ETFs

More tax problems for former Emerge ETF unitholders

Published

8 months ago

11 June, 2024

The CIBC letter warned that the Emerge ARK ETFs were ineligible investments and offered several options to correct the problem. The letter also informed investors that they must pay tax penalties to the Canada Revenue Agency (CRA) for holding non-qualifying investments in a registered account.

ETFs appear in investors’ accounts because “ETFs still have proceeds owed to unitholders,” a CIBC spokesperson said in an email.

These revenues are the debt of 4.7 million dollars owed by Emerge Canada Inc. to five of the six Emerge ARK ETFs. Emerging Canada announced on January 5 that former unitholders are now unsecured creditors of the company.

This situation is “like a kick in the pants after a slap,” said Dan Hallett, vice president of research and principal at HighView Asset Management Ltd. in Oakville, Ontario. “ETFs have not performed well; they were delisted while over their peaks; they [liquidated] before the recovery, it’s the perfect storm of everything that could go wrong.

Last April, the Ontario Securities Commission (OSC) placed Emerge Canada’s 11 ETFs under a an unprecedented cease-trade order, which lasted until the ETF delisting in October. Unitholders remained trapped in the ETFs until the funds ended in December.

One month after the trading ban, the OSC suspended registration of Emerge Canada for capital deficit. The OSC continues to oversee Emerge Canada and demand that its activities be monitored by a law firm, although it suspended Emerge Canada’s recordings on February 12. On Monday, the OSC confirmed that it continues to investigate Emerge.

What Investors Need to Know

Permitted investments in registered accounts, including TFSAs and Home Improvement Savings Accounts (FHSAs), include securities, such as ETFs, listed on a designated exchange. However, once a security is delisted, it becomes ineligible unless it qualifies for other reasons.

“The reasons for a delisting have no bearing on the determination of whether shares of the ETF remain a qualifying investment,” Nina Ioussoupova, a spokeswoman for the ARC, said in an emailed statement.

Holding non-qualified investments in a registered account can result in serious tax consequences: the plan pays a tax of 50% on the fair market value of the non-qualified investment at the time it was acquired or changed status, and the income of the investment is also taxable.

The taxpayer must remit the 50% tax as well as Form RC243 (for TFSAs) Or Form RC339 (for other registered plans)no later than June 30 “of the year following the year of acquisition or change to ineligible status,” the CIBC letter states.

Based strictly on the delisting criteria, Emerge ETFs would have become ineligible after the close of business on October 23, 2023. In this case, the deadline for forms would be June 30 of this year.

The penalty for late filing of the relevant form is 5% of the balance due plus 1% of the balance for each full month the declaration is late, up to a maximum of 12 months. The CRA will also charge interest on the balance, compounded daily, beginning July 1 of the year following the end of the calendar year after the tax arises.

The form requires the investor to report the fair market value of the investment as of the date it became ineligible. “The price at the close of business on the day of delisting provides the most sensible and reasonable basis for valuing the ETF,” Hallett said. (See bottom of article for Emerge ARK ETF prices on October 23.)

The 50% tax is refundable in certain circumstances. But Jason Rosen, managing partner at Rosen and Associates Tax Law in Toronto, recommends that investors be proactive and pay the tax even if they believe they are entitled to a refund. The ARC will charge 9% interest on late payments in the third quarter.

“To be eligible for the refund, the investment must be disposed of before the end of the calendar year following that in which the tax arose (or any later date authorized by the Minister of National Revenue),” said Yusoupova. “However, no reimbursement is available if it is reasonable to assume that the registered plan holder knew or should have known that the investment was or would become a non-qualified investment.

Based on the October 23, 2023 delisting date, investors would have until the last trading day of 2024 to dispose of the security and potentially receive relief, Hallett said, since the CRA considers the delisting date regulation is the date of entry into force.

December 30 is the last trading day for settlement in 2024. However, best practice is to avoid waiting until the last minute, as unexpected issues can delay the settlement process.

Another penalty for holding a non-qualified investment is that the investment income becomes taxable. These taxes would not be refundable. However, none of the Emerge ARK ETFs distributed any income after the delisting. According to 2023 Q3 filings for the six Emerge ARK ETFs (Canadian and US dollar versions), the funds allocated only one return of capital to their investors during the year.

