The Canadian Investor - Do Bonds Still Make Sense? Plus Canada’s New Factor ETFs

Episode Date: July 6, 2026

In this episode, we take a closer look at bonds and bond ETFs, including where they can fit in a portfolio, why duration matters, and why the traditional 60/40 portfolio may not behave the way many investors expect. We also break down the key differences between owning individual bonds and bond ETFs, using recent examples like long-term U.S. Treasuries versus short-term Treasury bills to show how interest rate risk can impact returns. We then turn to the new Avantis ETFs launched in Canada through CIBC, including why factor-based investing has attracted so much attention, how these funds differ from traditional market-cap-weighted index funds, and why investors should be careful not to treat them as a guaranteed shortcut to market outperformance. The funds may be interesting, but patience, expectations, and understanding the trade-offs still matter. Subscribe to our Our New Youtube Channel! Check out our portfolio by going to Jointci.com Our Website Our New Youtube Channel! Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Dan’s Twitter: @stocktrades_ca Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Web player - The Canadian Real Estate Investor Asset Allocation ETFs | BMO Global Asset Management Sign up for Fiscal.ai for free to get easy access to global stock coverage and powerful AI investing tools. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

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Welcome back to the Canadian Investor Podcast. I'm Simone Benaj. I'm back with Dan Kent. We're back with another funny episode here. Not quite sure when it will be released. So this one is one that we're recording in advance. So we're recording this on June 10. So if Dan feels a little bit under the weather, he's probably fine as you are listening to this. His voice is still a bit off. But it'll be a fun one. So we're recording a Evergreen episode, so an episode that even though we record in advance, it should still be useful when you listen to it. Probably sometime late June, early July, just because are trying to book about a week off from the podcast. So it does require some preparing to make sure that you still get some fresh episodes.

Yeah, it's nice. We're both going on vacation at the exact same time. Exactly. Yeah. So I booked a cottage with the family and the puppy. And then where are you going again? Colonna. Colonna, BC.

There you go. Yeah. Yeah. So let's get started here. So the two main segments that we have is we're going to do. well, I'll mostly lead the segments on a bit of a deeper dive into bonds and bond ETF, because I got a question from Ada from our joint TCI community, one of our longtime subscribers and was asking about bonds, what things to look at, the type of yields that you're getting.

Obviously, some companies yielding more than others. And then also compare that to Bonne ETFs. I'll do a bit of historical how the 6040, so 60% equity and 40% bonds as performed. And looking forward, what could reasonably be expected and some of the risk ahead for investors. And then you're going to be going over some new ETSs that were released by CABC. So the Aventus funds that are, you said coming to Canada, but I think they're already here, right? They're already here. Yeah.

I think there's one that hasn't been released yet. there'll be eight funds and I think seven of them are out. By the time you're listening this, there might be all eight out. But yeah, it's a very interesting fund release. I'll get into it during the segment. But they've operated in the U.S. for probably seven or eight years now and CIBC partnered with them to bring a bunch of pretty unique ETFs into Canada. Yeah, they're interesting products. I think there's some, like everything, there are some tradeoffs involved. So I think we'll be going over those and give our thoughts on it. So let's start off now with should you have some exposure to bonds in your portfolio? And it's a pretty common question. I think

if we look at this probably 10, 15 years ago, I think most advisors would have said 100% you should pretty much always have some kind of bond exposure, not necessarily the 60, 40, but it could be even 10% as you're younger. That was the traditional view. I would, say. And I'll really look at this segment from the bond perspective. So not the broader fixed income asset class, which include things like treasury bills, GICs, money market funds, preferred shares, short term debt, private credit, even mortgage products that you can get income from. I'll really look at bonds specifically. So definitely that I would say I think you start getting into the bond territory when you're like two plus years in terms of duration and then it could go well beyond that.

And the first thing to consider, of course, is whether you need fixed income or not in your portfolio and then feel free to chime in interject as you see fit. And the traditional view is that the further you are away from retirement or needing the money. So let's say you have decades, maybe you're a young lad like Dan over here that's in his mid-30s. the more you can have an equity heavy portfolio, and a lot of people will choose to have 100% equity. And the longer you have, it's mainly because, yes, equity tends to outperform bonds and outperform a equity slash bond portfolio if you're thinking about long-term horizons.

But when you're starting to look at a bit more short-term needing the funds, then you want something that's a bit more balanced with, whether it's bonds or fixed income. So that's why target date funds, if you have a defined contribution pension plan and they have target date pension funds. So not the traditional pension funds where you get a guaranteed amount based on a formula when you retire. Really, these pension funds where you contribute a percentage of your pay, every pay,

and then it gets invested. And then when you retire, it's actually money that you start withdrawing. But you don't have a guaranteed amount. and those target date funds are essentially adjusts over time the closer you get to retirement and the fixed income allocation, which will typically be more bonds, just increases over time. So that's the logic behind it. Again, you have to keep in mind that everyone's situation is different. Speaking of pension plan, a DB pension plan, so define benefit where you do get that

guaranteed payment. Oftentimes it is index or conditionally index. Conditionally index would just mean that there's a. indexation on the payment provided that the fund meets certain criteria. It could be a certain level of returns or there could be other criteria. Well, if you have that kind of pension, then you can make a case that that acts almost a little bit as fixed income, right, because you get that guaranteed income. So if that's the case, then potentially you don't need as much fixed income as part of your

portfolio if you have a strong pension and you factor in CPP on top of that. So I just wanted to mention that. I'm not saying this is right or wrong for anyone, but some things to consider. And a especially fee-based financial advisor can definitely help you look at that. Anything else you want to chime in before I keep going here? I guess I'll just say, like, you're, they usually underperform equities because the risk is a lot smaller as well.

