How to Choose Investments for Your Portfolio

This episode walks through a practical framework—mandate, diversification, factor exposure, and cost—for evaluating whether an ETF or mutual fund actually deserves a place in your portfolio.

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Transcript

SPEAKER_01 0:01

There has never been more confusion when it comes to building a portfolio. There have never been more ETFs and mutual funds available to Canadians. And as a result, it's never been more difficult to understand whether something is good, whether it fits in your portfolio, whether it can be the entirety of your portfolio. What should you actually use to evaluate different investment products? So in today's episode, we're going to go through a little bit of a framework to evaluate different investments, and you can use that to determine whether an ETF or a mutual fund has a place in your portfolio. Sam, I don't know if you've noticed this, but looking on Instagram, on YouTube, on Reddit, you see all sorts of crazy ETF products, fun products, all sorts of different stuff that's out there. It's like, my goodness, this is crazy how much stuff is out there. And on Reddit in particular, you see comments over and over again of like, I believe in index investing, but is that really enough? Like, should I buy this instead? I'd like a little bit more NVIDIA. I want a bit more US in there, all these different things. Like, how do you actually know without just looking at past performance and picking the best performer from the past, which we've clearly established on the show is not a great way to evaluate investments. Have you seen this before? Are you seeing people struggling out there?

SPEAKER_00 1:23

Yeah, for sure. And I think going along with that, there's questions about you know how people should build their portfolios. And there's a lot of interest in that, of course. But then there's a bunch of people creating content that are saying, this is what you gotta buy. Don't miss out. Here's the thing you need. And so the confluence of those two things can create an interesting dynamic where people are looking for advice and they're getting advice that maybe isn't personalized. And so today we wanted to talk about some of the things you might consider to determine whether any particular product is um a good fit for your personal portfolio.

SPEAKER_01 2:00

Yeah, and we're gonna put that through the lens of some of our core beliefs, the main one being one, does it match your objective? And so we're gonna put this through the lens of a hypothetical person here. And so, of course, first and foremost, this is not a recommendation of any of these products for you because we don't know you and what you're trying to accomplish, what your personal uh circumstance is, your risk profile, nothing like that. This is a general conversation about these and how to evaluate them from kind of a 30,000-foot view. So your objective is first and foremost, you know, what you should be looking at alongside your risk tolerance and your previous experience and your financial circumstance.

SPEAKER_00 2:39

Yeah, and so we're gonna go through a few key principles that you could consider or you might apply to your own circumstance when you are evaluating different mutual funds and ETFs. We're hoping it'll give you some uh some cues, things to look for, and all that kind of stuff. But we've put together a list of some of the things we think are most important to consider when looking at some of these different funds and different products.

SPEAKER_01 3:05

Yeah. So again, that that first thing, your objective is paramount to have that in the back of your mind. We are also big believers in diversification. And what does that mean? There's a lot of confusion about that. So a lot of our criteria here relate to different aspects of diversification. Another thing that we uh subscribe to as something that we believe is valuable for our clients, we don't necessarily, you know, think that everybody needs to invest all the same way necessarily, but these are some of the things that we would look for, would be factor exposures in particular size and valuations. And then finally, keeping costs in mind. Is something a reasonable enough cost to have it be considered as part of your portfolio, or would there be lower cost options that might be a better fit for what you're trying to accomplish? So let's get into it with some of the funds that we are going to be uh comparing and putting through our lens here. The first one is ZWB. This is an ETF from BMO. It's a covered call Canadian Banks ETF. We haven't talked about covered calls too many times here on the podcast, but let me give you kind of the Coles Notes version of what that means and why people are finding this ETF to be particularly compelling. A call option, as is in the name here, I'll get to the covered part in a second, but a call option is a financial derivative that you can buy or sell that gives you, in this case, a call option, gives you the option to purchase a stock at a pre-agreed upon price. This is called the strike price. And to purchase this, it costs you some money because what could happen with this stock is that it could appreciate in value beyond the share price, but then when you exercise your option, you could purchase it way back at where your strike price was. Obviously, the opposite could happen where the price goes down and it doesn't get there, and so you just give up your premium and your option would expire worthless. But in many cases, you purchase an option for, say, $10 strike price and the stock ends up being $13, you just profited $3 minus whatever you paid for the option in the first place. Okay, so the premium in this case is the extra income that people are really enamored with for whatever reason. Um, so this ETF owns a few bank stocks, Canadian bank stocks, and they sell call options against those bank stocks that they own. Owning them means that the call is covered, meaning they actually own the asset that they're selling the option against. We don't need to get into that necessarily, but you're selling options, they're collecting some premiums from selling those options, but if and when those stocks appreciate beyond the strike price, they're obligated to sell it if it's being exercised. So essentially you cap your upside at whatever your strike price is. Now, this is a pretty complicated product, and there there's going to be various strike prices within there, and it's gonna be changing every day. But this is the type of fund that has a capped upside on a portion of the assets in exchange for some cash. This is the premium, okay? This is the most complicated part of the episode. Please stay with us. I needed to explain it though, if we haven't gone through it, but this is kind of how this thing works. People love the income side of it, but they neglect the capped upside that is inherent with a call option.

