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

Episode Transcript
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Preet Banerjee (00:00):
Just when I thought I was out, they pull me
back. This is mostly money and Iam your host, Preet Banerjee,
with hopefully some more freetime back in my schedule for

(00:22):
2022 and a number of friends whohave or are about to publish
some books on investing inpersonal finance. It looks like
there may be a few more episodesof mostly money on the horizon.
Today's episode is the firstsponsored episode I've ever run
figures that when you hang upyour hat someone comes calling,

(00:43):
but because they agreed to takean educational aspect on low
cost exchange traded funds, Ithought it'd be a good idea to
talk about some fundamentals ofinvesting, using ETFs. This
episode is sponsored by BMOexchange traded funds, who offer
a number of ETF solutionsdeveloped in Canada for
Canadians, including low costindex ETFs, all in one asset

(01:06):
allocation ETFs as well as anewer suite of automatic and ESG
ETFs. I'll include a link in theshow notes for them as well, as
well as a number of tools thatthey've made available on their
website. And my guest today isKevin Prins who I met a long
time ago, shortly after BMOlaunched their ETF division will

(01:27):
go through what I think is agreat way for many investors to
get a full portfolio with lowmaintenance and low cost, asset
allocation ETFs. And we'll breakdown what exactly they are, how
you can use them and theirbenefits will then explore some
other ways that ETFs can helpimprove the portfolios maybe of
people who may not want tobecome couch potatoes, because

(01:48):
there are lots of investors whocertainly fall into that camp.
In any case, here's my interviewwith Kevin Prins from BMO
exchange traded funds.
Kevin Prins is the managingdirector head of ETF and managed
accounts distribution at BMOglobal asset management. With

(02:12):
more than 25 years of industryexperience in banking
securities, mutual funds andfinancial education. Kevin
provides a rare combination ofboth industry knowledge and
educational expertise onexchange traded funds. During
his career, he has authoredseveral investment industry
courses for the Canadiansecurities Institute's CSI,
including ETF focus courses andthe managed accounts chapter of

(02:34):
the CSC. Kevin frequentlyinteract with portfolio managers
and investors about the benefitsof ETFs and how they can be used
to add value to any investmentportfolio. So that is really
where I wanted to start. Kevin,welcome to the show.

Kevin Prins (02:49):
Ah, thanks so much for having me. I love the show.
appreciate you having me.

pleasure is all mine. Yeah, so I really want to
start by exploring the lastsentence there in your
introduction, how ETFs canbenefit any investment
portfolio. Now as you know,personally, I'm a fan of the
couch potato approach, lowmaintenance, low cost. And we
can start by talking about howETFs help execute that mandate.

(03:13):
But we can also talk aboutpeople who are not, and probably
never will be couchpotatoinvestors because there are a
lot of them out there to see howthey could use ETFs as well for
a variety of use cases. So Ireally want to leverage your
your educational background,because I know it's it's pretty
deep and extensive. So I waswondering if we could start by

(03:37):
going over one of sort of myfavorite innovations in the
space that we've seen inprobably over a generation that
is the asset allocation ETF andtheir benefits. So for the
benefit of For the uninitiated,could you explain in plain
language what is an assetallocation ETF?

Well, first, I think you're you're kicking off
there is that this is a net newadvancement in exchange traded
funds for the last number ofyears. And what I like about the
ETF industry across the board isthat it's been advancement after
advancement to help build betterportfolios. In this case, it
actually is a portfolio right?
And portfolios a different risktolerances for investors and
just try to make it simple. Ifyou are a conservative investor,

(04:21):
there's a conservative portfoliofor you out there. If you are
more of a balanced investor,there certainly is one of those
and more growth investor to foryou out there. Ultimately, what
it's trying to do is saying,Let's help demystify this
portfolio construction thatwe're we talked about, but let's
keep that wrapper of low costETF still in the forefront

(04:42):
across the board. And a lot ofinvestors look at these as kind
of a simple way of getting broaddiversification against that
risk tolerance across the board.
And that's, that's what I thinkpeople really look for. I get
the low costs and I get broaddiversification and I get an
acid mix. It kind of fits whereI want to take my portfolio

(05:02):
going forward.

Yeah, so let's, let's talk about that. So you
mentioned that, you know, thiscould be an entire portfolio
solution for a lot of people.
And I know that there are a lotof people who who have embraced
that philosophy and say, Yes, Ijust need one asset allocation
ETF. But let's break down someof the specific features of
asset allocation ETFs, I thinkone of the first ones is in the
name asset allocation. So canyou explain what an asset class

(05:27):
is and what asset allocation isand why that's important for
investors?