I mean, you're going to get your money back. well I guess this would be if you're buying individual bonds when you go through ETFs it changes things a bit but you're effectively loaning the company money versus taking equity in that

company so you're just getting paid a coupon and then when it matures you get all your money back with a stock it's not really the same I mean you could buy a stock it could fall 50% and you are never guaranteed to get your initial capital back

with bonds you're not really guaranteed either you're not guaranteed yeah like there's still some credit risk that you're taking on but if the company goes bankrupt, for example, you'll get paid before equity holders. Yeah, and if you're buying like a AAA rated bond, I mean, it's not guaranteed,

but there's a very, very good chance you're going to get your initial capital back and then that coupon payment annually as well. So, yeah, they're just lower risk. They don't have as high of returns usually in some environments. They've outperformed stocks, but I don't think they have for quite some time now, especially over the last,

like five years or so when we had because the one thing that kills bonds is well if you don't hold them to maturity yeah is rising rates inflation things like that especially when you go to the longer end of the scale like longer term bonds yeah exactly and historically over long periods of time a diversified global portfolio with bonds so 6040 as offered positive returns i'll be i'll be like definitely lower than a global equity portfolio and in some countries actually better risk-adjusted returns while in others it didn't. And that's because, of course, I'll make a difference whether you start looking historically from the lens of the U.S. investor investing domestically versus investing globally.

So not only the U.S. but globally versus a Japanese investor investing domestically versus globally. Much different kind of results just based on how poorly the Japanese market perform versus the U.S. So clearly there would have been the beneficial effects for Japanese investors, but the opposite effect for U.S. investors going to international markets. And the results also very significantly depending on which generation you look at. So baby boomers generally did well in a 6040 portfolio, but they also benefited from a historically favorable backdrop for both equities and bonds in particular. bonds enjoyed a multi-decade bull market from the 1990s through 2020 as interest rate generally trended lower. So that's what you were saying earlier that last five years.

And again, the international diversification was definitely hit or miss depending on which country you're looking at. And I looked at this. I reviewed a study that was done. I believe it was the certified financial planning institute or something like that. I'll add the link to the show notes for anyone wanting to read it. It's quite a lengthy paper. but these are just a sum up of the findings that were found is that overall historically,

at least for that period of time, 6040 has performed very well. But historically is fine, but you also invest for the future. So we're definitely looking at a much different backdrop right now than baby boomers, for example, going back to that, would have seen for most of their life, especially when you start looking at the 1980s. So governments and corporations are just carrying large amounts of debts right now. Some corporate debt does get repaid, but at a system level, a lot of the debt just never really disappears. It just gets refinanced, rolled over, and often replaced with more debt.

So you need to have liquidity in the financial system. And at the same time, we're seeing a shift in the global order and trade relationships between countries. Just look at Canada. For example, we seem to be moving away from peak globalization era towards a more protectionist, regional, or block-based world. Whereas prior, so during that same kind of baby boomer generation, so in the 1980s, specifically going up until 2020, I would say is almost a demarcation line there, you saw a global economy moving towards more globalization.

So very different here. And that could have a meaningful impact on debt markets, inflation, interest rates, capital flows, although it's difficult to predict exactly how it played out. But I wanted to mention that the backdrop could definitely have a big impact on what happens going forward. And I know history is all we have going in terms of looking at evidence. But you also have to look at what's happening right now and the different kind of risks that are starting to emerge. That may be very different from the. risks that were present or the tailwinds that were present in the 1980s, 1990s, 2000s, and so on. Yeah, what could you get?

Bond rates would have been pretty good back in the 80s. I'm pretty sure you get double digits on them because inflation was so high at that point. Inflation is like the main element of risk, I think, with a lot of these. And I guess you're going to go over that next would be the inflation. So I won't say much. You can carry on, but I'll probably comment on it. There is an old saying in investing. It's not about timing the market, but time in the market. The most successful investors aren't usually the ones trying to catch every top and bottom.

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Yeah, inflation is definitely a key risk right there. And you wouldn't be wrong. I think for the most part, you could get like double digits. I think mid double digits, depending on when you would have bought bonds and the quality of bonds you would have bought in the 1980s. So that's very different than right now, especially if you bought longer term bonds. You also benefited from price appreciation if you decided to sell them early. And I'm assuming I didn't do that research, but I'm assuming there were bond mutual funds back then that you could have had that option. to sell early if you wanted to.

And in this type of environment, the structural higher inflation risk is definitely there. It may even increase. And for bond investor, that's a key risk because getting your principal back is, you know,

it's fine. Like, for the most part, if you buy government debt, I mean, most governments that can issue their own currency and finance their debt

in their own currency don't really default. They just, and the printing more money, which will often lead to more inflation and then erode your purchasing power. So, you know, it's fine to get the principal bag, but if you get, you know, $100 bag, but that $100 only has $90 worth of purchasing power now, you end up just your real returns are negative. And that's not what you want as an investor. And our an argument supporting the 6040 portfolio is that it works well because bonds are negatively correlated to equity.

meaning they go up when equities go down and then go down when equities go up. But that's more a myth than reality in all honestly because there are some periods that that's true. And there are also some periods that it is not true because that was typically seen as, okay, people will go into bonds because they don't want any risk, they want safety. But I think as we see more and more debt being issued, especially by governments, I think more and more investors are seeing risks with government debt, not default risk, but real return risk where they're not sure if the interest that they're actually getting with the coupons will actually keep up with inflation. And you don't have to look very far.

