FFN – N.A Financial 15 Split Corp – Never Invest in this ETF

Many of you know that I have expressed my absolute dislike for this ETF both in my recent book and in my monthly newsletter on many occasions.

Many years ago an investor was boasting to me about FFN’s investment performance by saying that you cannot lose. Being suspicious by nature with hybrid investment products like this, I began to research the reasons for the short term outperformance of this security at that time. I discovered that this ETF uses leverage to borrow funds that are used to purchase Canadian financial stocks. The ETF is marketed as a conservative investment. It was only in the fine print that I found out that they use borrowed funds to invest.

In a rising equity market, using leverage can add to your investment returns but still adds to an increase in portfolio volatility. However, we also know that leverage works in reverse in a bear market like we have today. Controlling portfolio volatility is important and this ETF does the complete opposite by dramatically increasing the risk and sharply increasing the losses in a falling market.

Today FFN’s share price fell by 10.3%, compared to only minus 1.82% for Royal Bank and minus 1.77% for TD. Year to date on a total  return basis, FFN has fallen by 27.79% compared to minus 0.76% and minus 2.08% for Royal Bank and TD Bank respectively.

These differences in performance are absolutely staggering given the marketing around this ETF as a conservative investment.