Good news for ETF investors
BlackRock’s acquisition of Claymore Investments won’t affect Claymore’s innovative offerings.
In the money business, big can be bad for you. It can also be bad for the economy. Remember Lehman Brothers? It was too big to fail. But it did. The stock markets and economies of the world are littered with the corpses of private sector behemoths that have collapsed, making a terrible mess as they fell, since the dotcom implosion.
So, when I read that the dominant Exchange Traded Fund (ETF) provider, BlackRock Canada, had scooped up the much smaller Claymore Investments at the beginning of the year, I was deeply unhappy. BlackRock, already at the head of the pack with its large selection of iShares, moved even further in front.
According to company statistics, BlackRock now has 76 per cent of the Canadian ETF market. This position might make it stronger and more profitable, but anytime a single entity is overly powerful in a given sector consumers can face reduced choice, increased fees and poorer service.
Little Claymore was innovative — the only provider to offer a money market ETF. And its use of the RAFI indices produced a line of ETFs that were considerably different than those offered by other firms. Even better, Claymore created a dividend or distribution reinvestment plan (DRIP) and a pre-authorized cash contribution plan (PACC), which were a boon to those with small amounts of money.
Trading fees can really take a bite out of profits for investors who don’t have sufficient “bank business” to qualify for $6.95 or $9.95 trades at their brokerage. Generally, you need to have $50,000 to $100,000 in the form of investments, mortgages or other loans. Otherwise a minimum trade fee of around $30 for every buy and sell is levied.
By far the best way for average folk to invest is regularly and over time, including the reinvestment of dividend and interest income. This is called dollar-cost averaging process. But if you are paying $30 to invest $200 monthly, any benefit gained from the low, annual fees charged by ETFs compared to the much higher management fees of mutual funds, is lost.
I created a way around this in my recent book, Count on Yourself: Take Charge of Your Money where I show readers with smaller sums how to invest in an ETF portfolio two or three times a year instead of annually to keep costs down.
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