The reality is that if you go back to 2022, and I found a really good example here. So if you look at an equity-only portfolio versus a 60-40 portfolio, and these are very good com. So V-Bowls from Vanguard, which is a 60-40 portfolio and all in one. And V-EQ-T, which is 100% equity, they had the same return of negative 11.5% in 2022. So not great if you're using bonds to actually protect some capital and lower the volatility and the risk of your portfolio, you saw the same kind of drawdown. So it actually did not really impact your portfolio, and you're probably capping some of the upside as well.

So that's just a recent example that, no, they do not always move in opposite effects. And I think that is a pretty common misconception. I know there's some pretty famous books. I won't name them, but one does come to mind where people essentially would say, oh, my equities run up. So I'm now 70, 30. I rebalance 6040 into bonds because bonds are down and then when equities will be down, the bonds will go up. I'll rebalance with equities.

I wouldn't say that's necessarily the smartest strategy. I'm not saying do not rebalance if you have a target allocation, but assuming this negative correlation will continue, I think, is a mistake. Yeah, wasn't it during the 2021-2020? It was like the worst year for the 6040 portfolio in history or something like that. performed absolutely awful. And I guess when you mentioned like the pricing element of the bonds and how like if you could sell it early, you could make some money because I guess just an explanation on that. If you had let's just say a 10% 15% bond back in the day and interest rates have just perpetually gone lower, your bond is the coupon payment is worth more

to somebody who can get a newly issued one at that time. because they won't get as high of a coupon. So your bond will rise in value because, you know, you have that coupon payment locked in. Interest rates are lower, you know, new bonds are, or have lower coupons. So it makes yours more valuable. So that's kind of how prices go up and prices go down where kind of the inverse is true. If you have a low yielding or a low coupon bond and interest rates rise,

your bond is not as valuable and it might, it might fall in price. I can't remember that. I think it was a bank. Didn't they buy, they bought a ton of treasuries in 2021? I can't remember that bank. Yeah, Silicon Valley Bank. Yeah. And then interest rates absolutely imploded.

And it's because the value of those bonds, you know, they were probably, I'm just making numbers up here, but they may be getting half a percent. And then interest rates go through the roof and new issuances are, you know, way more than that. The value of those bonds are going to go down. And I think it ended up, yeah, causing a part of the collapse. Yeah, I think one of the issue is that. So Silicon Valley Bank, they bought like U.S. treasuries. So U.S. government bonds at super low rates in 2020, 2021. And then they started needing some liquidity.

I think it was late 2020, early 2023. And they needed to sell some of those bonds. But then the par value was much lower because they bought them at such a low interest rate. So then they ran into essentially a liquidity crisis. So that's why they ended up getting bailed out. and deposits were, I guess, covered by the U.S. government and a couple other banks were bailed out as well. I can't remember the exact one. But then you also saw the Fed come in with the bank term funding program essentially exchanging at par. I think I can't remember exactly how the program

worked, but essentially would allow banks to get the par value on their U.S. treasuries, even though they may be underwater for that reason. Yeah, and that's one of the main reasons for pricing fluctuations. Like if you buy one and hold it to maturity, you'll get your initial capital back, but that does not mean your initial capital is not going to, like technically it doesn't fluctuate in price. But if you have two people who hold a bond and one is yielding two, one has a 2% coupon and the other one as a 4%. Nobody's going to buy that 2% one unless it's adjusted in price so that the yields kind of get to similar levels, which is why those treasuries just tanked in value. And then you can always hold it to maturity, but then again, you get to that same problem.

If you hold it to maturity and inflation significantly higher, then your real returns, you're actually losing in terms of purchasing power. So that's always a conundrum that bond investors will be faced at. And the biggest advantage for bond ETS. So let's kind of look at bond ETS or it says buying individual bonds because most brokers will offer a YouTube buy individual bonds. So the biggest advantage for bond ETF is just instant diversification. With one ETF, you can get exposure to hundreds of thousands, hundreds or thousands of bonds. As bonds mature, inside the ETF, new bonds are added. So the portfolio just kind of keeps rolling forward.

It never kind of matures, if you like. Yes, the underlying assets do mature, but the money is just rolled over into new bonds. And the downside is that you don't control which specific bonds are added or removed to the portfolio. There are different types of bonds ETFs as well, so it's not like all bonds ETFs are the same. So it is much easier as well to buy bond ETFs than picking the actual individual bonds. But you could look at different options if you're interested, government bond ETFs, investment grade corporate bond ETFs, high yield or junk bonds ETFs. Those are definitely riskier in terms of the corporate ones. aggregate bond ETF, which usually combine government and investment-grade bonds for corporations,

international bond ETFs including develop and emerging markets, which will have more risk and higher yield as well. So depending on your appetite and risk appetite and what kind of exposure you want, there's different bond ETFs that you can look at, just like there's different stock ETFs you can look at. Obviously, there's a lot more on the stock side. but nonetheless, there's a whole lot of different types of bond ETFs you can purchase. And of course, each one has a different risk and return profile. A short-term government bond ETF is very different from a long-term bond ETF,

a high-yield bond ETF or an emerging market bond ETF. The main risk is interest rate risk for these ETFs, just like you went over and we talked about. So like if yield rise, the value of the bond inside the ETF, inside the ETF, will generally fall. And whether that leads to a negative total returns depends on whether the income offsets the price decline or not. So you may have high enough income that it may offset the price and then some. But oftentimes the total returns will definitely take a big hit if rates rise and you

bought the bond ETF at much lower interest rates. But duration also matters a whole lot. The longer the duration, the more sensitive the ETF is to changes in interest rates. And unlike an individual bond, a traditional bond ETF does not have one fixed maturity date either. So you might have different maturities. If you look at an ETF on, oftentimes you'll see like kind of a bracket of maturity. Right. So you'll see like, you know, like five to seven years, five to ten years.

