The Consumer Price Index (CPI) measures changes in prices paid for a basket of goods and services (i.e., inflation). For the past three decades the Bank of Canada has successfully targeted an inflation rate of between 1% and 3%. The latest figures show year-over-year inflation at 1.9%.
But as you know, our personal inflation rate can vary widely from the basket of goods and services used to measure CPI. There are eight major categories, which include:
- Household operations, furnishings and equipment
- Clothing and footwear
- Health and personal care
- Recreation, education and reading
- Alcoholic beverages, tobacco products and recreational cannabis
We’re going to focus on the food category. Covid-19 has had a major impact on food spending and consumption in Canada. Before the pandemic, 62% of personal food consumption was purchased at retail grocery stores, and 38% was consumed outside the home.
At the beginning of the pandemic, food spending and consumption shifted to 91% retail grocery and just 9% of food spending outside the home. This makes perfect sense, as many businesses closed, and people stayed at home as much as possible. This immediate shift in spending also resulted in disruptions to the supply chain and shortages of items like toilet paper and bread flour.
As lockdown restrictions eased in the summer and into the fall, we’ve seen food spending shift again to 75% retail grocery and 25% dining out.
Food Inflation and Changes in Consumption
Food inflation has trended higher than the CPI for many years. What can we expect as we head into 2021? According to a report issued by Dalhousie University, University of Guelph, University of Saskatchewan and University of British Columbia, Canadian families can expect their household food bill to increase by more than 5% next year.
“Canada’s food inflation index has outpaced the general inflation index over the last 20 years, and that trend is likely to continue for a while,” the report said.
The report indicated the premium for consuming food outside the home is between 40-45%, so even though prices at the grocery store have increased, overall household food spending may be lower if more people are buying groceries instead of dining out.
In a recent episode of the Stress Test podcast, co-hosts Roma Luciw and Rob Carrick looked at how Covid-19 has shifted out food spending. Two areas they focused on was the rise of meal kit delivery services like HelloFresh and Chefs Plate, and the growth of online grocery shopping and delivery.
Roma tried one of the options and wasn’t overly impressed, saying the portions were small, the price per person was high, and that the kit came with an uncomfortable amount of plastic packaging. The main benefit is saving time figuring out what to make for dinner, although you still need to prepare the meal yourself.
Rob wasn’t a fan of online grocery shopping, saying he’d prefer to pick out items himself rather than relying on a grocery picker to find the best produce and cuts of meat. He was also concerned about the grocery picker substituting other brands or similar items that may not be desirable.
My Personal Food Inflation and Consumption
The pandemic has certainly impacted our food spending as well. We weren’t big spenders on dining in the first place, but our spending on food prepared outside the home has decreased by 26% this year. Meanwhile, our retail grocery spending is up 7%.
As a percentage of our household food bill, groceries make up more than 86% of that total, which is up from 81% last year.
|Grocery increase||Dining increase||Groceries % of Food||Dining % of Food|
The biggest change in our food spending during the pandemic has been in the way we purchase groceries. Almost all of our grocery shopping is now done online (and delivered) through Save On Foods and Spud.ca.
We definitely pay a premium for this service, not just in extra delivery charges but we’re less apt to find a bargain in store. On the other hand, when shopping in person I tend to wander the aisles and pick-up items that aren’t necessarily on the grocery list.
The advantage of grocery shopping online, outside of limiting my trips outside of the house, is saving time. It takes 10 minutes or so to complete an order online, versus the hour or more spent driving to and from the store, shopping, and waiting in line at the checkout. That’s more time I can spend working on my business or hanging out with my family. A good trade-off.
I’ll concede to Rob’s point that we don’t always get the best selection of produce, and sometimes items are substituted or end up being out of stock.
We have yet to try a meal delivery service (despite the constant barrage of flyers in our mailbox). I agree with Roma’s concerns about getting value for the meal kit – small portions and a high cost per person. Plus, we’re not busy professionals working outside the home and pressed for time. We both work at home.
Finally, our family switched to a vegan diet (no meat, eggs, or dairy) last fall. While I expected a decrease in our household food bill over time, so far that hasn’t been the case. I suspect this is because we spend more on good quality produce, plus meat and dairy substitutes tend to be more expensive alternatives. No, we don’t just live on rice and beans.
That said, our diet doesn’t lend itself to meal delivery services or to dining out that often. That’s fine. We’ve found great recipes and we love to experiment with new dishes by cooking at home. I expect our food spending and consumption will continue to stay in the 85-15 ratio of retail grocery to dining out.
How has your food spending changed this year?
Fewer than 1% of eligible recipients choose to take their CPP benefits at 70. Most Canadians take CPP at age 60, as soon as they’re eligible, perhaps unknowingly giving up substantial lifetime income.
