Andrew Allentuck

Saturday, April 5, 2003


The New Investment Frontier II: A Guide to Exchange Traded Funds for Canadians
by Howard J. Atkinson with Donna Green
292 pages
ISBN 1-894663-38-1

Exchange Traded Funds are like mutual funds in that they are priced to their net asset value on a daily basis. Unlike mutual funds, they are traded at their n.a.v. every minute their exchanges are open and some can be part of options strategies. The assets within the funds are held in passive form, that is, they are index stocks for each respective sector, asset type or market, and they are not traded on investment theories as are the assets of most mutual funds. As a result of their no-brainer management, their fees are low and, if traded by a discount broker, it can cost very little to buy and sell them. Over extended periods, due to low fees, they should outperform most managed funds that hold similar assets. Only if markets go into a long slide or stagnate for long periods is there a chance for managed mutual funds or pension funds to beat the ETFs. But over periods of 20 to 40 years, longer than any stagnation in the 20th century in US stocks, low fee ETFs will almost certainly trounce costly managed funds. Time is on the side of ETFs, at least for youngish investors who have the patience and discipline to wait.

Howard Atkinson, National iUnits Marketing Manager for Barclays Global Investors Canada, writes with authority on ETFs, since his firm is a world leader in creating and managing the things. Examining their income tax characteristics, which tend to be benign, estate tax characteristics of ETFs with US assets, asset allocation methodologies and the history of some ETFs, he has produced a book of remarkable authority and clarity. In spite of the detail of this work, it is readable by anyone.

What's more, Mr. Atkinson is more than fair to his product. Writing about bond ETFs, he notes that since they roll annually and never mature, the risk adverse investor should probably stay with the real bond which does mature and revert to cash. More honest and accurate than that he cannot be.

The book comes with a dollop of highly complimentary blurbs from well placed and knowledgeable investment authorities. This is one case in which the 'attaboys are deserved. This is a best of breed book and one that every investor who wants a fee and tax efficient portfolio should read.