SPEAKER_00 6:47

So yeah, just taking a step back, if we are evaluating this ETF that involves a series of these covered calls, like Evan just described, you know, it's it's a popular fund. And if you kind of take a look at the data about the fund and how it works, it's like, okay, why is this such a popular fund? And one of the reasons is that it has a yield, and so that's what Evan's describing. You get some income from the fund as these calls are sold, and that comes back to you. And they're so saying that the yield is, you know, around 4.9%. That's pretty nice. But what strategy is the fund implementing? That's a key consideration we would have. How does that strategy actually work? Where do those yields come from, and how does that impact your expected returns from this covered call ETF?

SPEAKER_01 7:35

Yeah, good thing to remember. Again, this could be a whole episode, but yield is not your return. Yield is just a portion of the return restructured. It's showing up as income, which can be great, but that can impact the net asset value of the remaining assets in the fund. If you compare this covered call ETF back to the non-covered call version of the same ETF, once you've factored a reinvestment of that dividend, it's not technically a dividend in all cases here, but the the yield, if that's reinvested, the total return underperformed the underlying fund by about 3% per year for the last 15 years. This makes sense, but people don't get it. They say the yield is higher, they say this is a better fund because it's paying me more money. No, it's coming at the expense of capping your upside. You'd rather have more money than moving more money from your right pocket to your left pocket. But in in doing that transaction, you end up losing in total. The combined money in both pockets is less when you do the covered call strategy. Okay, very popular fund, but this is this is the first one that we're taking a look at. Hopefully, that was a brief but informative enough version of what this fund is. This thing has almost five billion dollars in it. This is not some niche product. Covered calls are extremely popular for whatever reason, again, but you you can kind of see where I'm coming from with this. It's a very popular product. This one's been around for a long time. I'm not saying it's bad, it's just most people don't understand what it's doing. Okay.

SPEAKER_00 9:08

And so then the one of the big takeaways is just understand actually how these funds you are investing in work and consider whether whether there's an alternative that is better for your long-term goal. Perfect. Okay, so that that's our first one.