You know, when you think about asset classes,
there's equities, fixed income,for example, people know that
there's also geographies to youwant to factor in, right?
Canada, US International,emerging markets for that
matter, too, right. And then ontop of that, to think about
cyclical defensive parts ofmarket too. So you know, because
a market moves to more defensivemore cyclical, all of that is

(05:54):
different aspects with inside anasset allocation ETF, because
they're brought forward in abasket of various ETFs across
the board. Now when I look atasset allocation, and our
industry has been very clear onthis for many, many years, that
asset allocation is the keydeterminant of the volatility of
portfolio that's the up and downmovement, of course, right, but

(06:14):
also the performance of yourportfolio, because that is what
you're holding at the end of theday. And many, many studies show
that you know, as location isthat key part of performance and
volatility, but also I like tolook at is that free lunch in
the industry, right? Do you havethat basket together, they're
all working in opposite wayseach other, but really giving

(06:34):
them more of a trend, smoothertrend towards your ultimate goal
across awards and bouncingaround over the place.

Yeah, because you'll have for example, let's
say you've got Canadian equitiesversus emerging market equities.
And so they'll have their ownsort of market cycles. And maybe
when Canadian stocks are doingwell, 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 holdingthem together. And rebalancing

(07:04):
periodically, can help smoothout a portfolio. So that's kind
of like a very basic example of,you know, different asset
classes working together. Butinside an asset allocation ETF,
you've got more than just, youknow, Canadian, equities,
emerging markets, equities,you've got the equity versus
fixed income split. And thenwithin each of those broad asset

(07:24):
classes, you've got a multitudeof sub asset classes. So maybe
you could just sort of, youknow, peel back the hood a
little bit on, you know, ademonstrative asset allocation
ETF, and explain, you know, whatkind of geographical exposure
we're talking about.

First of all, take a look at like a balanced ETF,
for example, right? Becauseyou're going to hold off a 6040
equities, fixed income acrossthe board. And with inside the
fixed amount, diversified mix ofCanada, us kind of holdings and
fixed income, looking at theInternational aspects or the the
equity side, yeah, you'reholding International, you're
holding US equities, you're allthese emerging markets, you're

(08:01):
also holding, of course,Canadian equities in the next
two, and that's going back toyour point, they're all working
in different periods indifferent times to help you get
towards your ultimate goal. Andthat's seven or more ETFs in a
basket. But don't think of itjust seven or so ETFs. like
think about the underlyingholdings with inside these,
these ETFs, you're gettingroughly 4000 or more individual

(08:25):
securities exposures. So that'swhat you're getting a
diversified basket of assetallocations, you're getting a
broad diversification across theboard. And that diversification
has been key towards youmanaging the risk in your
portfolio, and again, choosingyour risk tolerance across the
board. And then back to yourpoint on rebalancing. Like, you

(08:46):
know, that's a key part of anyof these portfolios, right,
simply trimming your winners andviolence or losing a regular
basis is sometimes a previousone that in doubt, is a good
strong one before and you wantto rebalance on a regular basis.
And again, Many studies haveshowed that that's another key
determinant performance forportfolios that just some aspect

(09:06):
of rebalancing a regular basis.
And these kind of solution setshave it automatically with
inside though. And for thoseinvestors that don't have these
kinds of issues. I'm gonnaencourage you to rebalance on a
regular basis back to what yourasset mix is.

Yeah, and I think that's a really important
point because, you know, whenpeople go through the various
processes to figure out what isthe level of risk I'm willing to
accept for this particularportfolio and investing goal,
you know, factoring things likethe risk capacity, their ability
to stomach risk, their need totake on risk time horizon, and
what have you. It's one thing todo all that to set it up and

(09:42):
let's say they end up with youknow, a 6040 recommendation to
keep it at 6040. This is where Ithink the power of rebalancing
is because, you know, if youhave, you know, the parts of
your portfolio that may have ahigher long term rate of return
equities versus fixed income.
Over time your asset allocationis going to drift away from

(10:02):
whatever your initial assetallocation is going to be,
meaning that it either gets morerisky or less risky. Now, where
this really tends to be a bigproblem is, you know, when
you've had, you know, a bullmarket in equities for a long
time, and if you hadn't beenrebalancing, maybe you started
at 6040. And now maybe you're atMerrill at 20. And invariably,
when you do have a bit of thatmean, reversion, a bigger part

(10:26):
of your portfolio are in theriskier assets. And that ride
can feel very, very volatile onthe way down when it when those
cycles start to turn. So bykeeping your asset allocation at
a level that you know, you'vestated that you're comfortable
with, this is a really importantpart in sticking with your
portfolio strategy over time.