Hallett cautioned, however, that if the debt is repaid in full with interest, the interest income could be taxable if paid into the registered plan.

To obtain a refund of the 50% tax penalty, you must complete Form RC4288, Rosen said. “Make sure you have the documentation to support your investment,” he said. He also suggested stating any extenuating circumstances, such as death or disaster, that prevented the investor from realizing their investment no longer qualified.

Rosen cautioned that relief requests can take several months to review and are not always granted.

“Get ahead of it,” he said. “That [might] include obtaining advice from an accountant, investment advisor or tax attorney – or all three. It’s never dangerous to have too much information.

How to have security

An investor could remove an ineligible investment from their account by selling or withdrawing it; they could also trade the position for cash from an unregistered account. However, these options are difficult, if not impossible, when a position has a zero balance and/or is no longer a tradable security, as in the case of Emerge ETFs.

One option CIBC offers its clients is to order the brokerage to delist the delisted security and transfer ownership to the brokerage. In doing so, the former unitholder also assigns all rights to the outstanding claim.

Hallett said former unitholders must weigh the 50% tax penalty against repayment of the debt, which varied between 0.55% and 5.6% of the net asset value of each ETF as of December 15..

“The lesser of evils is to get rid of security to avoid [50%] penalty, and the tradeoff is you give up the opportunity to receive that debt with interest,” Hallett said. “But I think the probability of receiving it is quite low.”

According to a May 14 judgment rendered by the Ontario Superior Court of Justice, which approved the abandonment of a proposed class action against Emerge Canadaa lawyer indicated in January that “Emerge is no longer a going concern and has no assets that could be used to satisfy any judgment that might be obtained against it.”

Emerge Canada said in a Jan. 5 news release that it “continues to work toward paying unitholders.”

An attorney for Emerge did not respond to a request for comment.

Hallett said it is the responsibility of investors and their financial advisors to monitor and understand their holdings.

He said any former unitholder who sees Emerge ETFs still showing up on their statement should call their broker to ask why. He also urged former unitholders to read and act on letters sent by their brokerages, such as CIBC.

Former unitholders may be affected even if they have not received a warning letter.

“Where the shares of the ETF are not disposed of by the registered plan, it is likely that the registered plan will be considered to continue to hold the shares of the ETF,” said Ioussoupova, noting that the fact that the shares are still held or possessed is “a question of fact and law.”

Lessons learned

The tax challenges faced by former Emerge unitholders are another consequence of a fund manager accumulating a large debt owed to its funds and failing to repay it before termination.

The practice is not common. In April 2023, Investment Executive reviewed the financial statements of 10 other small ETF families with similar assets under management to Emerge (less than $500 million). The analysis revealed most managers absorbed the operating expenses of their ETFs and paid the expenses directly each year. Only two of the ten ETF families had an “investment manager receivable” in FY2021, but both were canceled in FY2022.

Drawing on his nearly 30 years of industry experience, Hallett acknowledges that large claims are rare: “Every claim I’ve seen of this nature was proportionately much smaller, and in the next round of financial data, it has been reset to zero. »

Emerge’s practice was disclosed in its financial statements from 2019. “You have to look at the financial statements as part of due diligence, including the notes,” Hallett said.

“Usually it’s very simple vanilla stuff; there is nothing to see here. Until there is.

Unit prices of Emerge ETFs as of October 23, 2023

EARK: $7.69
EAGB: $8.80
EAU: $13.36
AET: $7.61
EAAI: $9.08

Each ETF continues to have a receivable due at the time of publication.

Source

ETFs

Missed the Bull Market Resumption? 3 ETFs to Help You Build Wealth for Decades

Published

6 months ago

14 July, 2024

FinCrypto Staff

The market’s rebound from the 2022 bear market was not only unexpected. It was also bigger than expected. S&P 500 The stock price is up 60% from the bear market low, despite no clear signs at the time that such a rally was in the works. Chances are you missed at least part of this current rally.

If so, don’t be discouraged: you’re in good company. You’re also far from financially ruined. While you can’t go back and make up for the missed opportunity, for long-term investors, the growth potential is much greater.

