Exchange Traded Funds

06-Oct-2009 | kate | Investment Ideas The Wise Investor

Exchange Traded funds are relatively new to the stock market, only being introduced in 1993 but have steadily been growing in popularity ever  since, which is why the Retire First Blog thinks its time once again to review the benefits of how ETF’s work.

An ETF is similar to a mutual fund since both investment tools are created to hold assets such as stock and bonds in their portfolio and are valued on the underlying securities.

Mutual funds are priced once per day at the close of the market and everyone one who purchases the fund that day gets the same price, regardless of when they entered their order. Unlike mutual funds ETFs traded on the stock market and can be bought and sold at intraday prices. Their stock like quality allows investors to take advantage of a rise in the price of underlying assets through the trading day by buying and selling the ETFs through out the day. Mutual funds on the other hand do not let investors take advantage of the daily fluctuation in their basket of securities you always get filled at the end of day price.

Since ETF are exchange traded they also let investors take advantage of short selling and margin investing.

Another reason that ETF are gaining in popularity is the ability for investors to save money in comparison to mutual funds with all the same benefits of mutual funds- low turnover and broad diversification, but cost a lot less. The average mutual fund in Canada charges around 2.5% management fee plus trade costs, legal expenses and accounting fees taking the total expense ratio closer to 3%.Compared to one of the lowest cost index funds such as the SPDR 500 ETF charges 11 basis points which is 96% lower.

ETF are a great way for first time investors to diversify their accounts and maintain their asset allocation (bond, stock, income funds) with limited funds for investing. ETF are available for a variety of funds cover a diverse variety of indexes, sectors, international/regional market and industries and even market niches like gold and oil. Some ETF even cover asset classes like bonds and income producing assets, which will allow a smaller account to diversify their money into the market and bonds.

ETF are a great alternative to their mutual fund cousins. With intra day trading and lower cost, ETF have obvious advantages over the traditional mutual fund, making it easier for small investors diversify their portfolio.

This blog has been prepared by the Retire First Team. The blog expresses the opinions of the writers and not necessarily those of Retire First Ltd. Statistic and factual data are from sources Retire First believes to be reliable but their accuracy can not be guaranteed. This blog is furnished on the basis and understanding that Retire First is under no liability whatsoever in respect thereof. It is for informational purposes only and is not be construed as an offer or solicitation for the sale or purchase of securities. Retire First Ltd. And its officers, directors, employees and their family may from time to time invest in the securities discussed in this blog. This blog is intended for individuals where Retire First Ltd is registered as a dealer in securities.

Retire First is a member of the Canadian Investors Protection Fund.

Commission, trailing commissions, management fees and expense all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. A recommendation of any of the mentioned investments would only be made after a personal review of individual portfolio. Third Party research has been used in formulating the writer's opinions.

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Natural Gas has biggest up-day in nearly 5 years

10-Sep-2009 | Reggie | Commodities Oil & Gas

Natural Gas holds the key to a lot of dreams.  The Horizons Beta Pro Gas Bull ETF has been one of the most traded securities on the TMX over the past few weeks.  Today, gas bulls finally got what they were looking for as gas futures had their biggest rise in nearly 5 years.  The rise was attributed to a positive outlook for the US economy, positive demand for industrial fuels, and a smaller that expected increase in US stockpiles.  This was enough to halt the ongoing slide in gas prices and bring the price back over the $3 dollar marker.  It has gotten to the point where producers have no choice but to shut in wells and wait for additional demand.  Encana’s latest huge discovery in the Horn River basin is another tough blow against the struggling natural gas industry.

It was known that Horn River was to be a significant source of natural gas, but yesterday Encana VP, Mike Graham said based on their drilling estimates the basin could contain as much as 500 trillion cubic feet of natural gas.  This is an absurdly huge number.  To put it in perspective, total natural gas production in Canada in 2008 was 6.2 trillion cubic feet.  If producers were able to extract just 1% of the total estimated reserves per year, it would take 500 years to deplete the basin with an average production level of 2.7 billion cubic feet per day.  Finds like these are significantly changing the landscape in the Canadian Natural Gas market.  Until technological breakthroughs made it possible to access these non-traditional plays, there have been no significant sources of production added in quite a long time.  Along with the Horn River basin, significant discoveries have also been made such as Utica, in the St Lawrence lowlands, along with the Marcellus and Haynesville plays in the United States.