(10:49):
And I think that is probably oneof the most important things
that investors can do is have aportfolio strategy that they can
stick to. And that's why youknow, taking into account your
risk tolerance and the risk ofyour portfolio, not only when
you set it up, but bymaintaining it through
rebalancing is so important forthe success of investors. But

(11:13):
the next point that I want totalk about that kind of ties all
this together, I think, is thelow maintenance aspect of asset
allocation ETFs. Because, youknow, if you are building out
these portfolios yourself withindividual components, you have
to do the rebalancing. But anasset allocation ETF does that
for you. So can you talk aboutthat,

as the equities or fixed income drift, the gas ETF,
of course will rebalancebringing it back to the target
asset mix that you choseinitially. So if you chose to
have a more of a balancedportfolio, it will stay as a
balanced portfolio, if you choseto have a more of a growth
portfolio, it will stay as agrowth portfolio. So really

(11:57):
aligned right back with yourobjectives across

the board. One of the other aspects of asset
allocation ETFs that I like isthe costs. Because you know, it
used to be you know, I don'tknow, you go back 1015 years and
ETFs were very much associatedwith, you know, broad vanilla,
low cost index funds, and youcould put together your own
portfolio using all theseindividual components. And then

(12:23):
you would think that by, youknow, automating all of this
stuff, creating an assetallocation policy, doing the
rebalancing, and sort of makingit a one stop shop, you would
think that would come at amoderately higher cost. But the
cost on these asset allocationETFs, I think is pretty, pretty
phenomenal, really. So can youtalk about what the costs are

(12:44):
for your particular assetallocation? ETFs?

Well, if you look at asset allocation, ETFs, they
start at 15 basis points matchup at hsts will take let's call
it 25 basis points. Bear withme, I'm sorry, I interest
terminology, a quarter percentless than a quarter percent.
Okay, that's probably a betterway of saying it. And that's
really cheap. And I'm also wantto make it perfectly clear that

(13:09):
there's not a double count herewhere there's a cost of the
underlying ETF plus the cost ofthe overlay No, no, the
underlying costs and ETFs iswith inside that cost structure
I just mentioned. So going backto your point, really low cost,
so you get all the benefits thatwe just talked about asset
allocation, the benefits ofrebalancing, but still maintain

(13:29):
that key benefit of an ETF, thatlow cost aspect of there.

Yeah, and you know, for all those reasons, is
why I use an asset allocationETF myself for the bulk of my
portfolio for my long termsavings. And I think there are
again, a lot of people who agreewith that philosophy. Some
others like to build their ownsort of, you know, particular
asset mix using the underlyingcomponents themselves, and

(13:55):
that's fine too. But overall, Ithink one of the reasons is the
Cost Matters hypothesis. So thelower the cost, the higher the
return, basically, all otherthings being equal. So let's
let's start to now move awayfrom from what I would call sort
of like, you know, my ideal sortof portfolio strategy which is

(14:15):
low maintenance, leave me alone,I'm a lazy guy, I can't be
bothered anymore. Even though Ican't I mean, I used to be, you
know, a stockbroker myself, butI just can't be bothered. And I
just don't want to spend timemaintaining a portfolio because
I also know that every time Ihave 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

(14:37):
set it and forget it and justwait, you know, decades and
decades and let it do its thing.
That being said, not everyoneout there subscribes to that
philosophy, and that's fine. Youknow, everyone can do their own
research, but let's talk abouthow people maybe you don't want
to use you know, just one assetallocation ETF as your entire
investing fine. But you couldstill use them to augment your

(15:00):
portfolio. So can you talk aboutother ways people could maybe
use asset allocation ETFs? Ifthey're not interested in just a
one stop solution, that beingthe only one item in their
online account? How else couldthey use asset allocation ETFs a
lot

of people looking at as kind of a core of a
portfolio, start off there andknow that you're properly
covered off in your equities andyour fixed income relative to
your risk. But then, you know,there's a theme, maybe there's
something you've seen on TVrecently, or read in the
newspaper, for example. In thatcase, maybe you want to invest
in that, that could be a goodcomplement to the portfolio from

(15:38):
time to time to write. And maybeit's a sector you want to be in
or an asset class you want to bein. 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 itas you feel as you want to that,
of course, I'd say back to yourpoint, if you look at

(16:00):
rebalancing to if somethingtakes off and go back to the
asset allocation, just to giveit like a good base, a solid
base going forward to

now, speaking of, you know, things that may
catch people's interest in themedia, when it comes to maybe,
you know, wanting to invest incertain companies or trends, I
will say what we're seeing a lotof demand for lately has been
for ESG. and sustainableinvesting, socially responsible

(16:29):
investing, and people sort ofinvesting more alongside their
values. So this has beensomething that has been growing
by leaps and bounds and industryhas responded, there are now
more, you know, ESG productsavailable. So first of all, can
you talk about what ESG means?
And then how you've made thatavailable in your product

(16:50):
lineup?