Dr. Bonnie-Jeanne MacDonald, Director of Financial Security Research at the National Institute on Ageing, wants to change the conversation around when to take CPP. Her latest research looks at the substantial (and unrecognized) value of waiting to claim CPP/QPP benefits.
I had the pleasure of speaking with Dr. MacDonald about this research and her key findings. She says the financial services industry needs to reframe its messaging to clients about the decision to take CPP. Rules of thumb aimed to make decisions easier can ultimately lead to confusion and even incorrect solutions.
The study describes three reasons why retirement planning practices currently encourage Canadians to take their benefits early.
- Lack of advice – More than two-thirds of Canadians nearing or in retirement do not understand that waiting to claim CPP benefits will increase their monthly pension payments.
- Bad “good” advice – Canadians who do seek retirement financial planning advice are being encouraged to take CPP/QPP benefits early using concepts like “breakeven age” to explain the decision. More on this later.
- Bad “bad” advice – This includes poor anecdotal advice from friends and family, and advice influenced by potential conflicts of interest from a financial advisor.
Dr. MacDonald says the breakeven approach is misleading and has been proven to powerfully influence the decision to take CPP early.
“It pushes people to mentally gamble their subjective life expectancy against the “breakeven” age.”
Indeed, a 60-year-old male has a 50% chance of living to age 89, while a 60-year-old female has a 50% chance of living to age 91.
CPP Lifetime Loss
Changing the conversation around CPP starts with using behavioural psychology to reframe the problem. Enter the “Lifetime Loss” concept that demonstrates the expected financial loss of taking CPP earlier rather than later. It encourages Canadians to look beyond the short-term and consider their entire financial future.
“An average Canadian receiving the median CPP income who chooses to take benefits at age 60 rather than age 70 is forfeiting over $100,000 (in current dollars) worth of secure lifetime income.”
Dr. MacDonald says we should be using behavioural psychology techniques to influence the CPP uptake decision, such as changing how the information is framed by advisors (using lifetime loss framework instead of breakeven age), to the application forms sent out by Service Canada, which may be unknowingly encouraging Canadians to apply for CPP early.
Finally, Dr. MacDonald and I discussed the issue of retirement spending for older Canadians. Most people believe expenses will decline as we age since we’re no longer spending as much on travel and hobbies. But Dr. MacDonald says that long-term care is a greater concern, and that 75% of home care for older Canadians is currently provided by family members (unpaid).
That dynamic will change in future years. Retiring Canadians now have fewer adult children, and those children are more likely to be geographically separated from their families than past generations.
“Without adequate family support, work that has traditionally been done for free (e.g., transportation, daily care, preparing meals, etc.) will come at a cost, and those services are expensive to replace.”
This makes deferring CPP an attractive option, as you’re essentially purchasing a very secure pension at an excellent price. The financial incentives are even higher than we think. By deferring CPP from age 65 to 70, you will increase your retirement benefit by 42% (0.7% for every month you defer). But this fails to account for the inflation-adjustment applied to CPP benefits. The real increase is closer to 50% (49.2%).
I encourage you to read the research paper – it’s lengthy but written in plain language with clear visuals that explain the key findings and solutions.
This Week’s Recap:
There was a lot of interest in my post highlighting Emerge ARK ETFs and their eye-popping returns. Several of you asked if I would invest in these myself. The answer is no. I’m 100% dedicated to my total market approach to investing, and I avoid anything that will tempt the irrational part of my brain to try to chase returns.
But just because I’m an emotional robot when it comes to investing doesn’t mean that you are. Many readers (and clients) have dabbled in tech stocks this year (through ARK ETFs, or Invesco’s QQQ, or by simply picking individual stocks). It’s hard not to get caught up in the frenzy when tech stocks have been driving the stock market returns for many years.
I don’t advocate for picking individual stocks at all, but I recognize that some investors want to express themselves through their portfolio by owning what they know, or what’s new and exciting, or what hedges their fears.
That’s why I’d prefer to see investors build some guardrails around their behaviour by limiting their “explore” to no more than 5-10% of their portfolio, avoiding individual stocks, and instead choosing a thematic (and more diversified) ETF to scratch that itch.
My guardrails include avoiding stock market news (“What investors need to know about the stock market today”), avoiding looking at my investments as much as possible, and staying 100% invested at all times. This way I’m rarely tempted to do anything with my portfolio.
Promo of the Week:
Just a reminder to join our new (private) Facebook group – Personal Finance Canada – where we’ve been having some great discussions about investing, retirement, credit cards, and more.
The group is administered by me and travel expert Barry Choi, but we also have other experts in the group on CPP, retirement planning, and investing there to answer your burning questions about money.
Please join us and leave a question or comment for the group.
There’s still time to enter the $1,000 cash Christmas giveaway over at Credit Card Genius.