So this means that our long term demand for natural gas should not have a problem being met.  The other side of the equation is that gas producers have vowed not to develop and produce these wells at current low gas prices in an effort to shrink supply and bring gas prices into a more economical level.  The US Energy Information Administration estimated that US gas production will fall by 3.5% in 2010 as drilling activity drops 45% from the year prior.  Unfortunately for the gas bulls, the significant drop in rig activity will probably not be enough to counteract these new ultra huge discoveries and the impact of super cheap LNG imports coming from overseas.  Mary Novak, an energy economist with HIS Global Insight thinks it could be quite a while before we see any significant improvement in the natural gas sector.

“We will probably have a situation where – for the next five or six years – we will have abundant supplies of natural gas.”  This is truly tough news for anyone that was a long-term bull for natural gas.”

This blog has been prepared by the Retire First Team. The blog expresses the opinions of the writers and not necessarily those of Retire First Ltd. Statistic and factual data are from sources Retire First believes to be reliable but their accuracy can not be guaranteed. This blog is furnished on the basis and understanding that Retire First is under no liability whatsoever in respect thereof. It is for informational purposes only and is not be construed as an offer or solicitation for the sale or purchase of securities. Retire First Ltd. And its officers, directors, employees and their family may from time to time invest in the securities discussed in this blog. This blog is intended for individuals where Retire First Ltd is registered as a dealer in securities.

Retire First is a member of the Canadian Investors Protection Fund.

Commission, trailing commissions, management fees and expense all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. A recommendation of any of the mentioned investments would only be made after a personal review of individual portfolio. Third Party research has been used in formulating the writer's opinions.

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Starting to Invest?

27-Aug-2009 | Reggie | Canadian Investing Investment Ideas The Wise Investor

Getting started out investing can sometimes be kind of tricky.

If you’re an investor with a few thousand dollars saved up who wants to get start investing in equities you have a few different options.  One of those options is to buy 1 or 2 stocks.  This can be a great option if everything works out well and the stock goes through the roof, but there is a reason diversification exists.  Things do not always go to plan, there can be unforeseen occurrences that may damper or kill a stocks performance.  Ie: Certain accounting scandals that are completely unknown to all, but the inner corporate officials of the company or a hurricane that blows through and completely disrupts all gas production in the Gulf of Mexico leaving a refinery with nothing to do but twiddle its thumbs.  Only investing in a couple stocks is a pretty big risk that is definitely not for everyone.

So, if your not the type of investor that wants to go all-in to a stock, you have a couple options; mutual funds or ETFs.

Most mutual funds under perform their benchmarks and have high expense fees.  According to a 2007 study, the cost of owning an equity focused mutual fund in Canada is among the highest in the world.  The study puts the average Canadian fund total expense ratio (TER) at 3.0%.  This is money that comes out of the investors pocket whether or not the fund makes a profit.  Many also charge performance fees that take a large chunk out of any profits that exceed the benchmark.)  It is one thing to pay big bucks for performance, but unfortunately the vast majority of mutual funds are not able to meet their benchmark performance targets.  This leads us to our last and preferred option.

ETFs also known as Exchange Traded Funds.  Owning an ETF is basically like owning shares in the index.  The performance of the index will be closely mirrored by the ETF.  Like mentioned in the previous paragraph, most mutual funds are not able to meet the performance of these passive indices, so why not juts own them?  Fees to own ETFs are also far cheaper compared to mutual funds.  (Often less than 0.5%)  ETFs offer great diversification (you can get into specific sectors if you choose) but the most popular will mirror major indices such as the S&P 500, the DJIA, BRIC Brazil, Russia, India China fund, the MSCI Morgan Stanley Capital International, etc.  Many ETFs are also beginning to offer monthly contribution plans for no fee as well.

So if your looking to begin investing and don’t wish to go put it all on red, or deal with the costs and underperformance of mutual funds, think about investing in ETFs.

This blog has been prepared by the Retire First Team. The blog expresses the opinions of the writers and not necessarily those of Retire First Ltd. Statistic and factual data are from sources Retire First believes to be reliable but their accuracy can not be guaranteed. This blog is furnished on the basis and understanding that Retire First is under no liability whatsoever in respect thereof. It is for informational purposes only and is not be construed as an offer or solicitation for the sale or purchase of securities. Retire First Ltd. And its officers, directors, employees and their family may from time to time invest in the securities discussed in this blog. This blog is intended for individuals where Retire First Ltd is registered as a dealer in securities.

Retire First is a member of the Canadian Investors Protection Fund.

Commission, trailing commissions, management fees and expense all may be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. A recommendation of any of the mentioned investments would only be made after a personal review of individual portfolio. Third Party research has been used in formulating the writer's opinions.

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