SPEAKER_01 9:21

The next ones are a lot easier to understand. So ZWB is the first ETF that we are evaluating. The next one will be familiar to most. It is a Canadian SP 500 ETF from Vanguard called VFV that owns pretty much, you can think of it this way, the 500 largest stocks in the US. It's not exactly that because we've got this whole SpaceX thing going on and it's a little bit more complicated from when something is actually included in the SP 500s. It's not quite that close enough. 500 really big companies from the US. The next one is also from Vanguard. It's VEQT. This is Vanguard's all-in-one ETF portfolio. Most of you would be familiar with a concept like this. This is one is very similar to XEQT and you know, a lot of similar all-in-one index-based ETFs here in Canada. They'll have similar home bias, similar global diversification, those kind of things, but we'll get into the specifics a little bit more with that one. But this is what I see online a lot of like, I've got I own VEQT, but I want a little bit more of this. I want a little bit more of that. A lot of people don't believe that something like this that's all in one is actually diversified enough or interesting enough, or whatever the case is. And so again, we'll put that through the framework to, and then you can hopefully evaluate for yourself. And finally, one that you might not be as familiar with, but our listeners and our clients probably would be. And this one is from Dimensional Fund Advisors. It's called the the DFA Global Equity Portfolio. And this is very similar in relation to VEQT, in that it's globally diversified, but it has a little bit more of a factor tilt and tilting towards owning more stocks that have higher expected returns over time. So, what we're gonna do is put these four different funds, and I call ETF's funds because that's what the F stands for. People get really hung up about that. They're all funds. Just some of them are traded on a stock exchange and some of them aren't. Anyways, these four funds and put it through our framework, and we can evaluate them against each other, um, but also just in in isolation to kind of see if it matches kind of our philosophy on a long-term mandate and diversification and cost and all those sorts of things. Sammy, are you ready? We're here. Let's go. Let's go. Okay. First one, let's take a look at the mandate. What is this fund trying to do? Number one, ZWB. I got this from the ETF FAX. Every ETF and every mutual fund has a fax document that you can take a look at. And it's got some information in there. You can take it with a grain of salt. You can do whatever you want, but it's got to be listed on there. This fund says this ETF it seeks to provide exposure to the performance of a portfolio of Canadian banks to generate income and to provide long-term capital appreciation while mitigating downside risk through the use of covered call options. And it's currently invested in the BMO Equal Weight Banks Index ETF. The mandate of the fund there is to mitigate downside risk. The maximum drawdown between this one and the underlying fund is exactly the same over the last 10 years. I think it's maybe 0.2% different. So the big drawdowns, you're not getting protected by the option premium. Just a heads up on that.

SPEAKER_00 12:37

And how about on the other side of that, the potential for long-term growth? How does it fit into that?

SPEAKER_01 12:43

Yeah, so it it conceptually is there. It it owns some equities. These are not speculative companies necessarily, as most of these banks have been around for, let's call it a hundred years apiece. Canadian banks have been around for a really long time. So conceptually, it is not a short-term trading product. You could, in theory, hold it for a long time. And uh, yeah, based on the mandate of the fund, um, the long-term appreciation would appear to be there, but because it's got that income approach, for those that understand how that works, it might not actually be the best fit for what you're actually trying to accomplish. I see this guy on uh on Instagram, he's younger than us, and he's buying all of these income-focused ETF products trying to drum up passive income. It's like, ah man, I just want to scream at the phone. It's like, it all sounds so good. It all sounds like it makes sense, but with this much financial capacity, you could be doing so much more and doing it faster and easier and whatever. So for a long-term investor, it's not that it's not a match, it's just like you just don't need it.

SPEAKER_00 13:47

And there's there's other options that are better.

SPEAKER_01 13:50

Yes. Yeah, we'll leave it at that. Okay, so it's that well, that one's kind of a yellow light there on the mandate side of things. It's not completely egregious, but it's not not a perfect fit. VFV, this is again the S P 500, Vanguard's version of it. The fund seeks to track the performance of a broad U.S. equity index that measures the investment return of large capitalization US stocks. The stock market, broadly speaking, is a great way to have long-term capital appreciation. That's the primary objective, is just to give a general overview of large U.S. stocks. So, from a mandate standpoint, that seems to track. VEQT, this fund, seeks to provide long-term capital growth by investing primarily in equity securities. Really nice in general there. And the whole goal is long-term capital appreciation. Perfect. That sounds great. There's a check mark there. And four dimensional, they've got a longer version of it that kind of gets into the weeds. The short version is that this fund will generally allocate its assets that da da da da da da legalies that invest in Canadian, US, and international equity securities and real estate securities. Very general, but again, it is broad participation in the equity markets. That seems like it would be a match for someone that is looking for long-term capital appreciation. Call this somebody in their 30s, 40s, 50s that are planning for retirement a number of years out. This sounds like a reasonable fit from a mandate standpoint. Okay, so three and a half check marks across the board there. Next, let's get into diversification a little bit. So when people think of diversification, it's the don't have all your eggs in one basket. Okay, how many different eggs and how many different baskets can we highlight here? Well, the first one is the the idea of idiosyncratic risk or individual company risk. And so this is the like the primary diversification argument. And so the main idea with diversification is if one company goes belly up, do you lose all your money? If you own that one company, you lost everything. If you own two companies, you only lost half of everything, right? And so on and so forth down the line. There is a there's not a perfect number here necessarily. However, um a very low number here would would say that you're you're probably overly exposed to single companies. How many individual equity holdings do we own in this fund, Sam? We have six. Wow, that seems to match the big six banks here in Canada.

