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Tuesday, 9 July 2019

So Long CoreShares, And Thanks For All The Fish

Something fishy going on at
CoreShares? 
Today, 9 July 2019, is the last day you will be able to buy and sell the CoreShares Equally Weighted Top 40 ETF (CSEW40).

The reason it will no longer exist is because the second round of voting went in favour of CoreShares changing the CSEW40 ETF into something CoreShares say will be new and improved (I wrote about the proposed changes to the name, index tracked, methodology and fees and why I liked none of it over here)

There were not enough votes received in the first round of voting to deem the result official, and so a second round of voting was required. The outcome of the second round of voting was 68.31% in favour of the changes - and so CoreShares now have the green light to implement them.

As an aside, there was a bit of a royal f-up oopsie by Standard Bank and RMB in the second round of voting – they didn’t provide a schedule of the underlying clients who voted, and so those votes could not be counted towards the result. It wouldn’t have affected the outcome in any event, but out of curiosity I would love to know what would have happened if the excluded votes would have changed the outcome… Would those clients have any recourse?

Anyways no harm, no foul and moving swiftly along…

Farewell CSEW40, It is the end of an era.

Sentimentality out the way, here is what I am planning to do going forward.

I Won't Be Buying Any Of The New CoreShares Product

As I alluded to previously, I am not a fan of the new CoreShares SciBeta M-FI ETF (short name SMART) which the CSEW40 is going to morph in to. So for that reason I will not be buying any of it in future.

Besides the immense complexity of the new product, John Bogle (the father of index investing) summed it up best:

"What is the point of taking the risk, when the guarantee of getting the market return is right at your hand? Why would you speculate?" - John Bogle

The new CoreShares product will be a Smart Beta product; one which tries to beat the market (and I say try, because in theory “of course it will, just look at how well it would have done in the past”, but in practice – well let’s just say I don’t want to be invested in it and find out 10 years later that the returns were kak).

The problem is that every time you try to beat the market there is a very real risk you won’t.

Investing carries enough risk as it is, so I am not keen on adding the additional risk of not getting the market return by trying to be SMART clever about it.

I Will Slowly Offload My Current CSEW40 Holdings

I hold some CSEW40 (which will be converted to SMART in less than 24 hours) in both mine and my wife's TFSAs, as well as in some discretionary investments.

I have given the upcoming changes some thought, and my initial knee jerk reaction was to sell all of them and switch over to the Satrix 40 (the cheapest ETF in all of the land with a delightfully low TER of just 0.1%). Yeah yeah, I hear you about the massive Naspers exposure in this ETF, but if this ETF is only a portion of a overall portfolio, the Naspers exposure gets diluted and could be at a far more acceptable overall weighting.

So I was about to switch everything into Satrix 40, but then the pain of crossing spreads and paying brokerage/transaction fees on the sell and buy sides of a switch like that started putting a bit of a dampener on those plans.

And then something else also crossed my mind…

Maybe I shouldn’t be doing a straight local equity conversion from CoreShares Equally Weighted Top 40 to Satrix 40 at all...

You see, selling out of CSEW40 could also be a great opportunity for me to do a bit of re-balancing and get myself closer towards my targeted asset allocation. As it stands, I am a little light on my local property, global property and global equity allocations and so maybe I should be using this opportunity to up-weight those?

That way I can also justify the switching charges – the costs of selling out of CoreShares and buying into other ETFs is the price I pay for getting my asset allocation more in line with where I want it to be. I can live with that!

So my mind is made up. It is definitely going to be so long CoreShares and thanks for all the fish.

And that just leaves me with one last question - when to sell?

Tough call – maybe the answer is 42?

Or maybe I should just phase them out over time… Aim to have none left by the end of the year?

That seems as good a plan as any.

Brokerage Account Magic

And now for your brokers next trick – they will make your investment disappear! (Proper scary!)

I think I must point out to those of you who hold the CSEW40 in your brokerage account, and have never experienced a product change like this before, expect some funky happenings in your account over the next few days.

What no one will tell you (and it is scarier than the boogie man) is that during this administrative nightmare of changing ETF names, codes, etc., your current CSEW40 holdings may simply vanish from your account. Poof!

Fear not, a few days later, after a little abracadabra, some shiny new SMART ETFs will magically appear in your account and your heart can return to it’s normal BPM.

You have been warned - so when you see your hard earned tom disappearing (possibly from tomorrow) play it cool for a day or two. If you still don’t see your SMART ETFs in your account by say next Monday, then it might be worth getting in touch with your broker and giving them a stern WTF.

Thanks For All The Fish

A few years ago, I viewed CoreShares as an innovative, fee slashing, warrior who would bring us cool new ETFs (I recall they were the first to launch a S&P 500 and Global Property Tracker) at low fees. But slowly, over time, their shine seems to be dimming a little (my opinion).

I noticed it first in their spreads (which I viewed as a little high compared to other ETFs operating in the same indices). Then I also started noticing it in their fees – while other providers were launching lower cost equivalent options and/or cutting their TERs, CoreShares held steady.

I wrote about how both these issues played a role when I decided to change my preference for local and offshore property trackers from CoreShares to Satrix and Sygnia respectively.

And now, more recently, CoreShares seem to be becoming more of a Smart Beta provider. The reason I say this is because since smart beta-fying the CSEW40, they have proposed some changes to their two local property trackers - they want to merge them into a single Smart Beta ETF.

Whether this new direction the company seems to be taking turns out to be a good or bad thing, I cannot say – it is just something that is not for me (it could well be for you though, in which case by all means please don’t let me stop you).

But what I will say is that I am not a fan of doing all the research to decide on an ETF, and then paying my fees and spreads to get in, only for the ETF provider, at a whim, to decide they don’t like that ETF anymore and they are going to change it. Personally, I would have preferred it if CoreShares launched these Smart Beta ETFs as new products, and left the current ones as is (in which case I would happily continue to hold my CSEW40s for many more years). I understand the commercial implications and all that, but it does mean I am going to be really hesitant ever choosing a CoreShares product again. I guess I have lost a little faith in them.

Having said all that, I must point out that this article is in no ways meant to bash CoreShares, it is more around my view on smart beta and my passive investment philosophy. CoreShares obviously have their reasons for doing what they doing, and I wish them all the best! I will definitely be keeping an eye on what else they bring to market (could be interesting!)

And it seems that other people may not be viewing this move by CoreShares the same way I do. I recently ran a Twitter poll (highly scientific and fully representative, I know, I know…) to find out which ETF provider was the current favourite. The results were as follows:


This compares to the exact same poll I ran around a year ago (back in August 2018, before any CoreShares changes were proposed).


As you can see, CoreShares maintained their share of the vote. So it seems the current perception of CoreShares has remained unchanged, which I thought was interesting (and it certainly surprised me a little!)

Maybe the changes are not so bad? Or maybe people are just blissfully unaware of what is happening?

Either way I would love to know, for those reader’s who do hold the CoreShares Equally Weighted Top 40 EFT, what are your plans going forward? Keep or sell? If you are selling, what will you be buying in it’s place?





Till next time, Stay Stealthy!
 - ~ - ~

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