when the asset allocation plan calls for an increased weighting in both foreign equity and the financial services sector. Our view is that European banks are now in a similar position to where US banks were two years ago and that it is time to start adding European banking exposure to the portfolios where suitable.