So they're not necessarily like strict five years. And like I said, the ETF keeps rolling into new bonds as the old one mature. and the exception would be target maturity bond ETFs. I think there are some of those. Credit risk is also usually less concentrated with a diversified bond ETF because you're not relying on a single issue. So even if you're looking at the junk bond, there's still going to be credit risk. But because you have like maybe thousands of bonds within that ETF, while even if 5% of the corporation's default, I mean, you'll clearly. feel it, but it won't send your investment to zero just because there is just so much diversification

there. And for government bond ETF, an investment grade bond ETF and a high yield bond ETF, they just have all different kind of risk levels. So in terms of credit risk, but again, the other important part is the interest rate risk. Yeah, it's kind of, it's very similar to an equity ETF where if you own 100 stocks and one of them goes to zero inside of it, you're not going to feel it as much as if you own that individual stock and it went to zero. The one thing about the bond ETFs is even though it's happening underneath the surface, the bonds are maturing, they're getting the capital back like you had mentioned. They're rolling it into new ones. So you don't get that same situation where if you bought an individual bond of $10,000 and it matured,

you get your $10,000 back with something like this. These bond ETFs can go down and never recover. So it's a bit of a situation, you know, just because they're rolled. into so many different ones and you don't really see that, you know, initial capital back, because it's not being paid back to you. It's just rolled into new ones. So there's no guarantee of your underlying, well, there's never a guarantee, but high quality grade bonds are, they're not a guarantee, but they nearly are depending on the company, whereas these just, these aren't. Even though it still is happening, it's because of the structure of them. You're not going to see it the same way. That said, I'm just pulling here just to show an

example for join TCI. So I'm pulling the TLT, which is, I can't remember, it's a 20-year U.S. government bond. I think it's not quite sure who the issuer is. I shares. There you go. I thought it was BlackRock. I wasn't quite sure. And I'm just pulling that in here. Yeah, it's down 40% over the last five years. Yeah. So five years total returns minus 29%. So even with that interest payment, so that coupon payment. Yeah, you're down 29%. And this is just US government, 20 plus year US government debt. So it just

kind of goes to show that you bought it five years ago, almost like record lows when interest rates were supposed to stay low forever. And clearly the US Fed does not control the long end of the curve because this is not the short end is the long end. But again, as they started

raising rates, the long end also climbed up in yield. And now it's just been going kind of sideways now for better part of three years. Even looking at the three years when most of the interest rate hikes were done, you're still looking at negative 6% in terms of returns. And that includes your coupon payments. And if you're looking at one year, you're looking at 3%. 3.6. Yeah. Yeah. So if you go back to the situation, the five year return, if you were to buy an individual bond with a five year maturity, like today you would get your initial capital back. Whereas

something like TLT, $10,000 purchase, you're sitting at $7,000, effectively, of your money back. So even though all the same things are happening underneath the surface, you just don't feel it the same. Yeah, exactly. And I'm trying to look here at the treasury bills. So these are not bonds, but they're still from the U.S. government. So in the last five years, if you just bought U.S. treasury bills, which are very short term. So up to three months, so you really don't get impacted by interest rates hike or there's no like interest rate risk. The only thing it does, interest rates go down while you're just going to be yielding less.

Yeah, because they're rolling over so quickly. Yeah. Exactly. So in that same period when TLT was down 29% toll returns, bill, which is the U.S. Treasury bill, is up 18%. It's a big swing. Yeah. It's a big difference. And essentially the, you have debt.

You're buying debt from the U.S. government in both cases. It's just a duration that's very different. So just wanted to show that because it definitely just shows the difference in interest rate risk. So the lag thereof when you're looking at bills and very short term and then bonds, the longer they are, the more of an issue can become. So now going on to individual bonds and bonds you alluded to that. So they give you more certainty of front for sure. So you know the coupon, you know, the yield, the maturity date, and the issuer before buying. And just a quick note here on coupon versus yield because we've been talking about coupon a lot.

So if you're not familiar with that, the coupon is the fixed interest payments based on the bond's original term. So when it was issued, the yield reflects the return based on the current market price. So like you explained earlier, the bonds are usually issued around par value, often $100. If a bond trades below par, the yield will be higher than the coupon. If it trades above bar, the yield will be lower than the coupon. And bond prices are just based on current interest rates that the market would demand for a specific bond and perceive credit risk when you look at especially corporate bond. So I just wanted to mention that because sometimes people will see that and they'll be kind of confused why the two are different. Anything you wanted to add?

