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Why Ottawa Should Allow ETFs in PRPPs

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Greg Hurst:

It is interesting how many (most) commentators seem to be assuming that PRPPs will invest in mutual funds. This inevitably leads them to conclude that if low cost is the goal, either passive funds or ETFs must be the solution.

This would be wrong, though. Relative to passive funds, IFIC and many fund managers argue that there can be value in active funds. I would add too, that ETFs are likely not a good fit for PRPPs, nor are they the lowest cost option.

Instead, PRPPs are most likely to offer institutional pooled fund investments (likely a blend of passive and active). Such pooled funds are essentially the same as mutual funds, but without the regulatory wrapper and associated costs (including distribution costs in the form of commissions). ETFs are also essentially passively managed pooled funds (with some exceptions), but they have added complexity that the value of an ETF share must be determinable on a real-time basis, whereas institutional pooled funds need only be valued when it is convenient to the purposes of the investors (usually daily but sometimes perhaps as infrequently as monthly). PRPP investors won’t really need real-time valuation, since the object of PRPPs is to accumulate funds and investment earnings, rather than to trade funds. Since institutional pooled funds are simpler than ETFs, they should be less costly to administer (ignoring any premium in management fees relating to active management).

Monday, August 08 at 3:45 pm | Reply

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