Mostly Money

101: Using exchange-traded funds to build or improve portfolios with Kevin Prins from BMO ETFs

October 09, 2021 Preet Banerjee
Mostly Money
101: Using exchange-traded funds to build or improve portfolios with Kevin Prins from BMO ETFs
Show Notes Transcript Chapter Markers

This episode is sponsored by BMO ETFs #ad

I speak with Kevin Prins from BMO Global Asset Management about how ETFs can be used for building and improving almost any investor's portfolio. Specific topics covered:

  • What are asset allocation ETFs?
  • ETF issuers have large voting rights - how do they vote at AGMs for all the companies' stocks that they hold on behalf of investors?
  • For people who do not subscribe to the philosophy of a couch potato portfolio, how can they still use ETFs?
  • And more...

To learn more about BMO ETFs full suite of offerings visit https://bit.ly/3mA0Nbs

To learn more about BMO Asset Allocation ETFs visit https://bit.ly/3Angdok 

Specific resources mentioned in the episode:

BMO Global Asset Management's responsible investment review: https://www.bmogam.com/uploads/2021/09/e704ba9fcbadb851004de49131e2a42f/ri_annual_review_canada_en.pdf
Asset Allocation 101: https://bmogamhub.com/system/files/asset_allocation_index_etfs_whitepaper-_direct_channel.pdf?file=1&type=node&id=107518
ETF Tools/Screeners/Proposal builders: https://www.bmogam.com/ca-en/investors/learning-centre/etf-investing-basics/etf-tools-and-resources/

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Preet Banerjee:

Just when I thought I was out, they pull me back. This is mostly money and I am your host, Preet Banerjee, with hopefully some more free time back in my schedule for 2022 and a number of friends who have or are about to publish some books on investing in personal finance. It looks like there may be a few more episodes of mostly money on the horizon. Today's episode is the first sponsored episode I've ever run figures that when you hang up your hat someone comes calling, but because they agreed to take an educational aspect on low cost exchange traded funds, I thought it'd be a good idea to talk about some fundamentals of investing, using ETFs. This episode is sponsored by BMO exchange traded funds, who offer a number of ETF solutions developed in Canada for Canadians, including low cost index ETFs, all in one asset allocation ETFs as well as a newer suite of automatic and ESG ETFs. I'll include a link in the show notes for them as well, as well as a number of tools that they've made available on their website. And my guest today is Kevin Prins who I met a long time ago, shortly after BMO launched their ETF division will go through what I think is a great way for many investors to get a full portfolio with low maintenance and low cost, asset allocation ETFs. And we'll break down what exactly they are, how you can use them and their benefits will then explore some other ways that ETFs can help improve the portfolios maybe of people who may not want to become couch potatoes, because there are lots of investors who certainly fall into that camp. In any case, here's my interview with Kevin Prins from BMO exchange traded funds. Kevin Prins is the managing director head of ETF and managed accounts distribution at BMO global asset management. With more than 25 years of industry experience in banking securities, mutual funds and financial education. Kevin provides a rare combination of both industry knowledge and educational expertise on exchange traded funds. During his career, he has authored several investment industry courses for the Canadian securities Institute's CSI, including ETF focus courses and the managed accounts chapter of the CSC. Kevin frequently interact with portfolio managers and investors about the benefits of ETFs and how they can be used to add value to any investment portfolio. So that is really where I wanted to start. Kevin, welcome to the show.

Kevin Prins:

Ah, thanks so much for having me. I love the show. appreciate you having me.

Preet Banerjee:

pleasure is all mine. Yeah, so I really want to start by exploring the last sentence there in your introduction, how ETFs can benefit any investment portfolio. Now as you know, personally, I'm a fan of the couch potato approach, low maintenance, low cost. And we can start by talking about how ETFs help execute that mandate. But we can also talk about people who are not, and probably never will be couchpotato investors because there are a lot of them out there to see how they could use ETFs as well for a variety of use cases. So I really want to leverage your your educational background, because I know it's it's pretty deep and extensive. So I was wondering if we could start by going over one of sort of my favorite innovations in the space that we've seen in probably over a generation that is the asset allocation ETF and their benefits. So for the benefit of For the uninitiated, could you explain in plain language what is an asset allocation ETF?

Kevin Prins:

Well, first, I think you're you're kicking off there is that this is a net new advancement in exchange traded funds for the last number of years. And what I like about the ETF industry across the board is that it's been advancement after advancement to help build better portfolios. In this case, it actually is a portfolio right? And portfolios a different risk tolerances for investors and just try to make it simple. If you are a conservative investor, there's a conservative portfolio for you out there. If you are more of a balanced investor, there certainly is one of those and more growth investor to for you out there. Ultimately, what it's trying to do is saying, Let's help demystify this portfolio construction that we're we talked about, but let's keep that wrapper of low cost ETF still in the forefront across the board. And a lot of investors look at these as kind of a simple way of getting broad diversification against that risk tolerance across the board. And that's, that's what I think people really look for. I get the low costs and I get broad diversification and I get an acid mix. It kind of fits where I want to take my portfolio going forward.

