Even as a child, Mark Yamada had a passion for investing. “I bought my first four shares of common stock when I was 10 years old,” he recalls fondly. As CEO and founder of Toronto-based PUR Investing Inc., Yamada employs his lifelong interest to advance his firm’s expertise in exchange traded funds (ETFs) and risk-based portfolio construction. His efforts have successfully advanced PUR into the top ranks of Canadian investment firms. We recently spoke with Yamada about his winning investment approaches and future plans for PUR.
Advantage: When did you become aware of the value of ETFs?
Mark Yamada: I was developing the high-net-worth division for Guardian Capital, a Toronto-based investment firm in 2001. Simply put, ETFs are groups of securities that trade like an individual stock on a stock exchange, such as the Standard & Poor 500 or the S&P/TSX Composite Index. I came to realize that they offered distinctive benefits for investors.
What are the advantages of an ETF?
An ETF resembles a mutual fund but with important pluses. In Canada, a common stock mutual-fund investor typically pays 2.6 percent in annual management fees. ETFs charge only 0.15–0.75 percent in fees. ETFs also offer investors more flexibility and control. Mutual funds are traded at the previous day’s closing price. ETFs can be traded at any time, can also be sold short, are tax efficient, and outperform median actively managed mutual funds with strong consistency. Finally, ETFs are more transparent than mutual funds—investors know exactly what they own at all times.
What are the benefits that PUR offers in ETF investing?
PUR can and does build institutional quality portfolios for individuals. By their nature, ETFs are efficient packets of well-diversified risk, making them ideal portfolio building blocks. Our professional advisors use techniques, including risk budgeting, that only the largest and most successful pension funds employ. Other investment firms using conventional asset allocation techniques have found them less effective in recent years because of persistently high market volatility.
PUR is also a software development firm. We power the ETF Screener that is on the TMX Money Website. PUR has developed a powerful ETF portfolio construction tool for professional advisors. Building tailored portfolios that match an individual’s tolerance for risk and investing time horizon, it automatically notifies advisors when rebalancing trades are suggested. Uniquely, it rebalances to a constant risk, which is more effective in preserving capital than the normal fixed-asset mix method. It is the only automated web-based ETF construction tool in the world that we know about. It is certainly the most sophisticated.
ETFs in North America have enjoyed explosive growth in assets and numbers; their popularity is likely to continue as more investors discover their advantages.
What does PUR offer for retirement planning?
One in five Canadians is a civil servant with a defined benefit (DB) pension that we taxpayers guarantee. Fewer than 17 percent of private-sector employees enjoy DB pension security. Seventy percent of Canadians do not have a workplace pension at all. ETFs can help the rest of us by lowering costs. PUR has developed a third generation of target date fund (TDF) for defined contribution (DC) pension plans, the fastest-growing segment of the pension market. Conventional target date funds start with high amounts of stocks and automatically reduce them as retirement approaches, eliminating the need for investors to make these decisions. That is great, but they often fall short in managing risk. PUR’s approach not only makes TDFs more effective, but also makes them more like comprehensive DB plans by targeting to replace a percentage of income. Our paper “What DC Plan Members Really Want” was accepted and published in the Rotman International Journal of Pension Management in its fall, 2011 issue.
What would you still like to achieve with PUR Investing?
My colleagues and I are excited to be at the vanguard of two explosive markets, ETFs and DC pensions. With almost 1,500 ETFs in North America, demand for our tools that help screen, sort, and build portfolios will expand as investors seek support. A looming pension crisis in many parts of the world, and a major shift towards DC pensions, means approaches like PUR’s Target Date 3.0 can help investors get better retirements. We plan to find strategic partners to take our capabilities around the world and to find business partners to help us leverage our talented team’s efforts to challenge convention and disrupt the status quo.