The Measure of a Plan website has updated its investment portfolio tracker – a spreadsheet for DIY investors.
My Own Advisor’s Mark Seed and Money Coaches Canada’s Steve Bridge explain what is a financial plan and what it should cover.
Michael James on Money explains how to transition your investment portfolio as you head into retirement.
Millionaire Teacher Andrew Hallam uses The Misguided Beliefs of Financial Advisors paper to show how advisors punch themselves by purchasing actively managed mutual funds and chasing past performance:
“I was surprised to learn the advisors ate their own cooking…and burned their own food. They bought themselves actively managed funds instead of index funds. In other words, they bought the same things for themselves that they recommended to their clients. That doesn’t reveal a lack of ethics–just a lack of knowledge.”
File this under something I usually ignore, but is interesting nonetheless. Maclean’s “charts to watch in 2021.”
Rob Carrick shares a new option for safely parking U.S. dollars, plus a 2.3% TFSA savings account.
Jason Heath continues to descend into the particular, this time with ways to unlock retirement savings in a LIRA.
Morgan Housel shares another gem with “A few things I’m pretty sure about.” I completely agree with this one:
“Most professions would benefit from at least one a day month where you did nothing but think. No meetings, no calls, no deliverables. Just a seat on the couch thinking about what’s working, what’s not, and what to do about it.”
Finally, a must-read by Zandile Chiwanza on why she had to use her “white-passing” middle name to get an apartment in Toronto.
Have a great weekend, everyone!
Investors are always looking for an edge to boost their portfolio returns. Some like to scratch that itch by picking individual stocks, on the hunt for the next Apple, Amazon, or Microsoft. Others delve deeper into the realm of penny stocks, hoping to unearth a hidden gem.
There’s nothing wrong with introducing some ‘explore’ to your ‘core’ holdings of low cost, globally diversified ETFs. But a better way to spice up your couch potato portfolio is with a thematic or sector specific ETF that spreads your risk across many individual companies.
That’s exactly what Emerge ARK ETFs have done. Launched in Canada last July, Emerge ARK ETFs include five products that focus on disruptive, innovative technology. Indeed, months before technology stocks dragged the stock market out of its COVID-19 induced crash, Emerge ARK ETFs gave its investors exposure to the cutting edge in genomic healthcare, fintech, robotics, autonomous electric cars, battery storage, cloud and cyber security, and big data.
That exposure has led to some eye-popping returns:
|Ticker||ETF Name||1-Year||Since Inception|
|EARK||EMERGE ARK GLOBAL DISRUPTIVE INNOVATION ETF ||115.2%||74.7%|
|EAGB||EMERGE ARK GENOMICS & BIOTECH ETF||129.5%||83.4%|
|EAUT||EMERGE ARK AUTONOMOUS TECH & ROBOTICS ETF||92.2%||61.2%|
|EAAI||EMERGE ARK AI & BIG DATA ETF||127.9%||86.2%|
|EAFT||EMERGE ARK FINTECH INNOVATION ETF||88.9%||62.1%|
*Performance as of December 1, 2020 | Since inception annualized July 29, 2019
Investors are beginning to take notice. Emerge has attracted $125 million in assets under management (November 30 2020), which makes them a tiny player in a market dominated by giants like RBC iShares, BMO, and Vanguard. But $26 million of that flowed into Emerge ARK ETFs in October, giving Emerge the highest percentage gain (compared to assets under management) in the market.
A Look at Emerge ARK ETFs
I recently had the opportunity to interview Emerge CEO and founder Lisa Langley about her company and its impressive ETF line-up.
1). You launched Emerge last summer and introduced five actively managed ETFs that focus on disruptive and innovative technologies. What led you to this specific niche or sector?
We saw a gap in the market for truly actively managed ETFs particularly in the disruptive innovation space. With our affiliate company in the US, Emerge has a long relationship with ARK, so we asked them to enter the Canadian market with us and they were excited to do so.
2). The Canadian investment landscape is still dominated by mutual funds, and the much smaller ETF market includes giants like RBC iShares, Vanguard, and BMO. How do you see Emerge carving out meaningful market share in this environment?
By truly being at the forefront of innovation. Emerge ARK ETF’s are sub-advised by ARK Invest and the brilliant Cathie Wood, CEO/CIO. The ARK Invest research process is unique globally and they can drive results through their deep domain expertise. ARK’s research team is like no other. We are starting to set ourselves apart from the others with our incredible performance and access to ARK Invest’s long-lens on disruptive innovations and how best to play them in the market. Emerge wants to be known for bringing differentiated talent to the Canadian investment landscape.
3). The most obvious selling point to me is the strong performance of your five Emerge ARK ETFs. To what do you attribute this exceptional performance?
The phenomenal global research team at ARK Invest and their forward-thinking global approach and their active management of each ETF.