Preet Banerjee:

Yeah, so let's, let's talk about that. So you mentioned that, you know, this could be an entire portfolio solution for a lot of people. And I know that there are a lot of people who who have embraced that philosophy and say, Yes, I just need one asset allocation ETF. But let's break down some of the specific features of asset allocation ETFs, I think one of the first ones is in the name asset allocation. So can you explain what an asset class is and what asset allocation is and why that's important for investors?

Kevin Prins:

You know, when you think about asset classes, there's equities, fixed income, for example, people know that there's also geographies to you want to factor in, right? Canada, US International, emerging markets for that matter, too, right. And then on top of that, to think about cyclical defensive parts of market too. So you know, because a market moves to more defensive more cyclical, all of that is different aspects with inside an asset allocation ETF, because they're brought forward in a basket of various ETFs across the board. Now when I look at asset allocation, and our industry has been very clear on this for many, many years, that asset allocation is the key determinant of the volatility of portfolio that's the up and down movement, of course, right, but also the performance of your portfolio, because that is what you're holding at the end of the day. And many, many studies show that you know, as location is that key part of performance and volatility, but also I like to look at is that free lunch in the industry, right? Do you have that basket together, they're all working in opposite ways each other, but really giving them more of a trend, smoother trend towards your ultimate goal across awards and bouncing around over the place.

Preet Banerjee:

Yeah, because you'll have for example, let's say you've got Canadian equities versus emerging market equities. And so they'll have their own sort of market cycles. And maybe when Canadian stocks are doing well, maybe emerging market stocks are doing not so well, and vice versa. And so individually there, you know, there's benefits to holding either one of them, but holding them together. And rebalancing periodically, can help smooth out a portfolio. So that's kind of like a very basic example of, you know, different asset classes working together. But inside an asset allocation ETF, you've got more than just, you know, Canadian, equities, emerging markets, equities, you've got the equity versus fixed income split. And then within each of those broad asset classes, you've got a multitude of sub asset classes. So maybe you could just sort of, you know, peel back the hood a little bit on, you know, a demonstrative asset allocation ETF, and explain, you know, what kind of geographical exposure we're talking about.

Kevin Prins:

First of all, take a look at like a balanced ETF, for example, right? Because you're going to hold off a 6040 equities, fixed income across the board. And with inside the fixed amount, diversified mix of Canada, us kind of holdings and fixed income, looking at the International aspects or the the equity side, yeah, you're holding International, you're holding US equities, you're all these emerging markets, you're also holding, of course, Canadian equities in the next two, and that's going back to your point, they're all working in different periods in different times to help you get towards your ultimate goal. And that's seven or more ETFs in a basket. But don't think of it just seven or so ETFs. like think about the underlying holdings with inside these, these ETFs, you're getting roughly 4000 or more individual securities exposures. So that's what you're getting a diversified basket of asset allocations, you're getting a broad diversification across the board. And that diversification has been key towards you managing the risk in your portfolio, and again, choosing your risk tolerance across the board. And then back to your point on rebalancing. Like, you know, that's a key part of any of these portfolios, right, simply trimming your winners and violence or losing a regular basis is sometimes a previous one that in doubt, is a good strong one before and you want to rebalance on a regular basis. And again, Many studies have showed that that's another key determinant performance for portfolios that just some aspect of rebalancing a regular basis. And these kind of solution sets have it automatically with inside though. And for those investors that don't have these kinds of issues. I'm gonna encourage you to rebalance on a regular basis back to what your asset mix is.

Preet Banerjee:

Yeah, and I think that's a really important point because, you know, when people go through the various processes to figure out what is the level of risk I'm willing to accept for this particular portfolio and investing goal, you know, factoring things like the risk capacity, their ability to stomach risk, their need to take on risk time horizon, and what have you. It's one thing to do all that to set it up and let's say they end up with you know, a 6040 recommendation to keep it at 6040. This is where I think the power of rebalancing is because, you know, if you have, you know, the parts of your portfolio that may have a higher long term rate of return equities versus fixed income. Over time your asset allocation is going to drift away from whatever your initial asset allocation is going to be, meaning that it either gets more risky or less risky. Now, where this really tends to be a big problem is, you know, when you've had, you know, a bull market in equities for a long time, and if you hadn't been rebalancing, maybe you started at 6040. And now maybe you're at Merrill at 20. And invariably, when you do have a bit of that mean, reversion, a bigger part of your portfolio are in the riskier assets. And that ride can feel very, very volatile on the way down when it when those cycles start to turn. So by keeping your asset allocation at a level that you know, you've stated that you're comfortable with, this is a really important part in sticking with your portfolio strategy over time. And I think that is probably one of the most important things that investors can do is have a portfolio strategy that they can stick to. And that's why you know, taking into account your risk tolerance and the risk of your portfolio, not only when you set it up, but by maintaining it through rebalancing is so important for the success of investors. But the next point that I want to talk about that kind of ties all this together, I think, is the low maintenance aspect of asset allocation ETFs. Because, you know, if you are building out these portfolios yourself with individual components, you have to do the rebalancing. But an asset allocation ETF does that for you. So can you talk about that,