I guess the only thing I'll say here is if you're buying them on like the secondary market, you can end up getting capital gains or capital losses as well when they mature. So if you buy a bond at a premium, you'll like say you pay $10,500 for a $10,000 bond. You'll only get $10,000 back and it would be a capital loss and vice versa. So when you're not buying new issues, there can be other elements of returns or losses that kind of offset or add to. Yeah, yeah, that's a, that's, that's, That's a really good point. A lot of people, I think Howard Marks made a whole lot of money during the great financial crisis by doing that. So buying bonds, I think, discounted bonds. Yeah, discounted heavily. So I think like 40, 50% below par and then just holding them and being able to make some nice profits. So I think that was good that you mentioned that. And again, if you hold the bond to maturity, you should receive the interest payments and get your principal back. the issuer does not default, and they can be useful for matching a specific future cash needs.

So a bit like you'd ladder to GIC. So you could do a similar strategy with bonds if you wanted to just by matching the duration based on your cash needs. So for example, you need money in three, four, five, six, seven, eight, nine, ten years. You need money starting then. Then you could buy seven different bonds with different maturities to line up with your cash needs. Now, the tradeoff is you also need to analyze the issue when you're buying individual bonds. So it's just like buying individual stocks. You need to know what you're buying with corporate bonds.

You need to be comfortable with the company's financial help and ability to pay you back. But the good thing is that bonds older get priority in terms of bankruptcy. Doesn't mean that you'll recoup all of your money. If the company does go bankrupt, but usually when shareholders will get wiped out, bondholders will at least be looking at some money. Again, it's not a great situation to be in, but it's not as bad. And diversification matters. So ideally, you want bonds from different issuers, sector, geographies, and maturity. Otherwise, you may be taking on more company-specific risk or maturity risk than you realize. You could always look at doing kind of a mix, right?

This bond ETF mix with some single issuers as well. That's always a possibility if you wanted a bit more diversification and maybe you find some good deals on bonds that you think are well worthwhile. So maybe you do and this is not investment advised just as an example, but maybe you want 20% of your portfolio in bonds. You put 15% of that 20% so 15% of your whole portfolio into bond ETFs and then maybe you put 5% into five different individual bonds from different issuers. So that could be a way to do it.

You don't have to do a null or nothing. And keep in mind that a 4% yield may look fine today. And that was part of the question that we got on joint TCI. But inflation can definitely erode returns over a 10, 15, 20 year period. And we talked a couple weeks ago when you listened to this episode. We went over CPI data from the from the U.S. for May. And it was over 4%. So who knows what it'll look long term.

But I think you had to, I think just factor this in. is sure if four, four and a half, five percent may look attractive, but yeah, if you're thinking long term, who knows how high inflation will be, you know, 10, 15, 20 plus years from now. Maybe it'll be lower. Maybe it'll be a great purchase and you'll have real returns, but maybe not. Maybe inflation will be significantly higher and we're just entering a new era. So that's always something to keep in mind. And the issuer's financial position, that's probably the last thing to look.

look at and a key risk is if you're looking at longer duration, a company's financial situation can change significantly in 10, 15, 20 years. Just look at the telcos in Canada. Like 7, 8 years ago, at BC, TELUS Rogers issuing like a 10, 15 year bond. And probably everyone would have been like, oh, yeah, like, okay, I'm getting like 3 or 4%. That seems fine from a solid company like that. And now we're seeing these telcos, they're probably not going anywhere anytime soon, but they're definitely facing some more challenging times than they were 7,8 years ago. Yeah, I mean, BCE was downgraded to, I think it was one level below, one level above a junk bond.

So, because that's, that's another thing with a lot of these bonds is they'll have credit ratings. Like you'll be able to see whatever it may be a B and A, a AAA bond or whatever it may be. So, yeah, the longer you go on the scale, the more you're exposed to needing the company's financial health to be maintained. And these credit agencies have been known to downgrade when it's like plainly obvious that the company is like entering trouble. So they're not always on top of things. So you have to keep that in mind. But hopefully that Anna, this was this segment like I mentioned, this was regarding your question. So hopefully this helped a little bit just demystify the barn.

area. Probably could have done a full episode on this. I tried to keep it not too long and even despite that took us 35 minutes. Yeah, exactly. There is an old saying in investing. It's not about timing the market, but time in the market. The most successful investors aren't usually the ones trying to catch every top and bottom. They're the ones who spend the most time in the market. I've been a quest trade user for over five years and the reason I stick with them, is that they remove the friction of regular investing. With no commissions on stock and ETF trades, you don't have to wait until you have thousands of dollars saved up to make a move.

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check out the asset allocation ets at bemoetefs.com let's move on here to the eventus funds that are coming to Canada yeah so I guess that was a wrong title for it they have come to Canada they were released they are already here yeah they are already here seven of eight

I'm pretty sure as I speak maybe eight of eight again by the time you're reading this or listening to this I think the ETF industry in Canada over the last while has been plagued by a lot of bad ETF fund releases. I'm not really speaking on the major fund managers like BMO Global X Vanguard. I'm primarily speaking on, you know, the single stock leverage funds,

covered call funds, leverage covered call funds, all that type of stuff. Like triple leverage, polar bearer. Who issues those? Like, I'm fine putting names out there. I don't mind. You would be, there'd be Hamilton. And Hamilton does have a lot of good funds, but some of them I don't, I don't really like. God, who's the other one? Harvest.

Same thing. Like a lot of them have, a lot of them are good. A lot of them are bad. But a lot of them have been taking advantage because they are going to go where the money goes is the passive income craze. Like that has been a huge coming out of the pandemic. I think it's because of the whole, you know, a lot of people losing their jobs back then.

They wanted a way to generate income. So these financially engineered income funds just exploded in popularity. Isn't me or like these like these funds are just waiting to blow up at some point, huh? Yeah, I mean it's. To me it's just a taking time bomb. We've been in a very long bull market. So a lot of these will not really show their. I don't want to like true risks, I guess.