ARK didn’t have to pivot when COVID hit, they were already there. ARK has always been solely focused on technology driven disruptive innovation. The analysts at ARK have deep domain expertise. ARK is focused on the long-term with minimum forward forecasts of 5 years, so they understand the unit economics and each stock’s potential. ARK is not looking short-term and reacting to the usual quarterly earnings, instead they focus on the long-term potential of the fastest growing general technology platforms.
The ARK investment process opens the door to exceptional performance.
4). Give us a high-level overview of the five ETFs and their portfolio manager.
Cathie Wood, CEO/CIO, ARK Invest is the Portfolio Manager/sub-advisor to all of the Emerge ARK ETFs. Cathie founded ARK Invest in 2014. Previously she completed 12 years at AllianceBernstein as CIO of Global Thematic Strategies. ARK Invest believes in truly actively managed ETFs and they are benchmark agnostic. ARK does not need a backward-looking benchmark, because their analyst team with deep domain expertise provides the reference point.
The Emerge ARK Global Impact Disruptive Innovation ETF (EARK) is the “best picks” portfolio and the umbrella ETF of the following four, which includes all main themes of disruptive innovation. Then we have four more deeper dives into particular themes:
- The Emerge ARK Genomics and Biotech ETF you’ll find holdings dealing with genome sequencing, gene therapy, bio-informatics, bio-inspired computing, molecular medicine, and pharmaceutical innovations. Click here to view the replay from Innovation Series: Genomic Revolution.
- The Emerge ARK AI & Big Data ETF, you’ll find holdings involved with cloud computing, big data, digital media, e-commerce, and the Internet of things. Click here to view the replay from Innovation Series: Next Generation Internet.
- The Emerge ARK Autonomous Tech and Robotics ETF. Holdings within this ETF involve, robotics, autonomous vehicles, energy storage, 3D printing, and space exploration. Click here to view the replay from Innovation Series: Autonomous Technology. And this one on Energy Storage & Robotics.
- The Emerge ARK Fintech Innovation ETF. You’ll find mobile payments, digital wallets, peer-to-peer lending, and risk transformation. Click here to view the replay from Innovation Series: Global Payment and Digital Wallets.
EARK currently invests in 46 companies, including Tesla, Invitae Corporation, Square, Roku, CRISP Therapeutics AG, Proto Labs, 2U, Zillow, LendingTree, and Teladoc Health. The total number of investments may fluctuate between 30 to 50 companies. The management fee is 0.80%.
5). Where do Emerge ETFs fit into an investor’s overall portfolio? Are they the “explore” part of a core & explore approach?
The Emerge ARK ETFs are non-correlated to traditional indices and a great growth complement to a portfolio. We do believe it is important to consult your advisor or financial professional to assess whether this risk rating for the portfolio (medium) is the right choice for you.
6). Where can investors purchase Emerge ARK ETFs?
The Emerge ARK ETFs are available to Canadian investors in both Canadian dollars and US dollars through professional advisors, online brokerages and independent online brokerages. You’ll find them listed under their ticker symbols:
- Emerge ARK Global Disruptive Innovation ETF
- Ticker CAD: EARK
- Ticker USD: EARK.U
- Emerge ARK Genomics & Biotech ETF
- Ticker CAD: EAGB
- Ticker USD: EAGB.U
- Emerge Autonomous Technology & Robotics ETF
- Ticker CAD: EAUT
- Ticker USD: EAUT.U
- Emerge ARK AI & Big Data
- Ticker CAD: EAAI
- Ticker USD: EAAI.U
- Emerge ARK Fintech Innovation ETF
- Ticker CAD: EAFT
- Ticker USD: EAFT.U
You can also subscribe to weekly market outlooks and register for quarterly and pop-up webinars through Emerge’s Knowledge Lab.
Many investors have had to deal with a certain degree of FOMO as they watched technology stocks soar since the start of the pandemic. In hindsight, betting on the rise of Zoom and DocuSign seemed like no-brainers.
But making that bet ahead of time is easier said than done. How many investors lost money chasing high returns with individual cannabis stocks in the last year or two?
If you’re going to stray from your core portfolio and into an unknown space, then it can make sense to use a thematic actively managed ETFs to piggyback on the research and expertise of an investment professional.
When it comes to investing in disruptive, innovative technology, no one is doing that better than Emerge ARK ETFs.
Disclosure: The information in this blog post is not intended and should not be construed as investment, tax, legal, financial or other advice, or solicitation to buy securities or funds mentioned. All investments carry the risk of loss. Past performance does not promise future results. Emerge assumes neither responsibility nor control over the content, security or accuracy of the resources which are mentioned herein. Please click here for full disclosure regarding Emerge ARK ETFs and Emerge Canada Inc.