Kevin Prins:

as the equities or fixed income drift, the gas ETF, of course will rebalance bringing it back to the target asset mix that you chose initially. So if you chose to have a more of a balanced portfolio, it will stay as a balanced portfolio, if you chose to have a more of a growth portfolio, it will stay as a growth portfolio. So really aligned right back with your objectives across

Preet Banerjee:

the board. One of the other aspects of asset allocation ETFs that I like is the costs. Because you know, it used to be you know, I don't know, you go back 1015 years and ETFs were very much associated with, you know, broad vanilla, low cost index funds, and you could put together your own portfolio using all these individual components. And then you would think that by, you know, automating all of this stuff, creating an asset allocation policy, doing the rebalancing, and sort of making it a one stop shop, you would think that would come at a moderately higher cost. But the cost on these asset allocation ETFs, I think is pretty, pretty phenomenal, really. So can you talk about what the costs are for your particular asset allocation? ETFs?

Kevin Prins:

Well, if you look at asset allocation, ETFs, they start at 15 basis points match up at hsts will take let's call it 25 basis points. Bear with me, I'm sorry, I interest terminology, a quarter percent less than a quarter percent. Okay, that's probably a better way of saying it. And that's really cheap. And I'm also want to make it perfectly clear that there's not a double count here where there's a cost of the underlying ETF plus the cost of the overlay No, no, the underlying costs and ETFs is with inside that cost structure I just mentioned. So going back to your point, really low cost, so you get all the benefits that we just talked about asset allocation, the benefits of rebalancing, but still maintain that key benefit of an ETF, that low cost aspect of there.

Preet Banerjee:

Yeah, and you know, for all those reasons, is why I use an asset allocation ETF myself for the bulk of my portfolio for my long term savings. And I think there are again, a lot of people who agree with that philosophy. Some others like to build their own sort of, you know, particular asset mix using the underlying components themselves, and that's fine too. But overall, I think one of the reasons is the Cost Matters hypothesis. So the lower the cost, the higher the return, basically, all other things being equal. So let's let's start to now move away from from what I would call sort of like, you know, my ideal sort of portfolio strategy which is low maintenance, leave me alone, I'm a lazy guy, I can't be bothered anymore. Even though I can't I mean, I used to be, you know, a stockbroker myself, but I just can't be bothered. And I just don't want to spend time maintaining a portfolio because I also know that every time I have an opportunity to second guess, apart from my, you know, investments, that's an opportunity to introduce error, if you will. So I like to just set it and forget it and just wait, you know, decades and decades and let it do its thing. That being said, not everyone out there subscribes to that philosophy, and that's fine. You know, everyone can do their own research, but let's talk about how people maybe you don't want to use you know, just one asset allocation ETF as your entire investing fine. But you could still use them to augment your portfolio. So can you talk about other ways people could maybe use asset allocation ETFs? If they're not interested in just a one stop solution, that being the only one item in their online account? How else could they use asset allocation ETFs a lot

Kevin Prins:

of people looking at as kind of a core of a portfolio, start off there and know that you're properly covered off in your equities and your fixed income relative to your risk. But then, you know, there's a theme, maybe there's something you've seen on TV recently, or read in the newspaper, for example. In that case, maybe you want to invest in that, that could be a good complement to the portfolio from time to time to write. And maybe it's a sector you want to be in or an asset class you want to be in. Those are great compliments to a good diversified portfolio, at least by starting with a diversified portfolio, you know, you've got the bases covered. And then yeah, sure, add to it as you feel as you want to that, of course, I'd say back to your point, if you look at rebalancing to if something takes off and go back to the asset allocation, just to give it like a good base, a solid base going forward to

Preet Banerjee:

now, speaking of, you know, things that may catch people's interest in the media, when it comes to maybe, you know, wanting to invest in certain companies or trends, I will say what we're seeing a lot of demand for lately has been for ESG. and sustainable investing, socially responsible investing, and people sort of investing more alongside their values. So this has been something that has been growing by leaps and bounds and industry has responded, there are now more, you know, ESG products available. So first of all, can you talk about what ESG means? And then how you've made that available in your product lineup?