SPEAKER_00 16:23

That would make sense. Yeah, we have a mixture of Nash uh Bank of Montreal, Royal Bank, TD, Scotia Bank, etc., etc.

SPEAKER_01 16:31

Yeah. So we looking at the individual holdings there, I don't think on an individual securities basis, that would be particularly diversified. So that's gonna get an X for me there. VFV, that is SP 500. Boy howdy, that is easy to determine. How many holdings are in there? There's gonna be 500. 500 securities, based on any of the research that I've seen, 500 typically would get rid of any idiosyncratic risk that would be present there. So if you own this fund and one company within there blows up, or a couple of them, the remaining balances should be okay. Now, there is a lot of concentration in the top 10 of the SP 500 currently. So that's another conversation for another day. But conceptually, owning 500 stocks here, that's a nice way to have securities, individual risk diversified away there. Now, VEQT and the dimensional fund, these are both globally diversified, and so they tend to own a lot more securities. Looking into the back end of these funds, they own about 13,000 to 15,000 individual stocks under the surface. So, from an idiosyncratic risk standpoint, these funds are really knocking it out of the park. There shouldn't be any uh concern there with individual securities diversification. So lots of underlying holdings there. Again, that mostly comes from being globally diversified and owning more stuff in more countries. Okay, that is three check marks and another X there from our initial framework here. Next one, we're gonna look at sector diversification a little bit. So back to the covered call banks ETF. How many different sectors are we invested in here?

SPEAKER_00 18:18

Just one. 100% in financial services, all those big banks make up the entirety of that ETF. Goodness gracious.

SPEAKER_01 18:25

Okay, no shock there. That's the whole point. Big duh here, but anything that you would be reasonably exposed to as a sector, regardless of who's at the helm of TD versus RBC or the different products that they roll out or anything like that, there are some risk factors that would affect single sectors exclusively or more so than other sectors. So if you only have exposure to one sector, that can potentially be a big problem. Again, you go back to 2008 and you saw that in the financial sector stuff all blew up. That was mostly in the States, Canada, not as much, but you know, you can see these scenarios that have played out over time. So there's one sector in ZWB that's going to get an X from me. VFV. Now, this is the SP 500, but again, we talked about that concentration risk a little bit, and so many of the biggest companies end up making up so much of the portfolio, uh, meaning like most of the market cap of the SP 500. So 39% of the SP 500 is in which sector there, Sam?

SPEAKER_00 19:28

That's technology. So, I mean, that's made up by some of that the the Mag 7, your Googles, your Nvidia's, et cetera, et cetera.

SPEAKER_01 19:36

Yeah, Apple's in there, Amazon. Uh actually, no, Amazon it would be, I think they're in a consumer discretionary. But anyway, some a lot of the big ones, you yeah, 39% in tech. And so, yes, it has 500 individual securities. However, you're particularly exposed to one sector there by quite a bit, almost half your money.

SPEAKER_00 19:58

Just uh like just for comparison, right? So we're out for nearly 40% in technology in in this um SP 500 fund, and then the next close is 11% in financial services. So that's a pretty that's a significant gap between kind of that one you're most concentrated in.

