Short Takes: Book Giveaway, Securities Lending, and more

1. To enter the draw to win one of five copies of George Dawes Green’s novel Ravens (see review here), send an email with the subject “Book” to the address shown on the upper right corner of this blog. The draw will close Saturday August 8 at noon. I will contact the winners to get (Canadian or American) postal addresses.

2. Preet outlines the risks of securities lending as practiced by many index ETFs, and Patrick speculates on how this could become a bubble. It’s not clear to me how securities lending is most likely to cost investors a significant amount of money, but the fact that it appears to be free money makes me very suspicious.

3. Big Cajun Man learns a few lessons while cleaning out his basement.

Comments

  1. PatrickAugust 7, 2009 at 1:08 AM

    Hi Michael. Thanks for the link. What if the ETF management lends your securities for high interest to short-sellers with bad credit? It would boost management's profits, and if the short-sellers can't meet their obligations, it's the unitholders who are on the hook. This should show up over time as a form of tracking error, making the nominal MER essentially irrelevant.

    ReplyDelete
  2. Michael JamesAugust 7, 2009 at 1:17 AM

    Patrick: I suppose that ETF management could become more greedy over time and agree to lend securities to just about any short seller. The only limit would be that they couldn't lend more securities than they actually hold. In such a situation, the drag on ETF returns could easily be much more than management's profits.

    ReplyDelete
  3. Big Cajun ManAugust 7, 2009 at 6:58 AM

    Thanks for the mention, luckily the Garbage Men took all of the crap, but there is more crap to expunge to only look like we have been hoarding for 10 years...

    ReplyDelete
  4. WhereDoesAllMyMoneyGo.comAugust 8, 2009 at 8:35 AM

    Thanks for the link. What has me slightly concerned is that there doesn't seem to be much in the way of regulatory oversight, and the four main securities lenders in Canada have just formed some sort of organization which might end up becoming an SRO.

    ReplyDelete

Post a Comment

Popular posts from this blog

Short Takes: InvestorLine’s HISAs, 24-Hour Trading, and more

I recently moved some cash into BMO InvestorLine’s high-interest savings accounts (HISAs) that are structured as mutual funds.  Their designations are BMT104, BMT109, and BMT114, and they purportedly pay 4.35% annual interest (which they can change whenever they like).  However, the way they report the monthly interest payments is so baffling that I wasn’t able to sort it out in my first 15 minutes of trying.  A further complication is the following text in the HISA description: “The Bank may pay, monthly or quarterly, compensation to your Dealer at an annual rate of up to 0.25% of the daily closing balance in the BMO HISA.”  I couldn’t find any evidence of such a charge, but I haven’t been invested for a full quarter, and I can’t yet say that such a charge isn’t buried somehow in the confusing reporting.  I have more digging to do before I can recommend these HISAs. Here are some short takes and some weekend reading: Preet Banerjee explains the dangers of Robi...
Read more

My Asset Allocation

I’ve resisted discussing my asset allocation for some time, but now is finally the time to describe it and the reasons behind it. I’m not holding it out as a model portfolio; I believe it’s suitable for me and not necessarily anyone else. With that warning, enjoy the discussion and feel free to ask questions or take some pot-shots. The main reason why I haven’t discussed my asset allocation in detail before now is that I don’t want readers to treat it like a model portfolio and follow it blindly. Everyone’s situation is different. The need for variation in asset allocation from one investor to the next usually isn’t huge, but there is no one-size-fits-all portfolio. A secondary reason for keeping my asset allocation to myself is that I can’t be sure I’ll never change it. For example, I recently made the minor change of switching from an ETF of small-cap stocks to an ETF of small-cap value stocks . I don’t have any plans to change my current allocation, but I may think differe...
Read more

Updated Currency Exchange Method at BMO InvestorLine

There is now a more recent update of the method I use for exchanging currency at BMO OnvestorLine . I recently changed the procedure I use to convert large sums between Canadian and U.S. dollars at BMO InvestorLine. The method I use saves a lot of money compared to using the InvestorLine foreign exchange system. The latest change I made eliminated an annoying interest charge that I had to ask to be reversed. Most people don’t realize how expensive it can be to exchange currency. The extra charge banks and brokerages add gets hidden in the exchange rate. To see this extra charge, start by taking a sum in Canadian dollars, say C$10,000, and finding out how many U.S. dollars you can get. Then see what this U.S. amount would get going back to Canadian dollars. Many people might guess they’d get their original C$10,000 back, but they’d be wrong. In a recent test I did at BMO InvestorLine, I’d get back C$9754, for a loss of C$246 in two currency exchanges. That’s $123 per excha...
Read more

Archive

Show more