Kevin Prins:

Oh, certainly, I mean, ESD in the industry is full of acronyms. So glad you caught that call that one out. environmental, social and governance, right. So that's what we're really talking about there. And really what it is, is it's looking at data and looking at, you know, what are companies doing on their environmental aspect, or social aspects and their governance aspect. And one of these in the data, it's now giving you further insights towards these companies on a go forward basis? Yes, a lot of people look at from the emotional aspect of saying, maybe I want to avoid something. And that's what we can certainly do with the responsible investing kind of investment out there. But I like looking at ESG, which is the more broader scope and saying, let's take a look at the data and say, are these companies, you know, something we need to look at going forward from that aspect from that lens, the environmental, the social, and governance. And if enough, by looking at the data over time, people used to think that, you know, I'm going to give something up if I want to invest in more responsibly going forward. But the data showing now more importantly, that you're not really giving up anything, you can actually invest this style on this approach, and not get on some cases, you're going to do better because you're going to avoid a copy of the potential issue out there. And that's why we're seeing not only the explosion, the space where people are saying, maybe I have my social values, I want to bring them forward. I want them I want companies that represent me, right? So like we talked before the ossification I want risk tolerances best me now I want companies that represent me, but hadn't had that we're seeing the institutions that look at this space and say, Oh, I'm we're densifying things we haven't identified before. This makes more prudent style of investing going forward. I like this approach. So that's why you're seeing the real growth towards ESG type investing out there because it is that personal thought process. But also, the data is leading towards say, there is more things to look at companies out there, let's start to look at these companies. And let's start to look at investing. We've actually seen an explosion in the space ourselves $1.4 billion this year alone as moved into ESG leaders investments out there.

Preet Banerjee:

I'm a big fan of ETFs and low cost passive portfolios. There's only so much ground we can cover in one episode, and trying to keep it broad for a wide audience. So I will suggest that if you want to learn even more about index investing, please check out my good friend Dan Porter allottees Canadian couch potato podcast while he's no longer publishing new episodes, because he's super lazy. I'm kidding. He's one of the hardest workers I know. The existing episodes are a masterclass in investing and I cannot recommend them highly enough. include the link in the show notes So now your, your core suite of asset allocation ETFs, you have three Zed cons that balance Zed grow. And so they have basically different over like the broad asset class asset allocation, you know, 6040 for the balanced, you can go a little bit more aggressive with is Edgar, which is I think 8020 80% equity, 20% fixed income and then Zed con, what's the asset allocation on Zed con.

Kevin Prins:

So Zed con, it's just basically the flip. Right? So it's 60% more fixed income, and 40% equities. So the flip of the balance mandate,

Preet Banerjee:

okay, and then there's a fourth one, which is Zed ESG, which is basically an asset allocation ETF that has this ESG tilt applied to the portfolio. Now is there an extra cost for the ESG asset allocation ETF?

Kevin Prins:

No one that's, you know, another thing out there, you're getting that extra value of that data that people are looking at. That's not an extra cost across the board. So you can actually know going back to the transformation, ETF industry and the advancements you can not only choose your asset mix, you want to have risk tolerance across the board. But now you can actually employ a an ESG lens towards that too, through something like our Zed ESG ETF and use that as a base to build your portfolio going forward kind of

Preet Banerjee:

approach. Alright, so still 18 basis points is the management fee before taxes?

Kevin Prins:

Yeah, sorry. Yeah, absolutely. That's generally a low cost investment across the board.

Preet Banerjee:

Yeah, so Okay, so let's stick with this theme of ESG investing, and people be more. What's the word I'm looking for more cognizant of the impacts of their investment choices, their decisions in life in general, with respect to the environment, things that may impact climate change? or what have you, moving towards better social and governance standards for corporations. And my question is, because, you know, beemo ETFs. Collectively, you manage over $80 billion in assets through ETFs, which means that, you know, these ETS which themselves hold 1000s of companies, there are 1000s of AGM meetings, which, you know, require shareholder voting on issues that may be relevant to people who want you know, to see a more green solution enacted, or they want more governance for, you know, boards of directors and executives. And so you have a lot of voting power at AGM. So could you talk about whether or not you're voting at these AGM on behalf of the end, ETF holders? Is it passive, like the underlying sort of, you know, index ETFs that you manage? Or is there some kind of active thought with respect to the votes that you cast at AGM?