SPEAKER_01 20:14

Yeah, communication services is next, and I'm actually pretty sure that Google's in there. Okay. Yeah, so so some of these uh sectors can kind of get re-categorized depending on the company over time. Anyways, don't quote me on that one, but I'm pretty sure. So that might be a pretty significant weighting in in uh in that sector as well. So it might be pseudo-tech in in in communication services. Okay, so that one is not great for me from a diversification standpoint. You're pretty exposed to the one sector there in particular. VEQT. Now, here we get a little bit closer, we get a bit more Canada bias. So there's about 30-ish percent in Canada. I think it's a little bit more than that, perhaps. But as a result, you end up having a little bit more in financial services, a little bit less in tech, but the rest of the fund is pretty US heavy. And so you are gonna get 24% in tech, 20% in financial services, and then 11% in industrials. A lot of that is gonna come from your European and uh Canadian exposures. Are these problematic levels? No, probably not. Like where I would want to see um sector diversification just as kind of like a rule of thumb, probably like no more than 20% in any individual sector. Is that tough to maintain? Are we actually gonna lose sleep over that? No, probably not. So this one, it's uh I'm I'm gonna give it a yellow flag here a little bit. It's not problematic or anything scary or anything like that. But yeah, it's probably a little bit concentrated into those two sectors more than you'd maybe want. The dimensional fund here, uh, again, in comparison, a little bit less, just based on the philosophy in general. They're gonna own more value stocks and more small cap uh stocks. And so again, we're gonna come to That in a little bit uh longer, but the technology weighting in there is 17% and financial services a little bit lower again at 18.7. I believe Dimensional has kind of limits on how high they'll let different sectors weight within their portfolios, and they might trade out where their better valuations might be. Again, they're not beholden to that as like a rigid index. Okay, so then again with the uh dimensional global equity fund, because they own a little bit more small cap, a little bit more value stocks, they're gonna own fewer of those high-flying names. They're a little bit overpriced, perhaps. And so technology, they're sitting at a 17%, financial services a little bit under 20, uh, they're at 18.69 as we're looking at it today, and a little bit more diversified across the board, a little bit more energy industrials, consumer cyclicals up closer to 10%, materials nine and a half. So a little bit more diversified across the board from a sector weighting standpoint. Is that a guarantee of success? No. Is it a guarantee of downside protection? No, but diversification is one of those things that uh can help increase your odds of long-term success by having enough exposure to different parts of the market.

SPEAKER_00 23:13

Yeah, and there's a lot of great research kind of about the importance of sector diversification or the ways in which it can create higher expected returns. And one of those is just pretty much every year there's shifts in what the best sector that performed was. So dimensional has some great research going back to 2014. And so information technology in 2023 was the best return or the highest performing sector. The year before it was energy. Energy had a good two-year run, then we went to consumer discretionary.

SPEAKER_01 23:42

Where did energy end up in that year?

SPEAKER_00 23:44

Well, and then so yeah, from 2022, energy was the top, the best return in the sector. And the next year in 2023, it was second from the bottom. So it's unpredictable which sector year to year will perform the best. And so having the more balanced diversification in the case of a dimensional fund versus you know the SP 500 that we saw, this is the reason why uh we think it's advisable, is just we don't know what sector is going to perform well in any in any given year. Yep.

SPEAKER_01 24:13

Okay, so that is sector diversification. Next one is country. Um, the first two are going to be very easy. So ZWB, it's exclusively invested in Canadian banks. So we got one country there, probably not a great fit for the exclusive holding of your portfolio. SP 500, it's only one country, it's the US. I hear the arguments, I see the arguments of like, well, these are global companies, they're getting their revenues from other countries around the world. All the evidence points to it's like that's a good idea in concept, but it doesn't actually play out in terms of the benefits you get from global diversification and actually owning securities from other countries. Not bad necessarily in and of itself to own stuff from the biggest economy in the world. Do you want to be exclusively exposed to one country's equity markets? Probably not. So again, SP 500 as the exclusive holding in your portfolio. Could we do a little bit better? Probably. Um, if we look over at VEQT, we have got Canada at just shy of 30%, US 45%, Japan, Taiwan, UK, South Korea, China, Switzerland, Germany, France round out the top 10 there. These are all countries that have very sizable stock markets and have companies that are worth owning. That makes good sense. Looking at dimensional, very similar numbers again. Canada at 30%, uh, US at about 45, Japan, UK, China, Taiwan, South Korea, Switzerland, France, Germany, these names sound familiar. From a country diversification standpoint, these all-in-one funds seem to tick that box quite nicely.

SPEAKER_00 25:51

Yeah, and the same logic applies as far as the sector diversification. The country that has the best returns shifts year to year. So going back to 2025, surprisingly, Spain was the best uh returns out of the 20 developed markets that uh the study's looking at. That year before it was Singapore, the year before Italy, then Portugal, and Portugal was the highest return in 2022, and in 2024 it was the worst out of the countries looked at. So again, same principle applies as the sectors.