If you want to make sure you don’t miss the next big bull run, you might want to tweak your strategy a bit. This time around, you might try buying fewer stocks and focusing more on exchange traded funds (or ETFs), which are often easier to hold when things get tough for the overall market.

With that in mind, here’s a closer look at three very different ETFs to consider buying that could – collectively – complement your portfolio brilliantly.

Let’s start with the basics: dividend growth

Most investors naturally favor growth, choosing growth stocks to achieve that goal. And the strategy usually works. However, most long-term investors may not realize that they can get the same type of net return with boring dividend stocks like the ones held in the portfolio. Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) which reflects the S&P US Dividend Growth Index.

As the name suggests, this Vanguard fund and its underlying index hold stocks that not only pay consistent dividends, but also have a history of consistently increasing dividends. To be included in the S&P US Dividend Growers Index, a company must have increased its dividend every year for at least the past 10 years. In most cases, however, they have been doing so for much longer.

The ETF’s current dividend yield of just under 1.8% isn’t exactly exciting. In fact, it’s so low that investors might wonder how this fund is keeping up with the broader market, let alone growth stocks. What’s being grossly underestimated here is the sheer magnitude of these stocks. dividend growthOver the past 10 years, its dividend per share has nearly doubled, and more than tripled from 15 years ago.

The reason is that solid dividend stocks generally outperform their non-dividend-paying counterparts. Calculations by mutual fund firm Hartford indicate that since 1973, S&P 500 stocks with a long history of dividend growth have averaged a single-digit annual return, compared with a much more modest 4.3% annual gain for non-dividend-paying stocks, and an average annual return of just 7.7% for an equal-weighted version of the S&P 500. The numbers confirm that there’s a lot to be said for reliable, consistent income.

The story continues

Then add capital appreciation through technology

That said, there’s no particular reason why your portfolio can’t also hold something a little more volatile than a dividend-focused holding. If you can stomach the volatility that’s sure to continue, take a stake in the Invesco QQQ Trust (NASDAQ: QQQ).

This Invesco ETF (often called the “cubes” or the triple-Q) is based on the Nasdaq-100 index. Typically, this index consists of 100 of the Nasdaq Composite IndexThe index is one of the largest non-financial indices at any given time. It is updated quarterly, although extreme imbalance situations may result in unplanned rebalancing of the index.

That’s not what makes this fund a must-have for many investors, though. It turns out that most high-growth tech companies choose to list their shares through the Nasdaq Sotck exchange rather than other exchanges like the New York Stock Exchange or the American Stock ExchangeNames like Apple, MicrosoftAnd Nvidia are not only Nasdaq-listed securities. They are also the top holdings of this ETF, with Amazon, Meta-platformsand Google’s parent company AlphabetThese are of course some of the highest-yielding stocks on the market in recent years.

This won’t always be the case. Just as companies like Nvidia and Apple have squeezed other names out of the index to make room for their stocks, these current names could also be replaced by other names (although it will likely be a while before that happens). It’s the proverbial life cycle of the market.

This shift, however, will likely be driven by technology companies that are offering revolutionary products and services. Owning a stake in the Invesco QQQ Trust is a simple, low-cost way to ensure you’re invested in at least most of their stocks at the perfect time.

Don’t forget indexing, but try a different approach

Finally, while Triple-Q and Vanguard Dividend Appreciation funds are smart ways to diversify your portfolio over the long term, the good old indexing strategy still works. In other words, rather than risk underperforming the market by trying to beat it, stick to tracking the long-term performance of a broad stock index.

Most investors will opt for something like the SPDR S&P 500 Exchange Traded Fund (NYSEMKT:SPY), which of course mirrors the large-cap S&P 500 index. And if you already own one, great: stick with it.

If and when you have some spare cash to put to good use, consider starting a mid-cap funds as the iShares Core S&P Mid-Cap ETF (NYSEMKT: IJH) instead. Why? Because you’ll likely get better results with this ETF than you will with large-cap index funds. Over the past 30 years, S&P 400 Mid-Cap Index significantly outperformed the S&P 500.