Kevin Prins:

law? You know, you're really talking about a key thing that's interesting out there. You know, we've got scale. And because we have scale and the overall industry, how do we use that scale to further develop people companies to move from, you know, good to great out there? How do we help them and encourage them across the board. And that is something we're doing with our scale. And I mentioned this, I should be clear, that's not just on the ESG ETFs. That's the entire asset base across the board. Well, we do something we call active ownership, kind of funny to hear that from an ETF company where you hear right passive all the time. It's active ownership. And I look at active ownership and kind of the two key elements back to your point on voting. Yes, we are active in our voting, right? We attend meetings on a regular basis. But we don't just vote with management, we will vote against management, or it doesn't follow into the ESG aspect, the environment, the social or the governance on a regular basis. And why should we have one of the best voting records out there? A plus by the PRI the principle of responsible investing? That's really just showcasing that, yes, we look at our responsibilities of asset owners, and then employ voting on their behalf, but knowledge is voting. The other part of it to keep in mind here too, is the advocacy we do on a regular basis. And that's that scale coming in to because sometimes, you may want to have a conversation of the firm and we can have conversations with companies at the senior levels to say, you know, let's talk about climate change. Let's talk about the environment. Let's talk about public health or governance, and how do we improve these with your company and that's been another key aspect of what we do. on a regular basis, it's not just the voting, but the ongoing meetings and helping take companies again from that good, maybe that great level of there and move them along the path. And we set ongoing milestones for respective companies and say, maybe you need to work a little bit more on this, here's another company has done something in this patient encouraged to move forward. I think that's

Preet Banerjee:

it's very interesting consideration, I think, for people who are looking at, you know, similar products, knowing that the the voting, the act of ownership as the as you call it, for a passive investment vehicle, I don't know if it's something that many people have thought of before, but I think it is potentially a differentiator out there. Certainly, if you have, you know, a link to that pri report that shows your rating on your voting record, I'd be happy to include in the show notes for people to take a look at that as well, because I think that is an important consideration, especially because I know that there are some people who, you know, they're not against ESG investments, they just, they don't know, if maybe they want to have an ESG screen on their investments. They may not know sort of the, the trade off as to using those screens, versus just sort of a non tilted portfolio. So people have different opinions on that. But irrespective of that, the voting record because, again, you manage so many, so much assets, and you have so much voting power, that is something that I think would be of great interest to a lot of people. Okay, so let's, let's let's finish off on asset allocation ETFs, with again, some more practical considerations. So if you are maybe just starting to invest, or you're properly, you know, focused on making monthly regular contributions, I suppose one of the drawbacks of an asset allocation ETF is that you would have to manually place a trade every single month. And so for some people, they might say, hey, that's great. I don't mind rolling up my sleeves and placing a trade it's kind of fun to do that. Other people like no, I it's, it's a hassle. I just want to automate it, because I'm not good at doing this on a on a manual basis, every single month. And so what's your recommendation for people who want you know, the benefits of an asset allocation ETF with a little bit more automation to help them maybe stick to a regular savings and investment strategy.

Kevin Prins:

There are still some benefits for mutual funds out there. And that's a key one, actually, who's got pre authorized contributions on it, or, or systematic withdrawal plans across the board. So maybe take a look at a mutual fund, that's a low cost solutions out there, maybe hold some ETFs across the board, that utilizes that ability to give you that pre authorized contribution, or if you're trying to take money out in a regular basis, that systematic withdrawal plan, right, yeah. So

Preet Banerjee:

I'll add a little bit to this and say that, you know, when your portfolio is relatively, you know, at the beginning stages will save your investing career, maybe the the total balances aren't that high. The automation of what's pack plan, as it's called in the industry, or pre authorized contribution plan, sometimes called things like continuous savings plan, there's a whole bunch of acronyms for the same thing. But basically, it's, you say, hey, I want to put in $100 a month, and I want this to happen automatically, like clockwork, you then tie that contribution into an investment. And that's generally where, you know, a mutual fund can be advantageous in terms of that automation aspect. There's also the the use of robo advisors can do that for they sort of automate and make things as simple as possible, either of those solutions are going to be more costly. And so what you could do is after your portfolio gets to a size that you deem is big enough that the cost differential matters, then you could switch your portfolio into, you know, something lower cost, like an asset allocation ETF or what have you. And that's normal. So you know, I don't think one thing that gets talked about enough is that there's no strategy that is probably going to be the same strategy that investors use for the entirety of their investing career when it comes to execution. And so I would say it's probably okay to make that trade off earlier on. And then and then sort of flip that switch down the road when your portfolio gets a little bit bigger. And where that trade off point is. I think it's going to vary for investors, some are going to be way more cost sensitive. Others might say, oh, wait till it gets to 50 grand or whatever. But yeah, good. Good advice. You know, speaking of, you know, individual investors using ETFs, obviously, we have financial advisors who use ETFs as well. I was wondering, have you noticed any general differences in how advisors use ETFs in investors portfolios versus how an individual might use ETFs in their portfolios you have any insights on that?