SPEAKER_01 26:23

We've seen that even, you know, we've talked about it on the podcast with Taiwan and South Korea having returns over a very short period of time, over 100%. If you didn't have any exposure to those countries, you might think, oh boy, I gotta get all my money in there. It's like, nope, just have some all the time and kind of rebalance within the fund. Nice thing with these all-in-one's is that they're gonna rebalance that for you, but you get the exposure before the returns happen. That's how you get the returns. You have to own it before the returns happen. You can't go back and buy them after the fact. So again, the all-in ones there, the from Vanguard and Dimensional, they would probably be a better fit from a country diversification standpoint. Now, the next one is a little bit more niche. It kind of matches our philosophy a little bit more or addresses our philosophy a little bit more of factor exposure. So we go to the covered call ETF, because there's only six holdings in there, it's going to be pretty concentrated into one style because all the Canadian banks are very, very similar. They are large cap stocks that are they're not necessarily growth, they're not very valuey. So on the Morningstar like heat map here, it would be a hundred percent large blend. Love that generic categorization there. If you look at the SP 500, this is where things get a little bit more interesting. By mandate, it's trying to invest in large cap stocks in the US. And so the that's the large cap aspect there. So that's gonna be one factor that it's it's really targeting. Inevitably, there's gonna be some smaller companies within there, just the way that things drift over time and get they're still part of the index. They're not necessarily large, but this year has been kind of interesting because there's been a little bit more of a value push from inside the index. So the the biggest names in the index haven't been the top performers, and so some of the smaller names or the lower price names have actually brought the index up a little bit. So looking at the SP 500, there's actually a pretty decent weighting to value stocks within there, but again, all exclusively in the large cap size style. Then if we look at the Vanguard map, again, this would be a little bit better if it was a bit visual, but because we have more international exposure and some smaller companies, you see a little bit more in the medium size and small cap areas of the market, maybe a little bit more on value across the board, but again, pretty growth-centric as a portfolio in general. Then if we look at dimensionals, this is where we see a lot more of a swing towards smaller companies, a mid-cap and small caps, and then a lot less growth exposure and more value. Again, this matches the mandate of the fund where we're trying to invest in more small cap companies, but not exclusively. We want more value companies, but not exclusively. We want more high profit, but again, not exclusively because no one knows what the future holds. We're just trying to increase our odds of gathering those returns whenever they show up.

SPEAKER_00 29:27

This is an interesting place to think about a confluence of different factors or different considerations when you're selecting investment portfolio. But one of the things we're suggesting is so you want to diversify. So you want to own uh a bunch of different stocks to reduce that idiosyncratic risk. The dimensional fund owns somewhere around 14,000 different stocks actually in the fund itself. You can own the whole haystack, that's fine, but you can also tilt towards certain factors. And so that's what we see in that dimensional fund. They're tilting to certain factors that their research is suggesting have performed well. And so then there's some compelling research about that. You know, for example, from Canada between 1988 and 2025, small caps outperformed large, large caps, um, but that remained the same in the US and emerging markets and elsewhere, and the similar trends with uh value stocks over growth and high profitability versus low profitability companies. So that's a way where you can still have this very diversified fund, but you're tilting towards certain things to try to provide higher expected returns over time. Yeah.

