Boomers slow to embrace online investing, but surprise, it\u2019s not a technology thing<\/a><\/li>\n<\/ul>\n\u201cThe ETF strategists tend to use more sector-based or niche strategies,\u201d he said, \u201cbut the robos tend to simplify and create more long-term (capped index) products to fulfill that mass-market (demand).\u201d<\/p>\n
For practical purposes, Needham said, that means passive portfolio managers generally start with a simple 60\/40 split between equities and fixed income, with investments equally divided between Canada, the United States and internationally.<\/p>\n
From there, the robos configure the weighting to match a client’s risk profiles \u2014 say, by boosting equity exposure, or limiting international exposure \u2014 but they never, under any circumstances, express opinions about the sectors or regions that may be in favour in the short term.<\/p>\n
James Gauthier, chief investment officer at Toronto-based Justwealth Financial Inc., said online platforms are not meant for people who watch the markets on a month-to-month or even a year-to-year basis.<\/p>\n
A client\u2019s risk profile may change over time, but Gauthier said these changes are usually precipitated by major life events \u2014 divorce, inheritance, illness in the family \u2014 and not by any new investment strategy.<\/p>\n
Investors who want to pursue a particular play, or a hot sector, are simply out of luck.<\/p>\n
\u201cIf you were to tell me that you wanted high returns, rather than specifically technology or commodities, we could give you one of our maximum equity growth portfolios,\u201d Gauthier said, \u201cbut we would not get as specific as the sectors.\u201d<\/p>\n
Aside from an aversion to speculation, Gauthier said specialty funds are avoided for another reason: they\u2019re expensive. After all, the whole point of using a passive investment structure such as Justwealth is to avoid the expense of active management.<\/p>\n
\u201cThe combination of speculation and higher costs doesn’t fit well with the long-term investment strategy,\u201d he said.<\/p>\n
Gauthier\u2019s process for structuring a passive ETF portfolio starts with a \u201cdefinition\u201d of what the portfolio is supposed to do. He then looks at forecasts across dozens of asset classes and determines the proper allocation in terms of geographical region, proportion of debt versus equity and yield versus capital appreciation.<\/p>\n
Once Gauthier has laid out an allocation that matches a particular portfolio’s risk profile, he begins the more mundane exercise of selecting ETFs that best fit his model. Here, the goal is to find ETFs that best track the required indexes, while allowing for maximum liquidity at minimum cost.<\/p>\n
Overexposure to a single company is another consideration, said portfolio manager Michael Allen at Toronto-based Wealthsimple Inc.<\/p>\n
\u201cYou can\u2019t have any more then 10-per-cent exposure to one particular company,” he said. “That’s important because we don’t want a Nortel to happen.\u201d<\/p>\n
Allen, of course, is alluding to the disaster that befell markets at the turn of the century when Nortel Inc., which at the time represented more than 30 per cent of the S&P\/TSX Composite Index, collapsed and took out the rest of the market with it. An ETF that perfectly tracks an index isn\u2019t much good if the market itself is a time bomb.<\/p>\n
Typically, robo-advisers will offer five to 10 basic portfolio options. For example, Justwealth has five basic fund families that can be customized (taxable\/non-taxable, domestic\/global) to create 65 total portfolios.<\/p>\n
Wealthsimple\u2019s strategy begins with offering clients two strategic investment options: broad-based and socially responsible. For each strategy, the robo-adviser determines, through a series of questionnaires, a client\u2019s risk profile, and puts the client within one of 10 portfolios that sit on a spectrum from conservative to aggressive.<\/p>\n
\u201cThrough conversations or through e-mail, we can determine if the portfolio that was recommended is appropriate for them, and we can customize it a little bit further for them,\u201d Allen said.<\/p>\n
A typical Wealthsimple portfolio comprises seven to 10 broad-based ETFs in Canadian, U.S., foreign and emerging equities as well as government and corporate bonds.<\/p>\n
Justwealth portfolios comprise four to eight ETFs, but Gauthier said \u201cstarter portfolios\u201d with four ETFs are reserved for investors with limited assets. They may offer the potential for greater returns, but they\u2019re also more volatile and have less access to emerging regions.<\/p>\n
Financial Post<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"Robo-advisers stick to ETFs that track the major capped indexes, steering well clear of anything that looks like a sector-specific specialty fund<\/p>\n","protected":false},"author":578,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/9569"}],"collection":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/users\/578"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/comments?post=9569"}],"version-history":[{"count":1,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/9569\/revisions"}],"predecessor-version":[{"id":9571,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/posts\/9569\/revisions\/9571"}],"wp:attachment":[{"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/media?parent=9569"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/categories?post=9569"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.lifeinsurance-orleans.ca\/index.php\/wp-json\/wp\/v2\/tags?post=9569"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}