Oh, certainly, I mean, ESD in the industry is
full of acronyms. So glad youcaught that call that one out.
environmental, social andgovernance, right. So that's
what we're really talking aboutthere. And really what it is, is
it's looking at data and lookingat, you know, what are companies
doing on their environmentalaspect, or social aspects and

(17:16):
their governance aspect. And oneof these in the data, it's now
giving you further insightstowards these companies on a go
forward basis? Yes, a lot ofpeople look at from the
emotional aspect of saying,maybe I want to avoid something.
And that's what we can certainlydo with the responsible
investing kind of investment outthere. But I like looking at
ESG, which is the more broaderscope and saying, let's take a

(17:39):
look at the data and say, arethese companies, you know,
something we need to look atgoing forward from that aspect
from that lens, theenvironmental, the social, and
governance. And if enough, bylooking at the data over time,
people used to think that, youknow, I'm going to give
something up if I want to investin more responsibly going
forward. But the data showingnow more importantly, that

(18:01):
you're not really giving upanything, you can actually
invest this style on thisapproach, and not get on some
cases, you're going to do betterbecause you're going to avoid a
copy of the potential issue outthere. And that's why we're
seeing not only the explosion,the space where people are
saying, maybe I have my socialvalues, I want to bring them
forward. I want them I wantcompanies that represent me,

(18:22):
right? So like we talked beforethe ossification I want risk
tolerances best me now I wantcompanies that represent me, but
hadn't had that we're seeing theinstitutions that look at this
space and say, Oh, I'm we'redensifying things we haven't
identified before. This makesmore prudent style of investing
going forward. I like thisapproach. So that's why you're
seeing the real growth towardsESG type investing out there

(18:45):
because it is that personalthought process. But also, the
data is leading towards say,there is more things to look at
companies out there, let's startto look at these companies. And
let's start to look atinvesting. We've actually seen
an explosion in the spaceourselves $1.4 billion this year
alone as moved into ESG leadersinvestments out there.

I'm a big fan of ETFs and low cost passive
portfolios. There's only so muchground we can cover in one
episode, and trying to keep itbroad for a wide audience. So I
will suggest that if you want tolearn even more about index
investing, please check out mygood friend Dan Porter allottees
Canadian couch potato podcastwhile he's no longer publishing

(19:36):
new episodes, because he's superlazy. I'm kidding. He's one of
the hardest workers I know. Theexisting episodes are a
masterclass in investing and Icannot recommend them highly
enough. include the link in theshow notes

(20:00):
So now your, your core suite ofasset allocation ETFs, you have
three Zed cons that balance Zedgrow. And so they have basically
different over like the broadasset class asset allocation,
you know, 6040 for the balanced,you can go a little bit more
aggressive with is Edgar, whichis I think 8020 80% equity, 20%

(20:22):
fixed income and then Zed con,what's the asset allocation on
Zed con.

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,

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

No one that's, you know, another thing out there,
you're getting that extra valueof that data that people are
looking at. That's not an extracost across the board. So you
can actually know going back tothe transformation, ETF industry
and the advancements you can notonly choose your asset mix, you
want to have risk toleranceacross the board. But now you
can actually employ a an ESGlens towards that too, through

(21:20):
something like our Zed ESG ETFand use that as a base to build
your portfolio going forwardkind of

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

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

Yeah, so Okay, so let's stick with this theme
of ESG investing, and people bemore. What's the word I'm
looking for more cognizant ofthe impacts of their investment
choices, their decisions in lifein general, with respect to the

(21:59):
environment, things that mayimpact climate change? or what
have you, moving towards bettersocial and governance standards
for corporations. And myquestion is, because, you know,
beemo ETFs. Collectively, youmanage over $80 billion in
assets through ETFs, which meansthat, you know, these ETS which

(22:22):
themselves hold 1000s ofcompanies, there are 1000s of
AGM meetings, which, you know,require shareholder voting on
issues that may be relevant topeople who want you know, to see
a more green solution enacted,or they want more governance
for, you know, boards ofdirectors and executives. And so

(22:44):
you have a lot of voting powerat AGM. So could you talk about
whether or not you're voting atthese AGM on behalf of the end,
ETF holders? Is it passive, likethe underlying sort of, you
know, index ETFs that youmanage? Or is there some kind of

(23:07):
active thought with respect tothe votes that you cast at AGM?

law? You know, you're really talking about a
key thing that's interesting outthere. You know, we've got
scale. And because we have scaleand the overall industry, how do
we use that scale to furtherdevelop people companies to move
from, you know, good to greatout there? How do we help them
and encourage them across theboard. And that is something

(23:36):
we're doing with our scale. AndI mentioned this, I should be
clear, that's not just on theESG ETFs. That's the entire
asset base across the board.
Well, we do something we callactive ownership, kind of funny
to hear that from an ETF companywhere you hear right passive all
the time. It's active ownership.

(23:57):
And I look at active ownershipand kind of the two key elements
back to your point on voting.
Yes, we are active in ourvoting, right? We attend
meetings on a regular basis. Butwe don't just vote with
management, we will vote againstmanagement, or it doesn't follow
into the ESG aspect, theenvironment, the social or the
governance on a regular basis.
And why should we have one ofthe best voting records out

(24:18):
there? A plus by the PRI theprinciple of responsible
investing? That's really justshowcasing that, yes, we look at
our responsibilities of assetowners, and then employ voting
on their behalf, but knowledgeis voting. The other part of it
to keep in mind here too, is theadvocacy we do on a regular