Like obviously covered calls. I don't want to get in. I think people, I think it's true when you get in the bull market. I mean, we're seeing it with AI too is people get complacent. I think it's just investors get complacent. I think it's just as simple as that, right? Like, they start seeing things like doing well, distributions are not cut. They just think the current situation, they start projecting it into the future indefinitely,

and that's when a lot of dangerous stuff can happen. Yeah, because covered calls work pretty good during a bull market. Premiums are high, so you generate more income. During a bear market, you see the exact same downfall as the underlying company offset by a bit of the premiums. but then when you get into a bear market, your premiums are not as high, unless volatility is high. And then you have the element of on the way back up, the fund has to sell covered calls,

which kind of caps your upside. So you don't realize the full upside. So we really haven't had a prolonged bear market to kind of realize how, in my opinion, bad a lot of these funds are. We'll see if we see one in the next four or five years here. But in terms of these Avantus funds, this is actually the first batch of funds, released in Canada that I am genuinely excited about because it is a strong set of funds, in my opinion.

It's backed by a lot of credible financial data in regards to potential outperformance of the market. CIBC has partnered with Avantus to put out those eight funds. Avantus is a U.S.-based company. It was founded by an investor who spent a very long time at dimensional fund advisors. This is pretty important in terms of investing strategies because DFA is well known for taking advantage of Nobel winning academic studies that kind of show what drive

stock returns. And I won't waste a ton of time. Ben Felix, that's who's been on the podcast before. I think that's what their firm tends to use as the dimensional funds. Yeah.

And he has, if you're looking to watch something on YouTube, he has an outstanding video on these funds, a lot more in depth than I'm going to dig in here. But I won't waste a ton of time on the study itself, but in a nutshell,

what it says that over the long run, smaller companies tend to outperform larger ones and value stocks tend to beat expensive gross stocks in terms of returns. That would be high quality value, not value traps. So you're looking at levels of profitability, return on equity, things like that. So he left DFA. He started Avantus and he took some DFA executives with him. And Avantus exploded in popularity. So it started in 2019, I believe. And over the next six years, they accumulated $125 billion plus in assets under management. It's one of the fastest accelerations in terms of fund growth in history. And one of the main reasons why Avantus was so popular is prior to this, these funds, they were advisor-gated. So you had to go

through an advisor. You probably had to pay a high fee in order to get access to them. So well, they're dimensional. I'm pretty sure they're advisor only. Yeah. So if you want to, if you wanted access to this, you had to go through an advisor that could get access to this. So Avant has kind of made it available to everybody. It's kind of, you know, similar situation to what Well Simple is doing to a lot of investing products. Which is fine, right? Going through an advisor is just you'll pay higher fees as long as you're getting proper value from those higher fees from the advisor. Because the fund, I mean, the fun is what it is. I think it's more like the added fee that you're paying is the advisor.

really making worth your while and providing good value for those fees. So are they providing financial planning, tax planning, state planning, like all these different type of things, or are you just paying the higher fees to get into the fund? So I think it's something to keep in mind. And I think if you are going, if you were just previously going, the advisor gate and your your only reason for going into it was because you wanted to own these funds, it kind of wipes out the long-term benefit of it, having to pay for that. So before I go over what the funds are, I'll I'll go over what the main strategy is. So if you buy something like the S&P 500, you're getting exposure,

those 500 companies on a market cap weighted basis, no matter how expensive they are, profitable they are, whatever it may be. For Aventus, what they will do is kind of tilt the allocations towards stocks that are cheaper, smaller, and more profitable. So it's not just a random investing strategy. The outperformance of this strategy has actually been documented and, you know, as I had mentioned, Nobel Prize winning for decades. So the eight funds that they have right now, Cage, so tickered Cage would be the main one.

It is the all equity asset allocation ETF. By the looks of it, it's around 40% exposure to the USA, 30 to Canada, and the rest to international and small caps. And I think this is, it's pretty important when you compare this one to like, say, an XEQT or VEQT, whatever it may be. I think there's a lot more exposure to Canada in this cage fund than the other funds. So they have CACE, which is the Canadian equity fund. CAUS is the U.S. all-cap equity. C-A-L-V is the U.S. large-cap value. C-A-U-V is the U.S. small-cap value.

C-A-D-E is international equity. C-A-S.V is global small-cap value. and C-A-E-M is emerging markets. I might be wrong on this, but I think C-A-E-M is the one that is not quite available, but I might be wrong on that. And when you think of the strategies inside these funds, they're all different exposure,

but they're all tilted towards the same thing. So from what I'm taking from this is CALV, which is that large-cap U.S. equity, it will be more tilted towards smaller and more profitable large-caps. stocks because that's kind of the main strategy. In terms of fees, I'm not going to go over all the funds fees, but because they are actively managed funds, they do carry higher fees than your standard VFV or VOO. So for example, Cage, which is that all in one fund, it's around 28 basis points, whereas

XEQT is around 17. So the fees are around 65% higher. The one thing I will say about this is, I mean, in my opinion, you'll probably have a bit of feedback here, but the fees are largely irrelevant in my eyes. The one thing I look to is performance net a fees. I think that's the only thing that really matters. You could have a five basis point fund returning 10% annualized and a 200 basis point fund returning 13% annualized. You would have been better off in the higher fee fund. And these Avantis funds have delivered pretty good performance thus far down in the state. So obviously we have no idea how well the

