Monday, 9 February 2009

Great News from Claymore for ETF Investors

It is wonderful to read in an article by Rob Carrick in the Globe and Mail that Claymore Canada will be offering investors in its ETFs the possibility to do three things previously missing and which in my opinion add significant value:
  1. Pre-Authorized Cash Contribution (PACC) plan to make regular monthly, quarterly or annual purchases of new shares
  2. Dividend Reinvestment (DRIP) from existing holdings into new shares
  3. Systematic Withdrawal Plan (SWP) to make regular withdrawals/sales of existing shares to generate cash
This considerably levels the playing field with mutual funds for small investors since all this will be done without charge - Free! The smaller the amount you have to invest the bigger the relative benefit since flat rate commissions at discount brokers would eat up more of small amounts to the point that it really did not make sense for trades of ETFs under $1000. The other big advantage is that one can put more of the mechanical part of investmenting on auto-pilot.

The article says Barclays, creator of the more popular market dominating iShares, is considering doing something similar. Yes, Please! That would really help force the mutual fund industry to lower its fees.

Questrade and Qtrade also lose a competitive differentiator. Their DRIP service would become un-necessary if iShares follows suit.


Anonymous said...

There are a few 'gotchas' not on pres release.

- Minimum amount is $500. Mutual funds allow small amounts ($25).

- New money can only buy full shares. No partial shares allowed.

A question: How are the shares bought ? Do you have to open the account directly with Claymore ?

Markus Cranmore said...

Your first point has a typo, the minimum for optional purchases is $50 (Fifty) not $500:

"Cash contributions are subject to a minimum of $50 for each class of units of a Claymore ETF."

I think the kinks are still being worked out between Claymore, the brokers and the Transfer Agent (computershare). More info is surely to follow.

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