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Capped index arrives too late
February 20, 2001

Capped index arrives too late
Banks enter fray: Barclays i60 units limit Nortel to 10% of index portfolio

Jonathan Chevreau
Financial Post
Chris Bolin, National Post

Stephen Rive, general manager of Barclays Global Investors Canada's iUnits.

A week too late for index investors overexposed to Nortel Networks Corp., the capped version of the Barclays i60 units finally begins trading on Thursday.

Meanwhile, the first of the major Canadian banks, TD Asset Management, is poised to enter the exchange-traded fund (ETF) market with a product based on the broader Toronto Stock Exchange 300 index, as well as a capped version.

A TD spokesperson confirmed a prospectus for the TD TSE 300 Index Funds and TD TSE 300 Capped Index fund was filed on Feb. 6. Annual fees on both ETFs would be 0.25%.

CIBC Securities Inc. is also looking at the ETF market but already has several index funds with management expense ratios as low as 0.3%, if you meet minimum investment thresholds. CIBC Securities chief executive Ted Cadsby said "we would only bring [ETFs] out if we could offer them below the fees that Barclays is charging."

That would be around 17 basis points or 0.17% for Barclays' broader Canadian ETFs. Based on how long it took Barclays Global Investors Canada to come to market, investors may have to wait for any bank ETF to become available.

Barclays filed a prospectus for the capped fund and four TSE sector funds last September. It's all but missed the RRSP season, with only the iUnits Standard & Poor's/TSE 60 Capped Index Fund out in time. It will trade on the TSE under the ticker (XIC/TSE).

The other Barclays funds will become available at various times in March, while two 100% RRSP eligible global equity funds (one covering the S&P 500, the other a non-North American or EAFE fund) will come out later.

One of the new BGI funds is a mid-cap TSE product. The i60 provides exposure to 75% of the market capitalization of the TSE and the mid-cap to another 15%. Using both, an investor gets 90% exposure to the TSE 300, said Stephen Rive, General Manager, iUnits for BGI Canada Ltd.

While the i60c may appeal to investors concerned about excess exposure to Nortel, Mr. Rive said "I don't expect recent events to have changed their thinking. We wanted to make the choice available so people could limit exposure to 10% or stay in the i60s for a pure approach" to indexing the TSE.

The other way to adjust exposure to Nortel is with the sector funds. You can get 25% exposure to Nortel through the new Canadian technology sector ETF.

Those wanting less exposure could use a combination of the new sector funds covering gold, energy and financial services. However, MERs of these funds are 0.55% or 55 basis points, or about triple that of the pure or capped i60s.

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