Canadian ones will do because they are unhedged. I'm almost positive. They're unhedged. So you're not only, you're exposing yourself to the currency fluctuations as well. So the funds could do very well, but the currency offset, it could be to your benefit or your detriment. So AVGE,

which is the all equity markets ETF down in the States, I think it has lower exposure to Canada than the one they have up here. But that is actually returned 22% annualized since its inception back in 2019. directly from their website. So net of fees, it's actually outperformed the MSCI World Index by about 1% over the last three years and it's outperformed XEQT by about 0.7% annually over that same

time frame. I don't know if you have anything to add or? Yeah, I mean, I'm just looking at pulling up here. So I just want to see HVGE versus, yeah, I mean, it's definitely outperform over the last five years. Obviously, I think for me, it's always five years or since inception. It's not a super long time period too. And I know it's based on historical data. But the fee difference is still, it's not like major, but it's still, you know, it's not not significant either. So you're looking because one of the other things is you're likely going to see higher expense ratios for these funds.

Because the turnaround versus an index is much higher. I was looking at just, I think I can't. remember which one I was looking at because I got a question on joint DCI for that. And the turnaround for the index was like maybe like two, three percent. And I was looking at like I taught, for example, which is like the US total market index versus one of the dimensional funds and the dimensional funds for the total US market one. I can't remember which ticker, but had closer to 10%. So when you have a turnaround that high, you will incur higher trading fees and expense ratios too. So I think get something to keep in mind.

And to me, it all comes down to trade-off, right? Like for these, they're going to be looking at certain qualitative qualities that they want for the companies that they hold. So I think my understanding is they start off with, like, for example, the U.S. total market, but then they will adjust the weighting. So it won't. Instead of having 8% in Nvidia, they might have 5% and then kind of spread out that allocation elsewhere. So that's like everything. I think to me it's a bit of a trade-off,

but I just wanted to mention that. And the fee, it's not like you're looking at 1.5 versus 0.2. It's not that big of a cap. But I think you're right. Like obviously, at the end of the day, the proof is in the pudding, right? So if it just net of fees, it outperforms, then who cares about the fees? Yeah, exactly. And they, the one thing I will say, and I don't exactly know what this entails, but you will only ever pay the management fee for these funds. So apparently CIBC covers all the operational expenses of the funds. So often you'll have a management fee, you'll have a trading expense ratio, and then you'll have a total fee.

Really? Apparently all you're paying is the management fee of these funds. CIBC is covering the operational expenses of the funds. So I don't... I'm looking on their website and it says not applicable with a, Asterix and usually that just means that the fund hasn't been trading long enough that they can't provide the full year. Yeah, exactly.

Yeah. So that is just something I read. I actually haven't dug into it, but apparently all you will pay is the management fee, but don't quote me on that. Look it up yourself first, but I'm pretty sure I've seen that. I do think the real gem out of all these funds is actually the small cap version. It's been the one that I'm most interested in buying. their U.S.

This is the U.S. side because the Canadian funds have no history. We have no idea what they'll do. Their U.S. base small cap fund has returned 16% a year since 2019, which has outperformed a normal U.S. base small cap value fund by more than 3.5% annually. So that is a massive outperformance. It's a short time frame.

So you need a long history of outperformance to kind of, you know, certainly say it's good. But it would be another situation where, yes, you're paying a higher fee, but it's absolutely crushed the underlying benchmarks. And there are some downsides here as well, but I do, I do think they can be alleviated by just a bit of patience. You know, value has not done all that good over the last while. It got crushed coming out of the financial crisis for quite a while. And a lot of these studies on this strategy are studies that have spanned over a decade, multiple decades. So somebody who buys this, because there's a lot of hype around these funds right now,

there's a lot of people talking about them. And I think somebody who buys these expecting like immediate outperformance could potentially be disappointed and abandon the funds early. I think this is even more of a risk right now because of the kind of reputation about well they've done in the states. Investors will want results immediately. And although you could get them, you might not, like if you're buying these, the strategy plays out of the long term, like not the next month.

six months, two years because I think their funds have struggled over the last couple of years because what has done so well over the last couple of years, it's mega cap growth, which Yeah, being being heavily weighted in those top names have served you well, yeah, for sure. Yeah, which they have not, have not had exposure to. So I do think a lot, something else that needs to be brought up in terms of the strong results is it's probably, to give the impression to people that this is going to be some sort of golden ticket to large market outperformance. And these strategies over the long term have been historically shown to outperform the market. Yes, but it's very small degrees. Like, I don't think you want to buy these funds thinking

you're going to top the S&P 500 by three or four percent a year or whatever it may be. Like, I think a more realistic situation, and this is just me kind of, you know, kind of giving off numbers, but, you know, one percent, half a percent, one percent. Like, don't buy these thinking, they're just going to crush the market. Because if they did, it's all to anybody would ever own. You know what I mean? So, and I say this because a lot of money has piled into the Canadian funds. Like, it's peanuts in relation to U.S. funds.