Kevin Prins:

Yeah, I mean, actually, in some cases, they're similar because a lot of investors are very sophisticated too. But in some other cases, they're different. So ask okay should be in a good example or investor may say I just want to pass it on, I'll do that. A lot of times advisor would say, you know what, I want to tailor that a little bit more based on my views of the overall marketplace. A lot of cases, investment advisors will also use a more of a sector based approach because they want to get access to a certain sector or theme in the marketplace across the board. So they use a little more tailored towards certainly using fixed income as a as an ETF to for that matter, just because it just makes it easier to access the underlying and that's a key big benefit of ETFs, for the last number of years is access to the underlying, then on top of that, I would say on income focus to for that matter, you know, as they look to their client base, and the demographics of their client base, you know, I may be looking to more ETFs to have more of an income tilt to them across the board, given the demographics and the solution sets you want to put for their clients, because that financial planning overlay angrily quite often offer right?

Preet Banerjee:

While we're on this topic, what about institutional clients? Cuz I know a lot of institutions pension funds, other institutional funds will use exchange traded funds, as well. Is there any big difference in how an institutional investor uses exchange traded funds versus other types of investors?

Kevin Prins:

Actually, you know, good question, because a lot of people think about ETFs as just being something for the end investor. And you already talked about it being something that advisors tend to use on a regular basis. And they certainly do do that. Well, one of the growing areas out there is institutions utilizing ETFs. So it kind of sounds funny, because you're talking about one investment product that crosses between, and investors, advisors and institutions. And you quite often don't hear about that, in our industry across the board, there tend to be products that retail investors, products for institutions. What have institutions come to realize through exchange traded funds, is that efficiency and how to access the underlying fixed income, for example, fixed income until an ETF came along was hard to access, because you had to buy all the individual bonds, you had to rebalance it back to your point before, right? That now institutions can buy a basket, a diversified basket of fixed income. And put employ that in their portfolio. And what it's effectively doing for them is helping them manage that bid and offer cost and keeping that very tight across the board. So the efficiency of the ETF has really only brought investors towards it, advisors towards it, but also now institutions towards these solutions.

Preet Banerjee:

Let's go back in time a little bit. Back to 2010 2009. This is when the most exchange traded funds division launched. And I remember at that time, I was still in advisory of the industry, I was licensed. And, you know, indexing from the industry side was relatively new, there's a lot of skepticism, there's a lot of pushback about indexing in general, it's quite a bit of a different time today than it was you know, even just 10 years ago, but can you talk about what was the initial reaction from, you know, the industry from journalists, when, when a big five bank launched an index fund division? What was it like?

Kevin Prins:

Well, actually, when beemo first entered the marketplace, you know, a lot of the industry participants, ETF industry person liked it, because it gave the industry credibility that said, Okay, this movement, this ETF movement, people are in charge taking this more seriously going forward, because in game, one of the major Kenyan banks into the space, but at the same time, you know, a lot of people thought, Well, how is this gonna work of a bank entering the space? Some some thoughts around that. But then they saw our commitment, you know, to the ETF industry, combined with bringing a Canadian perspective to investing. And that brought out innovations, which led people say, hold on a sec, there is some value out here, this makes a lot of sense for building a portfolio that I want. It's designed for me across the board. And then hand in hand of that I pretty proud of our focus of education over the period of time, because that's really helped people understand the value of ETFs. And what it really brings to building a portfolio across the board and, yeah, certainly that's helped us lead the industry and growth for the last 10 years.

Preet Banerjee:

Yeah, I was gonna say, you know, when it comes to sort of the plain vanilla broad market based index funds, I think a lot of people are basically saying, Hey, listen, if you execute Well, you've got Little tracking error then really comes down to just sort of the cost being one of the main differentiators. But you know, your product shelf is built out since then. And the assets under management, as I mentioned before, last time I checked was over 80 billion and the numbers today, but I'm assuming it's probably a little bit higher than 80 billion. So it's a lot. And in terms of market share, you know, I don't know, if back then I would have predicted that that B mu ETFs, would be holding such a dominant position like it's your number to buy assets, I think right in in terms of the ETF market share. So that's, that's pretty phenomenal. And I think part of that has been also just the concert effort on getting the awareness out there. But I want to ask you about, you know, you know, that the total product shelf that you offer today, how many ETFs Do you offer today, because they didn't when you launched it was, you know, a handful, but I suspect it's a bit more than handful.

