JovFunds Management is coming out with three ‘tactical allocation portfolios’ that will invest solely in exchange-traded funds (ETFs).  These growth, balanced and conservative mutual funds will own Horizons BetaPro ETFs and the asset mix will be actively managed by Fiera Capital.

The advantages of the funds are that (1) they make ETFs available to mutual fund investors (otherwise, the investor needs a brokerage account to buy them) and (2) they take care of the asset mix for the investor.

It all sounds good until you get to the fee.  According to JovFunds, the all-in fee should not be higher than 2.25%.   Yes, you heard right.  The fee on this ETF product will be upwards of 2.25%.   From that fee, the financial advisor who sells the fund gets paid an annual trailer fee of 1.25%.

You don’t get it?  That makes two of us.

First, ETFs are a great way to get low-cost exposure to the overall market or a specific sector of the market.  You get the market return (beta) for an annual cost of just 0.2 - 0.3%.  Yes, the performance of an ETF is predictable (you’re guaranteed to get the market return) and some are more tax efficient, but let’s not forget why they really work for the investor...they’re CHEAP!

Second, in the case of these funds, investors are being charged almost 2% for asset allocation – both Fiera and the advisor are being paid.  Obviously, asset mix is important, but it isn’t worth paying excessively for because nobody has proven they can do it consistently.  It’s one of the hardest ways to generate extra return.  And it doesn’t make sense to pay an on-going advice fee of 1.25% for a product that doesn’t require advice.

The evolution of the ETF has been fascinating to watch...to me at least (as my previous four postings on these products would attest).  I’m obviously generalizing, but the marketing imperative of the wealth management industry is turning an effective and valuable investment product into something that makes no sense for the client.

Simple, low-cost ETFs are great.  Puffed up products based on ETFs are not.