^MID Chart

The disparate degree of gains actually makes sense. While no one disputes the solid foundations on which most S&P 500 companies are built, they are in many ways victims of their own size: It’s hard to get bigger when you’re already big. This is in contrast to the mid-cap companies that make up the S&P 400 Mid Cap Index. These organizations have moved past their rocky, shaky early years and are just entering their era of high growth. Not all of them will survive this phase, but companies like Advanced microsystems And Super microcomputer Those that survive end up being incredibly rewarding to their patient shareholders.

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John Mackey, former CEO of Amazon’s Whole Foods Market, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Vanguard Specialized Funds – Vanguard Dividend Appreciation ETF. The Motley Fool recommends Nasdaq and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a position in Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Vanguard Specialized Funds – Vanguard Dividend Appreciation ETF. The Motley Fool recommends Nasdaq and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. disclosure policy.

Missed the Bull Market Resumption? 3 ETFs to Help You Build Wealth for Decades was originally published by The Motley Fool

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ETFs

This Simple ETF Could Turn $500 a Month Into $1 Million

Published

6 months ago

14 July, 2024

FinCrypto Staff

This Simple ETF Could Turn $500 a Month Into $1 Million

This large-cap ETF offers investors the potential for above-market returns while minimizing risk.

It’s always inspiring to hear stories of people who invested in a company and made tons of money as the company grew and became successful. While these stories are a testament to the power of investing, they can also be misleading. That’s not because it doesn’t happen often, but because you don’t have to make a big splash on a single company to make a lot of money in the stock market.

Invest regularly in exchange traded funds (AND F) is a great way to build wealth. ETFs allow you to invest in dozens, hundreds, and sometimes thousands of companies in a single investment. For investors looking for an ETF that can help them become millionaires, look no further than the Vanguard Growth ETFs (VUG 0.61%).

A history of outperforming the market

Since its launch in January 2004, this ETF has outperformed the market (based on S&P 500 Back), with an average total return of around 11.6%. The returns are even more impressive when looking back over the past decade, with the ETF posting an average total return of around 15.7%.

Total VUG Performance Level data by YCharts

The ETF’s past success doesn’t mean it will continue on this path, but for the sake of illustration, let’s take a middle ground and assume it averages about 13% annual returns over the long term. Averaging those returns, monthly investments of $500 could top the $1 million mark in just over 25 years.

Assuming (emphasis on the word “assume”) that the ETF continues to generate an average total return of 15.7% over the past decade, investing $500 a month could get you past $1 million in about 23 years. At an annual return of 11.6%, that would take nearly 28 years.

There is no way to predict the future performance of the ETF, but the most important thing is the power of time and Compound profit. Earning $1 million by saving alone is a difficult and unachievable task for most people. However, it becomes much more achievable if you give yourself time and make regular investments, no matter how small.

So why choose the Vanguard Growth ETF?

This ETF can offer investors the best of both worlds. On the one hand, since it only contains large cap stocksIt offers more stability and less volatility than you typically find with smaller growth stocks. At the other end, the focus on growth means it is built with the goal of outperforming the market.

Investing involves a tradeoff between risk and return, and this ETF falls somewhere in the middle for the most part. That’s not just because it only contains large-cap stocks. It’s also because large-cap stocks are leading the way. Here are the ETF’s top 10 holdings:

Microsoft: 12.60%
Apple: 11.51%
Nvidia: 10.61%
Alphabet (both share classes): 7.54%
Amazon: 6.72%
Meta-platforms: 4.21%
Eli Lilly: 2.88%
You’re here: 1.98%
Visa: 1.72%

The Vanguard Growth ETF is not as diversified as other broad ETFs, with the top 10 holdings making up nearly 60% of the fund and the “The Magnificent Seven” with stocks accounting for about 55%. However, many of these companies (particularly mega-cap technology stocks) have been among the best performers in the stock market over the past decade and still have great growth opportunities ahead of them.

MSFT Total Return Level data by YCharts

Big tech stocks are expected to continue to see growth in areas such as cloud computing, artificial intelligenceand cybersecurity; Eli Lilly will benefit from advances in biotechnologyTesla is one of the leaders in electric vehicles, which are still in the early stages of development; and Visa is expected to be one of the forerunners as the world moves toward more digital payments.