Kevin Prins:

Everybody starts someplace. And you're right, we started more of a broad based index approach. And we have all the known indexes, right. But as investors have changed their philosophy and wanted to build different types of portfolios, and in Canadian eyes it across the board to, we've been launching other products, and needless to say, well over 100 different exposures in the marketplace to keep it simple like that, a broad diversified line. And I'd simply say that, you know, if you're looking at building portfolios, that's one of the big advantages of exchange traded funds for the last 10 years, is creating net new solutions to help build those better portfolios. And I can certainly give you some examples of you like, as a Canadian investor, you maybe want to access the US marketplace, and one of the most known ones we all know is the s&p 500. We all know when we look at that, and certainly been a very strong index, by any measurement is performance across the board. And as a Canadian, there's a couple more considerations because if I buy the s&p 500, I am employing a US dollar exposure to my portfolio, do I want that to my portfolio, and can even ETF companies like us brought in, you know, a hedged exposure to that marketplace. Or you of course, you can have an unhedged to if you want to have it in a Canadian dollar term. So saving that currency conversion cost, right? for let's say, you have US dollars, you want to avoid those t 1135 documentation, well, then you can now get in US dollars too. So the choice of currency alone, even though still the same s&p 500 is now something that investors can bring into their portfolio. And that's just one example where he tested help try to bring that Canadian perspective to the marketplace. The other thing that investors visors, of course, across the board said, Hey, I want a little more income, because you know what, I like income investing, or maybe I'm getting close to retirement, I want that as part of my solution set. So in came dividend ETFs across the board, or more recently, of course, some of the cover call ETFs are brought to the marketplace, right. And those have been solution sets to help drive a little higher income for the investor out there on a regular basis. Also, I'd like to highlight, you know, fixed income, we talked about it before. But think about it, fixed income as an ETF, has been of great advancement to the overall marketplace. And one thing we brought to the marketplace is precision across the fixed income marketplace. So you can have shorter term, medium term or longer term exposures, corporates, provincial or federal. Needless to say, what I'm trying to highlight here is that fixed income investing became something you can really get precise on just like you can with your equity exposure. And if you think about it, prior to ETFs, entering the marketplace, you had to buy the bonds yourself and the bid spread during the bid and the offer is larger ETFs have made that a titan a more efficient exposure. So as you want to bring in that risk mitigation aspect of fixed income, you can do that more efficiently ever did before. Then you already mentioned before. ESG certainly been a big advancement in ETFs. And more recently, and I think that's simply allowing people to get access to, you know, another style of investing one more personal focus. And last but not least, I also want to look at ETFs as we kind of moved into the sectors or the industry base across the board, because then we effectively offered investors a choice saying, you know, instead of buying an individual stock, which maybe give me that concentration, risk of holding individual stock, if I liked that theme, or I like that investment objective, that part of the marketplace. Give me a basket approach towards that and allow me to have some, at least some diversification but be in a part of the market. I want to be more precise on across the board.

Preet Banerjee:

Yeah, from from what you said. I've got a couple of follow up questions. One has to do with Um, with income. So you mentioned, you know, whether it be a dividend focused ETF strategy or something that provides income on regular basis for those seeking, you know, income maybe in retirement when it comes to and this was based off a question that I had from a viewer from my YouTube channel, they had asked about the distribution policy of ETFs, and whether or not and so let me just sort of back this up for, for listeners who may not be familiar with this. But if you have a company that has decided to pay back, you know, part of its profits in the form of dividends to shareholders, management will get together and they'll decide how much they want to pay out as a dividend. And so this is something that is done on an active basis by management. And there are reasons why they may want to show a periodic and regular increase in those dividend payments and what have you. So it's a very much an active process by management to determine the dividend payout. But when it comes to an ETF, there are you know, a lot of plain vanilla ETFs that hold a number of dividend paying companies. And so the ETF itself will receive a lot of these dividends. And so his question was, does the ETF manager yourself? Do you guys sit around and actively come up with the end distribution policy to the ETF unit holders of all the dividends and distributions that you collect?

Kevin Prins:

Yeah, to a certain extent, I mean, so for example, you know, a company could pay quarterly dividends can pay annual dividends, that goes into a basket for us. And then we put our dividend policy across that. And for the most part, we take a look back at investors, what they're looking for, out of that investment objective, right. So if you're focusing more on income for an investment, we would provide more monthly income. So instead of the quarterly dividend payment, now you're getting regular monthly income stream. So that's kind of more of a financial planning angle for an investor to employ. So you that regular income. So then again, if you're looking for growth, right as a mandate across the board through an ETF, you don't really want that income being paid, you would argue the basis you want to be compound it right, so that'd be more of an annual payment up out to you. So really, it lines back with the investment objectives of the individual saying, I want more income, make more monthly payment, I want more growth, make that more of an annual payment and in between the mix to depend upon the various respecter of ETF. Okay. And

