Canaccord wealth management, a divi-sion of Vancouver-based Canaccord Financial Inc., is wading into the mushrooming world of exchange-traded funds with the introduction of a family of managed ETF portfolios.

The five Complete Canaccord ETF Portfolios are designed to meet a range of objectives, from capital appreciation to capital preservation. Each portfolio contains 10 to 15 ETFs selected from a universe of about 900 North American-traded ETFs by Toronto-based investment-counselling firmRogerscasey Canada Inc. ; the portfolios will be monitored and rebalanced on an ongoing basis.

Rogerscasey, founded in 1968, advises institutional clients on management of a total of $300 billion in assets. ETFs are evaluated using both quantitative analysis tools and qualitative judgement.

“The portfolios offer advisors a completely diversified solution for their clients and offer advisors themselves a similar payout to mutual funds but at a lower cost to the client and with greater transparency,” says Tanya Bird, senior vice president of products and services with Canaccord in Toronto.

The portfolios require a minimum investment of $50,000 and are best suited for clients with $250,000 in investible assets or less, says Bird. Clients with more assets may also find them attractive, although high net-worth clients often prefer a higher level of customization, she says. The five portfolios include capital appreciation, growth, balanced, conservative and capital preservation, with the ratio of fixed-income ETFs to equities ETFs higher in the more conservative portfolios.

“Smaller accounts may have issues creating comprehensive, diversified portfolios,” Byrd says. “These ETF portfolios take the guesswork out of it.”

ETFs are surging in popularity, and investors are being bombarded with new issues and a multitude of choices. As of Nov. 30, 2009, Canada-based ETFs had assets of $32.8 billion, up from $18 billion a year earlier. About 16 billion ETF shares were traded in 2009, more than double the seven billion traded in 2008. Currently, 114 ETFs trade in Canada, with more than 30 new listings appearing in 2009 alone.

Equities-based ETFs can track equity indices on a country, regional, investment-style or sectoral basis, while fixed-income ETFs track domestic and international, government and corporate, as well as short-term and long-term bond indices. As ETFs are constructed to mimic indices, they usually have low expenses and fees and are fully transparent, so the client knows which securities are held at all times.

Also, ETFs are tax-efficient because of the low level of trading that occurs — and lower taxes translate to higher returns for the client. Changes in ETF holdings are usually made only to keep the ETF portfolio in line with its underlying index.

“There is a dizzying array of ETFs out there, and the industry has gone berserk in terms of issuing new products,” says Dan Hallett, director of asset management with Oakville, Ont.-based HighView Asset Management Inc. “Wherever there is a lot of choice within a product line, there are a lot of options as to how to put a portfolio together. To sift through all the offerings takes a lot of expertise and time, which not all advisors or clients have. There could be an advantage to a product that selects and monitors ETFs.”

Each Canaccord ETF portfolio is beneficially owned by the client in a separately managed account, which can also result in greater tax benefits than some pooled products or mutual funds. There are no embedded, unrealized gains that clients take on from the past, as there sometimes are with mutual funds that hold securities purchased before the client bought into the fund.

Asset-allocation decisions in the ETF portfolios are based on factors such as market capitalization of the securities represented by the ETFs and geographical emphasis. For fixed-income ETFs, considerations include income payout, duration and credit quality of the securities held. The ETF portfolios also include exposure to commodities, alternative asset classes and real estate, but do not include leveraged ETFs.

The Canaccord ETF portfolios charge a management fee of 1%-2%, which is tax-deductible. Of this amount, 30 basis points go to the firm; the rest goes to the advisor as payout. Advisors have the discretion to reduce their portion of the fee, Bird says. Clients will also pay the management fees embedded in the ETFs, and these average about 30 to 35 bps, Byrd says.

“Clients have traditionally bought ETFs for their fee advantage, and the trick with a packaged product will be to continue to provide the client enough of a fee advantage that it is worthwhile,” Hallett says. “If the cost of holding ETFs becomes comparable to a mutual fund, you take away one of the key advantages.” IE