ETF concentration adds risk, especially if Microsoft, Apple or Nvidia is experiencing a slowdownBut these companies are well positioned to drive long-term growth despite any short-term setbacks that may arise. Consistent investments over time in the Vanguard Growth ETF should pay off for investors.

Randi Zuckerberg, former head of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Stefon Walters has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard Index Funds-Vanguard Growth ETF, and Visa. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a position in shares of Apple and Microsoft. disclosure policy.

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ETFs

Ethereum ETFs Could Bring in $1 Billion a Month

Published

6 months ago

14 July, 2024

FinCrypto Staff

Kraken Executive: Ethereum ETFs Could Amass $1B Monthly

In a recent interview with Bloomberg, Kraken’s chief strategy officer Thomas Perfumo predicted that Ethereum ETFs could attract between $750 million and $1 billion in monthly investments.

“Market sentiment is being priced in. I think the market has priced in something like $750 million to $1 billion of net inflows into Ethereum ETF products each month,” Perfumo said.

In the interviewPerfumo noted that if inflows exceed expectations, it could provide strong support to the industry and potentially drive Ethereum to new record highs.

This creates positive support for the industry, if we go beyond that, note that Bitcoin was at a rate above $2.5 billion

He said

Moreover, the hype around Ethereum ETFs has already sparked some optimism among investors. After the SEC approved the 19b-4 filing, Ethereum’s price jumped 22%, attracting investment into crypto assets.

This price movement shows how sensitive the market is to regulatory changes and the growth potential once ETFs are approved.

Perfumo also highlighted other factors supporting current market sentiment, including the upcoming US elections and a potential interest rate cut by the Federal Reserve. Recent US CPI data suggests disinflation on a monthly and annual basis, with some traditional firms predicting rate cuts as early as September.

These broader economic factors, combined with developments in the crypto space, are shaping the overall market outlook.

Regarding Kraken’s strategy, Perfumo highlighted the exchange’s goal of driving cryptocurrency adoption through strategic initiatives. When asked about rumors of Kraken going public, he reiterated that the company’s intention is instead to broaden cryptocurrency adoption.

Read also : Invesco, Galaxy Cut Ether ETF Fees to 0.25% in Competitive Market

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ETFs

Kraken Executive Expects Ethereum ETF Launch to “Lift All Boats”

Published

6 months ago

14 July, 2024

FinCrypto Staff

Kraken exec expects Ethereum ETF launch to ‘lift all boats’

Kraken Chief Strategy Officer Thomas Perfumemo said: Ethereum ETFs (ETH) could help the crypto sector while commenting on political developments in the United States.

On July 12, Perfumo told Bloomberg that spot Ethereum ETFs would attract capital flows while drawing attention to crypto, noting:

“It’s a rising tide, which lifts the whole history of the boat.”

Perfumo further explained that the final value of Ethereum “depends on the Ethereum ETF.”

He said the cryptocurrency market is “pricing in” between $750 million and $1 billion in net inflows into Ethereum products on a monthly basis, which would imply that Ethereum could reach all-time highs between $4,000 and $5,000.

Perfumo also compared expectations to Bitcoin’s all-time high in March, which he called a “silent spike” that occurred without any evidence of millions of new investors entering the industry.

Political evolution

Perfumo also commented on political developments. At the beginning of the interview, he said that the results of the US elections “will set the tone for policymaking and the legislative agenda for the next four years.”

He also stressed the importance of legislative action and clarity and noted that recent developments show bipartisan support in Congress.

The House recently voted to pass the Financial Innovation and Technology for the 21st Century Act (FIT21) and attempted to repeal controversial SEC accounting rules with the Senate. However, the president Joe Biden Chosen to veto The resolution.

Perfume said:

“Even if you encounter obstacles at the executive level, [there’s] “There is still good progress to come.”

He added that the Republican Party appears “more pro-crypto.” [and] “more progressive” on the issue, noting Donald Trump plans to attend the Bitcoin Conference in Nashville.

Trump has also made numerous statements in support of pro-crypto policy, including at recent campaign events in Wisconsin And San Francisco.