(24:39):
basis. And that's that scalecoming in to because sometimes,
you may want to have aconversation of the firm and we
can have conversations withcompanies at the senior levels
to say, you know, let's talkabout climate change. Let's talk
about the environment. Let'stalk about public health or
governance, and how do weimprove these with your company
and that's been another keyaspect of what we do. on a

(25:00):
regular basis, it's not just thevoting, but the ongoing meetings
and helping take companies againfrom that good, maybe that great
level of there and move themalong the path. And we set
ongoing milestones forrespective companies and say,
maybe you need to work a littlebit more on this, here's another
company has done something inthis patient encouraged to move
forward. I think that's

it's very interesting consideration, I
think, for people who arelooking at, you know, similar
products, knowing that the thevoting, the act of ownership as
the as you call it, for apassive investment vehicle, I
don't know if it's somethingthat many people have thought of
before, but I think it ispotentially a differentiator out

(25:45):
there. Certainly, if you have,you know, a link to that pri
report that shows your rating onyour voting record, I'd be happy
to include in the show notes forpeople to take a look at that as
well, because I think that is animportant consideration,
especially because I know thatthere are some people who, you
know, they're not against ESGinvestments, they just, they

(26:07):
don't know, if maybe they wantto have an ESG screen on their
investments. They may not knowsort of the, the trade off as to
using those screens, versus justsort of a non tilted portfolio.
So people have differentopinions on that. But
irrespective of that, the votingrecord because, again, you

(26:30):
manage so many, so much assets,and you have so much voting
power, that is something that Ithink would be of great interest
to a lot of people. Okay, solet's, let's let's finish off on
asset allocation ETFs, withagain, some more practical
considerations. So if you aremaybe just starting to invest,

(26:51):
or you're properly, you know,focused on making monthly
regular contributions, I supposeone of the drawbacks of an asset
allocation ETF is that you wouldhave to manually place a trade
every single month. And so forsome people, they might say,
hey, that's great. I don't mindrolling up my sleeves and
placing a trade it's kind of funto do that. Other people like
no, I it's, it's a hassle. Ijust want to automate it,

(27:13):
because I'm not good at doingthis on a on a manual basis,
every single month. And sowhat's your recommendation for
people who want you know, thebenefits of an asset allocation
ETF with a little bit moreautomation to help them maybe
stick to a regular savings andinvestment strategy.

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 maybetake a look at a mutual fund,
that's a low cost solutions outthere, maybe hold some ETFs
across the board, that utilizesthat ability to give you that
pre authorized contribution, orif you're trying to take money

(27:53):
out in a regular basis, thatsystematic withdrawal plan,
right, yeah. So

I'll add a little bit to this and say that,
you know, when your portfolio isrelatively, you know, at the
beginning stages will save yourinvesting career, maybe the the
total balances aren't that high.
The automation of what's packplan, as it's called in the
industry, or pre authorizedcontribution plan, sometimes
called things like continuoussavings plan, there's a whole

(28:18):
bunch of acronyms for the samething. But basically, it's, you
say, hey, I want to put in $100a month, and I want this to
happen automatically, likeclockwork, you then tie that
contribution into an investment.
And that's generally where, youknow, a mutual fund can be
advantageous in terms of thatautomation aspect. There's also
the the use of robo advisors cando that for they sort of

(28:41):
automate and make things assimple as possible, either of
those solutions are going to bemore costly. And so what you
could do is after your portfoliogets to a size that you deem is
big enough that the costdifferential matters, then you
could switch your portfoliointo, you know, something lower
cost, like an asset allocationETF or what have you. And that's

(29:02):
normal. So you know, I don'tthink one thing that gets talked
about enough is that there's nostrategy that is probably going
to be the same strategy thatinvestors use for the entirety
of their investing career whenit comes to execution. And so I
would say it's probably okay tomake that trade off earlier on.
And then and then sort of flipthat switch down the road when

(29:23):
your portfolio gets a little bitbigger. And where that trade off
point is. I think it's going tovary for investors, some are
going to be way more costsensitive. Others might say, oh,
wait till it gets to 50 grand orwhatever. But yeah, good. Good
advice. You know, speaking of,you know, individual investors
using ETFs, obviously, we havefinancial advisors who use ETFs

(29:46):
as well. I was wondering, haveyou noticed any general
differences in how advisors useETFs in investors portfolios
versus how an individual mightuse ETFs in their portfolios you
have any insights on that?

Yeah, I mean, actually, in some cases, they're
similar because a lot ofinvestors are very sophisticated
too. But in some other cases,they're different. So ask okay
should be in a good example orinvestor may say I just want to
pass it on, I'll do that. A lotof times advisor would say, you
know what, I want to tailor thata little bit more based on my
views of the overallmarketplace. A lot of cases,

(30:25):
investment advisors will alsouse a more of a sector based
approach because they want toget access to a certain sector
or theme in the marketplaceacross the board. So they use a
little more tailored towardscertainly using fixed income as
a as an ETF to for that matter,just because it just makes it
easier to access the underlyingand that's a key big benefit of

(30:47):
ETFs, for the last number ofyears is access to the
underlying, then on top of that,I would say on income focus to
for that matter, you know, asthey look to their client base,
and the demographics of theirclient base, you know, I may be
looking to more ETFs to havemore of an income tilt to them
across the board, given thedemographics and the solution
sets you want to put for theirclients, because that financial

(31:08):
planning overlay angrily quiteoften offer right?