But Cage was one of the top new ETS of the year. It pulled in over 500 million in flows in just two months. Again, that's like peanuts when you're talking about the global markets. But for Canada, it is pretty notable. And I do think, like overall, I do think these funds will be kind of ill suited for a lot of people. And it's not because they're poor funds. It's just because most people just lack the patience to kind of hold them through potentially rough times. And again, as I had mentioned, like, if you own these funds while mega cap value just, or mega cap growth just absolutely

ripped, you probably had a lot of internal thoughts of just dumping them and then buying mega cap growth. So you just need to be patient and allow them to kind of do what they do over the long term. And I think a lot of people struggle to kind of see that holding period, that 10, 15, 20 year holding period. They're too kind of concerned with what they're earning over the last three months, six months, year to date, whatever it may be. I do think if you dump these funds at, you know, the same, the first sign of weakness, you're not really letting the strategy play out. And I do think in this situation, you know, an index fund that you're going to hold on to forever

will ultimately beat out a fund that is historically smarter, but one, you'll just, dump at the first sign of underperformance. Overall, I think they're great funds. Again, I would be interested in the small cap one. I don't know if I would buy the others. But yeah, just don't go into it with unrealistic expectations, I guess. I mean, these factor-based strategies. No, it's not going to be a magical formula.

I think a lot. Yeah, a lot of the commentary, the questions I've got on them is like they're kind of a one-stop solution to beating the market, which might, which historically has been true over a very long. time frame. But I think a lot of people might enter these expecting to do it over the next year, two year, three year, whatever it may be. If you're going to buy these, you need

to let the strategy play out. And the strategy takes a long time to play out. I think we might, like you might get shiny new toy syndrome here. They'll chuck them out if they don't outperform immediately and kind of go to other routes. But they're great funds. I've dug into them

over the last while here and it's the first good release, I would say, in a very long time. Yeah, I mean, I was just looking at the American, like the all-US equity ETF. And this one since inception, it's like about on track with the SMP 500. But then clearly like when you start looking like a year or less, the S&P has really outperform. Like not crazy amounts, but the last year, I mean, the SMP is, you know, it's actually, no, it's still in front. The last year I had the wrong time frame here.

No, it's doing better. The NSTM. The Aventus fund is? Yeah, yeah, it is doing better in the last year. So I had the colors reversed for whatever reason in my head. So, no, it's actually the SNP has been on track. They've been pretty close to one another. If you're looking a bit more longer duration,

if you're looking five years, the SNP is above. And then the shorter the duration, the event is fun, is in front for the US one. So I stand corrected. But overall, I mean, I think the, the philosophy, is definitely a fine philosophy. I think I kind of stand by what I said in terms of you are looking at tradeoffs. And yes, they're slightly higher fees, but it doesn't mean that they won't outperform. But you're trading off slightly higher fees.

So you definitely want the strategy to outperform because you are paying for that. Yeah. Yeah, you're paying more. And one of the things we have talked about time and time again is one of the things you can control as fees. So if you're not getting that outperformance with higher fees, then why are you doing it? But look, I haven't looked at all of them, but so far what I've seen, they seem like they make a whole lot of sense. Yeah. And they'll kind of be lumped in with actively managed funds, which there's a lot of commentary on how bad actively managed funds are. But these are not, like they don't

just pick stocks on them. This is almost like taking an index and tweaking it. It's pretty much tilting it. Yeah. Yeah. Exactly. I think that's the best way to summarize it is you're taking an index and you're tweaking it to make it, I wouldn't say more efficient, but to align with the factors or the qualities that you want. Yeah. Yeah. So it's actively managed in that regard, but don't get the idea that they're just, they're sitting in a room discussing the type of stocks they want to buy. They just tilt it to these factors and then it's pretty much an index based on those factors.

They're not just, you know, they're not actively running the fund like, I don't know, let's like a pure actively managed fund where they're picking and choosing stocks just based on what they think will do well. This is actively managed in regards to the factor tilts and then it's just kind of steady on that. Yeah, exactly. I would assume they just kind of run these like massive just kind of, you know, not reports, but they just do that in the aggregate. and then they'll just still have like algorithms that will just adjust awaiting or something. Yeah. I don't know if I have the right terms, but that, okay, no, anything else to add as my cameras keeps shutting off on and off. I think it's, it's getting too hot here. I should turn the AC on. Yeah, that's all I got. We're running 55 minutes here already. It was a long episode.

Yeah, it was a long episode. Yeah, I mean, I think we, it's nice to see, even though I think there are, there is a lot of junk in the ETF world that has been launched in the last, especially since the pandemic, it seems like there's a lot of crab that is especially those doubled, those triple levered ETFs, like

for those covered call ETFs, like you mentioned. Like you name it, these single stock ETFs with leverage. I think there's a lot of crab that's been launched in terms of the ETF world, but in the US and of course, Canada. But I think you mentioned whether it's our sponsor, BMO,

ETS or you have Aventus CIBC. I think BlackRock has some good options in Canada. Vanguard has some good options in Canada as well. Like, there's a lot of good offerings available to Canadians. And I think it is nice to see that,

but I think it's a good reminder as yes, there are some good offerings, but you have to be careful because, you know, some issuers they go where the money is. No, whether they think it's a good product or not. So just keep that in mind. Yeah. Yeah, that's all I got.

Okay, well, wrap it up. I think people probably listen to this around Canada Day. So happy Canada Day. And hopefully you enjoyed this episode. We're doubling the work. So we have some fresh episodes coming in, even though we'll be taking a little bit of time off from the podcast, but making sure we have some fresh content.

So thank you for listening. And we'll be back on our regular schedule Monday or Thursday, not quite sure when. But, you know, you'll have a fresh episode every day we're gone. The Canadian investor podcast should not be construed as investment or financial advice. The host and guest featured may own securities or assets discussed on this podcast. Always do your own due diligence or consult with a financial professional before making any financial or investment decisions.