SPEAKER_01 30:33

So that's present in uh Dimensional's approach as a general concept. There's other companies out there, and Avantis is another one that has gotten a little bit more attention because they launched some ETFs in Canada recently. They just don't have a ton of data uh because they're so new and could probably dig into their US holdings here, but I didn't want to do that. But again, Dimensional's not the only one that's doing this kind of thing. Uh, it's just the one that we're familiar with and has a decently long track record that we can use as a comparison against some of these other products that are popular out there. Okay, so that is kind of the factor evaluation there. Again, the covered call ETF, it's not gonna match. That makes sense. Um, the SP 500, probably a little bit concentrated into large cap growth. Um, VEQT and the dimensional funds, they're a little bit more diversified across a style grid there into smaller companies, a little bit more value-centric. Yeah, dimensional, again, more so than VEQT. That would be a little bit more market cap weighted. Finally, let's take a look at cost. So if we're looking at the cost of these products, again, the lowest cost is not the only thing that you should consider. That's why I put this at the end. I know that's such an easy thing for people to look at, just a single data point. So like, oh, this is better. It's like what we're trying to do is be cost aware and cost conscious. We don't want to overpay if there's a reasonably similar product that is meaningfully cheaper. Again, we're not trying to pick up pennies uh here, just pick something that's reasonable and move on with your life. However, if we take a look at the covered call banks ETF, we've got X's across the board here so far, but uh if we're looking at the cost of this, uh the MER right now is 0.72%. And if we look at the Morningstar Canadian fee study for 2025, if we're looking at a Canadian equity fund, because that's what it is. I know they're buying options, so this isn't really a fair comparison necessarily, but it's kind of what they're trying to do is just own Canadian equities. The bottom fifth percent, so the bottom fifth percentile, that's where I'd like to be if we could. It's not the absolute cheapest, but that's a really good deal if we compare it to all the available options. The fifth percentile for Canadian equity funds would be 0.4%, and we're looking at 0.72 for that one, so you'd be much closer to the bottom quartile. Is it an absolute ripoff there? No, but the fees are probably higher than what you would need to pay to get exposure to the banks. Again, if you're adding the covered calls in there, there is a cost of doing that because it is a complex trading system that they are employing there, and that doesn't come cheap. Okay, then if we go to the SP 500 ETF VFV 0.09%. Fantastic. Yeah, from a cost perspective, dirt cheap, really affordable. If we're looking at VEQT next, as I look at it here, the MER of 0.22, that would put them well within the bottom fifth percentile and dimensionals global equity portfolio uh 0.29. So again, slightly different type of product, very similar to the all-in-one ETFs in there. It is a mutual fund. Clutcher Pearls, it's a mutual fund, but it is right in the same ballpark of cost as any similar ETF. The the strategy that they're employing is slightly more expensive. Mutual funds, apples to apples, they are slightly more expensive, but there is a little bit of tax efficiency here in Canada that we get with a mutual fund over an ETF. So I think that difference is not worth considering necessarily compared to the ETF product. So for all of those, the cost factor I think is well within something that is worth considering. The covered call one, again, it would be on the more expensive end.

SPEAKER_00 34:22

So that's an that's uh an X and three checkmarks. Is that what we're going with for those?

SPEAKER_01 34:27

Yeah, I think so. Yeah, probably. Maybe maybe uh we're doing X and X and checkmarks and uh yellow lights. Yeah. Um all sorts of rating systems here that we're employing. So if we take a look at these four in the light of this evaluation system, I would say for the covered call ETF, again, I'm not saying anything is bad or like morally wrong or anything like that, but do you need it in your portfolio? No. I don't think there's anything that suggests that this is something that you need to have in your portfolio. If you did have it in your portfolio, you'd need a whole lot of other stuff around there to kind of get up to a reasonable amount of diversification. You're pretty much adding this as a satellite position onto a completely separate portfolio. There's no need to add such specific options exposure to one sector, one country to six companies here in Canada. There are other fish in the sea if you're trying to have long-term capital appreciation that don't expose you to certain risks. Could it work out just fine? Sure. I'm also open to that. Again, we're not here to tell people how to invest their money on a podcast in general, but just based on this framework, I don't know if ZWB needs to have a place in anyone's portfolio. The SP 500, we got lots of check marks across the board here, lots of great reasons to invest there. However, it's a little concentrated in a couple of sectors, uh especially at the top of the market cap. A lot of the holdings are in very few companies. So a lot of concentrated sector exposure. It's one country in particular, a little bit more growth-oriented. Is it bad to have in your portfolio? Absolutely not. The underlying components of the SP 500 should be probably in a globally diversified portfolio, but you should probably have some additional pieces around it to round out some of those diversification pieces of sectors, countries, and maybe some factor exposure if that's something that you're looking for. VEQT and similar equity portfolios, all-in-one portfolios there. Tick a lot of boxes. Uh pretty nice. Probably the only thing that was a little bit different would be the factor exposure. It's pretty large cap weighted. Is that a problem? No, not necessarily at all. Can you have a product like this and all-in-one as the exclusive holding in your portfolio if it matches your mandate, risk profile, timeline, all that sort of stuff? I think so. To me, it doesn't seem crazy. I think it's they're fantastic products. And finally, the dimensional global equity portfolio. Again, very similar across the board, everything that we like about VEQT, plus a little bit more of that factor exposure where you get a little bit more small cap, a little bit more value, a little bit more high profit. Is that a guarantee of success? Absolutely not. Is it a guarantee of downside protection? Also not. But the evidence is pretty compelling on those different factors to have some exposure to have some expectation of higher returns over time. Do you need it? Nope. Um, but it's something that we uh like to include with our clients in our portfolios, and there's plenty of ways that you can get exposure to that on your own as a DIY investor as well. It's just probably a little bit more complicated than it's worth in the DIY setting. But, anyways, I think that their approach scratches that itch of all these different layers of diversification and matching that mandate of long-term capital appreciation.

unknown 37:45

Yeah.