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

Actually, you know, good question, because a lot of
people think about ETFs as justbeing something for the end
investor. And you already talkedabout it being something that
advisors tend to use on aregular basis. And they
certainly do do that. Well, oneof the growing areas out there
is institutions utilizing ETFs.
So it kind of sounds funny,because you're talking about one
investment product that crossesbetween, and investors, advisors

(31:51):
and institutions. And you quiteoften don't hear about that, in
our industry across the board,there tend to be products that
retail investors, products forinstitutions. What have
institutions come to realizethrough exchange traded funds,
is that efficiency and how toaccess the underlying fixed
income, for example, fixedincome until an ETF came along

(32:13):
was hard to access, because youhad to buy all the individual
bonds, you had to rebalance itback to your point before,
right? That now institutions canbuy a basket, a diversified
basket of fixed income. And putemploy that in their portfolio.
And what it's effectively doingfor them is helping them manage
that bid and offer cost andkeeping that very tight across

(32:34):
the board. So the efficiency ofthe ETF has really only brought
investors towards it, advisorstowards it, but also now
institutions towards thesesolutions.

Let's go back in time a little bit. Back to
2010 2009. This is when the mostexchange traded funds division
launched. And I remember at thattime, I was still in advisory of
the industry, I was licensed.
And, you know, indexing from theindustry side was relatively

(33:07):
new, there's a lot ofskepticism, there's a lot of
pushback about indexing ingeneral, it's quite a bit of a
different time today than it wasyou know, even just 10 years
ago, but can you talk about whatwas the initial reaction from,
you know, the industry fromjournalists, when, when a big

(33:29):
five bank launched an index funddivision? What was it like?

Well, actually, when beemo first entered the
marketplace, you know, a lot ofthe industry participants, ETF
industry person liked it,because it gave the industry
credibility that said, Okay,this movement, this ETF
movement, people are in chargetaking this more seriously going
forward, because in game, one ofthe major Kenyan banks into the

(33:59):
space, but at the same time, youknow, a lot of people thought,
Well, how is this gonna work ofa bank entering the space? Some
some thoughts around that. Butthen they saw our commitment,
you know, to the ETF industry,combined with bringing a
Canadian perspective toinvesting. And that brought out
innovations, which led peoplesay, hold on a sec, there is

(34:22):
some value out here, this makesa lot of sense for building a
portfolio that I want. It'sdesigned for me across the
board. And then hand in hand ofthat I pretty proud of our focus
of education over the period oftime, because that's really
helped people understand thevalue of ETFs. And what it
really brings to building aportfolio across the board and,
yeah, certainly that's helped uslead the industry and growth for

(34:44):
the last 10 years.

Yeah, I was gonna say, you know, when it
comes to sort of the plainvanilla broad market based index
funds, I think a lot of peopleare basically saying, Hey,
listen, if you execute Well,you've got Little tracking error
then really comes down to justsort of the cost being one of
the main differentiators. Butyou know, your product shelf is

(35:09):
built out since then. And theassets under management, as I
mentioned before, last time Ichecked was over 80 billion and
the numbers today, but I'massuming it's probably a little
bit higher than 80 billion. Soit's a lot. And in terms of
market share, you know, I don'tknow, if back then I would have
predicted that that B mu ETFs,would be holding such a dominant

(35:29):
position like it's your numberto buy assets, I think right in
in terms of the ETF marketshare. So that's, that's pretty
phenomenal. And I think part ofthat has been also just the
concert effort on getting theawareness out there. But I want
to ask you about, you know, youknow, that the total product

(35:53):
shelf that you offer today, howmany ETFs Do you offer today,
because they didn't when youlaunched it was, you know, a
handful, but I suspect it's abit more than handful.

Everybody starts someplace. And you're right, we
started more of a broad basedindex approach. And we have all
the known indexes, right. But asinvestors have changed their
philosophy and wanted to builddifferent types of portfolios,
and in Canadian eyes it acrossthe board to, we've been
launching other products, andneedless to say, well over 100

(36:29):
different exposures in themarketplace to keep it simple
like that, a broad diversifiedline. And I'd simply say that,
you know, if you're looking atbuilding portfolios, that's one
of the big advantages ofexchange traded funds for the
last 10 years, is creating netnew solutions to help build
those better portfolios. And Ican certainly give you some
examples of you like, as aCanadian investor, you maybe

(36:53):
want to access the USmarketplace, and one of the most
known ones we all know is thes&p 500. We all know when we
look at that, and certainly beena very strong index, by any
measurement is performanceacross the board. And as a
Canadian, there's a couple moreconsiderations because if I buy
the s&p 500, I am employing a USdollar exposure to my portfolio,