Preet Banerjee:

the other thing that I wanted to pick up on was, you mentioned, you know, people have sort of like a single stock view for maybe a particular theme, or even just a single company, I'll use Tesla's example, because that's a popular one, I see a lot of people who their entire portfolio is just Tesla stock, which, you know, makes me want to pull my hair because it's just such a huge concentration risk. And from that perspective, using a more niche ETF, like, you know, your thematic ETFs, which, you know, for me personally, again, I'm a couch potato, I don't think about things, the only thing I care about is low cost, broad exposure, sticking to a plan. But I do realize that there are a lot of people who don't buy into that philosophy. And in the last two years, we've seen just an inordinate inordinate number of headlines of new investors who start out either trading mean stocks, they're part of, you know, Wall Street bets or other internet forums, and they start investing with incredibly risky portfolios. And, you know, to be fair, that's how I started investing. My first investment was a penny stock, right? I didn't know what I was doing my portfolio was garbage. So there is opportunity for improvement for for a lot of people and using some of these more niche types of ETFs. And I think you sort of alluded to it, where you can say, well, instead of just getting one, you know, stock, you can get exposure to a basket of stocks in that industry or theme, if that's kind of what you're getting at. So can you give me example of some of those, I guess, products that you've, you've got, because I know you've you've got these automatic ETFs So what are some of those strategies in case there are people out there who have very concentrated holdings in any one of these particular themes? Maybe they could do a little bit better by you know, if they're not going to, you know, join my cult and be a couch potato investor, maybe we can still make a better portfolio by you know, getting some diversification.

Kevin Prins:

I agree and I think you know, going back to the investments of ETFs it's the diversification so if you like Tesla and you like Tesla like company Tesla like where it's going, you may not hold all of Tesla maybe have a diversified max out there, right. And Zedd obvious examples at UTV an example in that space for automation, right? Or, or maybe discretionary is another way in that space to get access to that particular type of investment. But it's not just that right. Maybe you have My favorite clean energy company because we will buy a basket of clean energy ETF holdings through an ETF in that space, right? That is a big advantage of ETFs, you get access, but also the diversification we talked about before. And that's not saying you can't have both, because maybe you have a bit of both where you have the your Tesla on one side, and you have your diversified basket together with it across the board, and of course, rebalance back and forth.

Preet Banerjee:

Right. Okay, so let's talk about and so some tools that you have available, and you know, maybe someone's listened to this podcast, then they've identified Hey, I'm that type of investor. You know, maybe it's somebody who just started recently, or maybe they know that they have maybe not the most diversified portfolio, they can make it a little bit better. So I know that you've got a number of tools that that people can access to help them in their DIY journey. So you've got a comparison tool, a screener tool, and a proposal generator. So can you explain what those three tools are and what they do for investors?

Kevin Prins:

Absolutely, thank you for highlighting those those tools are a great resource for anybody free to access right on our public website, just go to be more etf.com, and you can access them. What I like about that is, you know, helps you do your own due diligence, right? So what you can do, for example, on the comparison tool, let's say you heard about some ETF on TV, and you want to take a look at another ETF relative to it. Well, you can easily do that. In fact, you can do up to five side by side comparisons, even bringing some funds do if you want to, to take a look at each one of these ones. And yeah, sure, you can look at performance, you can look at cost. We can also look at the investment objective to have the perspective ETF too. So we can really dive down into various key criteria to help you make a more informed investment decision of which ETF is better fitting your portfolio for you across the board. I really like that as a sleeve. But I should know not only can you actually do a side by side comparison, if you click on the tickers, you actually go into an individual one page, we get some full detail of that respective ETF get even further insight. So nice tool to help you in that journey. Then back to your point on screener tool. You know, if I look at the screener tool what I like that one for for the most part is that decision process of maybe maybe I want to be more diversified individual stock or maybe you know been following up on a certain trend in the marketplace and there's a leading stock out there that's really representing that trend. Yeah, take that stock in there and give me any ETF that holds a lot of that stock but I also now know because it's holding that stock is probably holding more of socks like that. Now I can investigate you know which ETFs out there best represent that theme or that thesis I have towards the overall marketplace. So that's something I really like and and the last one at least they're in the tools wises portfolio General, we've been talking about portfolios pretty much the whole conversation. Ultimately, it's about building better portfolios, I really believe that's what ETS have brought to the marketplace and brought tools to help build better portfolios. So you can start off with your own mix of individual ETFs or so and and see what that looks like from a portfolio across the board. Or if you wanted to start off on the diversified asset Nexus you can start there and then add individual securities to the bill that tilt not disappears but ETFs to add that tilt to that portfolio, key tools to either help identify something you're looking for. Do that key comparison across the board or maybe look at how that works with inside an overall portfolio.

Preet Banerjee:

Okay, I'll I'll include links to those tools as well or the page that they may all be located on, as well as a number of the things that we've talked about. We will leave it there Kevin, I appreciate you spending your time with me. I know you're super busy guy. Thank you so much for coming on the show. Thanks for having me again.

(Cont.) 101: Using exchange-traded funds to build or improve portfolios with Kevin Prins from BMO ETFs