SPEAKER_00 37:45

But one thing that we ascribe to here is also simplicity, and that's something that's get that gets lost certainly on Reddit and on Instagram and on some of these social media platforms that we mentioned in the opening is that there's often this um idea that complexity is better and you need to kind of have all these different things and have your hands in a bunch of different pots and things like that. And we here at Cedar Point Wealth like simplicity a lot. So if you can get some of these all-in-one products, you don't have to be balancing it yourself so you can diversify correctly. It's all held, these, you know, however many 14,000 stocks within any given fund. You get this wide exposure to different areas, different um countries, different sectors, and it really does simplify your investing life too, which can be very nice.

SPEAKER_01 38:30

Oh man, in so many different ways. Again, these are not recommendations for anybody. Uh, there's lots of different versions of these for different risk profiles as well and whatnot. These are just the equity versions. Um, I hope that's been loud and clear here, but it was just a framework for evaluating why something may or may not have a place in your portfolio. But yeah, simplicity is one that we could have really uh homed in on a little bit more. I saw a video on Instagram with this guy who's at like an investor conference in Toronto put on by Blossom. Are you familiar with Blossom? I'm not. It's an app for stock traders that you can put your portfolio on there, and people can comment on different stuff and whatever. It's not great. Like, I'm I'm I'm not all about it, but anyways, uh, I think it was at one of their conferences in Toronto, and guy was being interviewed, and it's like, which four ETFs does everyone need to buy? And he's got this, that, and the other thing, and their conversation, whatever. And he ends it off by saying, He's like, I own over 250 different ETFs, and so and the interviewer is like, Wow, oh my goodness, it's like this guy's a real investor. Like, it was like that was kind of the vibe of like, oh boy, if you if you don't know what you're talking about, these are the four you gotta get, but I know what I'm doing, so I got 250 ETFs over here. Like, it was just bizarre, like it's just like, anyways, that's why I wanted to do this. Like, do you need 250 ETFs? Absolutely not. No, you don't. Uh, you need something that's that's simple that you can stick with because if you're adding another thousand bucks to your portfolio, which one of the 250 are you gonna pick? He's probably owning individual securities in there too, which boy is what a nightmare. What a nightmare.

SPEAKER_00 39:59

Yeah, I would rather own one thing that can give me exposure to everything I want. And uh, but that's that's our preference here. I think it makes it a lot easier. As you're saying, not there's no single way to invest, but um, hopefully the conversation today has helped give some perspective on how you might evaluate a product and get that in line with your goals, time horizon, all those different things.

SPEAKER_01 40:23

Awesome. Thanks for sticking around for this um more in the weeds episode of the Canadian Money Roadmap. Um, if you've got comments or questions, we'd love to hear from you. Click the send fan mail button in the show notes, and you can send us a quick text message from there. It's uh fully anonymous if you want. We're not gonna hound you with spam or anything like that. We'd just love to hear from you and hear what questions you have, and hopefully we can answer them on a future episode of the show. Thank you so much for listening to this one, and I hope you will join us next week for another episode of the Canadian Money Roadmap. The contents of this podcast do not constitute an offer or solicitation for residents in the United States or any other jurisdiction where Evan Newfeld, Cedar Point Wealth, or Sterling Mutuals is not registered or permitted to conduct business. Mutual funds are provided through Sterling Mutuals Inc. Commissions, trailing commissions, management fees, and expenses all may be associated with mutual fund investments. Please read the prospectus carefully before investing. Mutual funds are not guaranteed, their values fluctuate frequently, and past performance may not be repeated. Financial planning services are provided by Evan Newfeld through Cedar Point Wealth and are not the business of or monitored by Sterling Mutuals Inc.