(37:13):
do I want that to my portfolio,and can even ETF companies like
us brought in, you know, ahedged exposure to that
marketplace. Or you of course,you can have an unhedged to if
you want to have it in aCanadian dollar term. So saving
that currency conversion cost,right? for let's say, you have
US dollars, you want to avoidthose t 1135 documentation,

(37:34):
well, then you can now get in USdollars too. So the choice of
currency alone, even thoughstill the same s&p 500 is now
something that investors canbring into their portfolio. And
that's just one example where hetested help try to bring that
Canadian perspective to themarketplace. The other thing
that investors visors, ofcourse, across the board said,

(37:56):
Hey, I want a little moreincome, because you know what, I
like income investing, or maybeI'm getting close to retirement,
I want that as part of mysolution set. So in came
dividend ETFs across the board,or more recently, of course,
some of the cover call ETFs arebrought to the marketplace,
right. And those have beensolution sets to help drive a

(38:17):
little higher income for theinvestor out there on a regular
basis. Also, I'd like tohighlight, you know, fixed
income, we talked about itbefore. But think about it,
fixed income as an ETF, has beenof great advancement to the
overall marketplace. And onething we brought to the
marketplace is precision acrossthe fixed income marketplace. So
you can have shorter term,medium term or longer term

(38:38):
exposures, corporates,provincial or federal. Needless
to say, what I'm trying tohighlight here is that fixed
income investing becamesomething you can really get
precise on just like you canwith your equity exposure. And
if you think about it, prior toETFs, entering the marketplace,
you had to buy the bondsyourself and the bid spread
during the bid and the offer islarger ETFs have made that a

(39:00):
titan a more efficient exposure.
So as you want to bring in thatrisk mitigation aspect of fixed
income, you can do that moreefficiently ever did before.
Then you already mentionedbefore. ESG certainly been a big
advancement in ETFs. And morerecently, and I think that's
simply allowing people to getaccess to, you know, another
style of investing one morepersonal focus. And last but not

(39:21):
least, I also want to look atETFs as we kind of moved into
the sectors or the industry baseacross the board, because then
we effectively offered investorsa choice saying, you know,
instead of buying an individualstock, which maybe give me that
concentration, risk of holdingindividual stock, if I liked
that theme, or I like thatinvestment objective, that part

(39:42):
of the marketplace. Give me abasket approach towards that and
allow me to have some, at leastsome diversification but be in a
part of the market. I want to bemore precise on across the
board.

Yeah, from from what you said. I've got a couple
of follow up questions. One hasto do with Um, with income. So
you mentioned, you know, whetherit be a dividend focused ETF
strategy or something thatprovides income on regular basis
for those seeking, you know,income maybe in retirement when
it comes to and this was basedoff a question that I had from a

(40:17):
viewer from my YouTube channel,they had asked about the
distribution policy of ETFs, andwhether or not and so let me
just sort of back this up for,for listeners who may not be
familiar with this. But if youhave a company that has decided
to pay back, you know, part ofits profits in the form of
dividends to shareholders,management will get together and

(40:38):
they'll decide how much theywant to pay out as a dividend.
And so this is something that isdone on an active basis by
management. And there arereasons why they may want to
show a periodic and regularincrease in those dividend
payments and what have you. Soit's a very much an active
process by management todetermine the dividend payout.

(40:58):
But when it comes to an ETF,there are you know, a lot of
plain vanilla ETFs that hold anumber of dividend paying
companies. And so the ETF itselfwill receive a lot of these
dividends. And so his questionwas, does the ETF manager
yourself? Do you guys sit aroundand actively come up with the
end distribution policy to theETF unit holders of all the

(41:19):
dividends and distributions thatyou collect?

Yeah, to a certain extent, I mean, so for example,
you know, a company could payquarterly dividends can pay
annual dividends, that goes intoa basket for us. And then we put
our dividend policy across that.
And for the most part, we take alook back at investors, what
they're looking for, out of thatinvestment objective, right. So
if you're focusing more onincome for an investment, we

(41:45):
would provide more monthlyincome. So instead of the
quarterly dividend payment, nowyou're getting regular monthly
income stream. So that's kind ofmore of a financial planning
angle for an investor to employ.
So you that regular income. Sothen again, if you're looking
for growth, right as a mandateacross the board through an ETF,

(42:05):
you don't really want thatincome being paid, you would
argue the basis you want to becompound it right, so that'd be
more of an annual payment up outto you. So really, it lines back
with the investment objectivesof the individual saying, I want
more income, make more monthlypayment, I want more growth,
make that more of an annualpayment and in between the mix
to depend upon the variousrespecter of ETF. Okay. And

the other thing that I wanted to pick up on was,
you mentioned, you know, peoplehave sort of like a single stock
view for maybe a particulartheme, or even just a single
company, I'll use Tesla'sexample, because that's a
popular one, I see a lot ofpeople who their entire
portfolio is just Tesla stock,which, you know, makes me want
to pull my hair because it'sjust such a huge concentration

(42:49):
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 couchpotato, I don't think about
things, the only thing I careabout is low cost, broad
exposure, sticking to a plan.
But I do realize that there area lot of people who don't buy
into that philosophy. And in thelast two years, we've seen just

(43:12):
an inordinate inordinate numberof headlines of new investors
who start out either tradingmean stocks, they're part of,
you know, Wall Street bets orother internet forums, and they
start investing with incrediblyrisky portfolios. And, you know,
to be fair, that's how I startedinvesting. My first investment

(43:33):
was a penny stock, right? Ididn't know what I was doing my
portfolio was garbage. So thereis opportunity for improvement
for for a lot of people andusing some of these more niche
types of ETFs. And I think yousort of alluded to it, where you
can say, well, instead of justgetting one, you know, stock,
you can get exposure to a basketof stocks in that industry or

(43:54):
theme, if that's kind of whatyou're getting at. So can you
give me example of some ofthose, I guess, products that
you've, you've got, because Iknow you've you've got these
automatic ETFs So what are someof those strategies in case
there are people out there whohave very concentrated holdings
in any one of these particularthemes? Maybe they could do a
little bit better by you know,if they're not going to, you

(44:17):
know, join my cult and be acouch potato investor, maybe we
can still make a betterportfolio by you know, getting
some diversification.

I agree and I think you know, going back to the
investments of ETFs it's thediversification so if you like
Tesla and you like Tesla likecompany Tesla like where it's
going, you may not hold all ofTesla maybe have a diversified
max out there, right. And Zeddobvious examples at UTV an
example in that space forautomation, right? Or, or maybe

(44:50):
discretionary is another way inthat space to get access to that
particular type of investment.
But it's not just that right.
Maybe you have My favorite cleanenergy company because we will
buy a basket of clean energy ETFholdings through an ETF in that
space, right? That is a bigadvantage of ETFs, you get

(45:11):
access, but also thediversification we talked about
before. And that's not sayingyou can't have both, because
maybe you have a bit of bothwhere you have the your Tesla on
one side, and you have yourdiversified basket together with
it across the board, and ofcourse, rebalance back and
forth.

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, thenthey've identified Hey, I'm that
type of investor. You know,maybe it's somebody who just
started recently, or maybe theyknow that they have maybe not
the most diversified portfolio,they can make it a little bit
better. So I know that you'vegot a number of tools that that

(45:48):
people can access to help themin their DIY journey. So you've
got a comparison tool, ascreener tool, and a proposal
generator. So can you explainwhat those three tools are and
what they do for investors?

Absolutely, thank you for highlighting those those
tools are a great resource foranybody free to access right on
our public website, just go tobe more etf.com, and you can
access them. What I like aboutthat 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 onTV, and you want to take a look

(46:26):
at another ETF relative to it.
Well, you can easily do that. Infact, you can do up to five side
by side comparisons, evenbringing some funds do if you
want to, to take a look at eachone of these ones. And yeah,
sure, you can look atperformance, you can look at
cost. We can also look at theinvestment objective to have the
perspective ETF too. So we canreally dive down into various

(46:48):
key criteria to help you make amore informed investment
decision of which ETF is betterfitting your portfolio for you
across the board. I really likethat as a sleeve. But I should
know not only can you actuallydo a side by side comparison, if
you click on the tickers, youactually go into an individual
one page, we get some fulldetail of that respective ETF

(47:10):
get even further insight. Sonice tool to help you in that
journey. Then back to your pointon screener tool. You know, if I
look at the screener tool what Ilike that one for for the most
part is that decision process ofmaybe maybe I want to be more
diversified individual stock ormaybe you know been following up
on a certain trend in themarketplace and there's a

(47:32):
leading stock out there that'sreally representing that trend.
Yeah, take that stock in thereand give me any ETF that holds a
lot of that stock but I also nowknow because it's holding that
stock is probably holding moreof socks like that. Now I can
investigate you know which ETFsout there best represent that
theme or that thesis I havetowards the overall marketplace.

(47:52):
So that's something I reallylike and and the last one at
least they're in the tools wisesportfolio General, we've been
talking about portfolios prettymuch the whole conversation.
Ultimately, it's about buildingbetter portfolios, I really
believe that's what ETS havebrought to the marketplace and
brought tools to help buildbetter portfolios. So you can
start off with your own mix ofindividual ETFs or so and and

(48:16):
see what that looks like from aportfolio across the board. Or
if you wanted to start off onthe diversified asset Nexus you
can start there and then addindividual securities to the
bill that tilt not disappearsbut ETFs to add that tilt to
that portfolio, key tools toeither help identify something
you're looking for. Do that keycomparison across the board or

(48:38):
maybe look at how that workswith inside an overall
portfolio.

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

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.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}101: Using exchange-traded funds to build or improve portfolios with Kevin Prins from BMO ETFs