Plus, the ETF diaspora October 28, 2024 Sign Up | View online IN THIS ISSUE 8 min read 🧳 Plummeting population ⛷️ Sad skiers 📈 Fad funds A warming planet means fewer precious practice days for skiers like Eddie the Eagle (above), and less tourism revenue for ski towns. More below. | Paramount Pictures THE WEEK IN MARKETS The Forecast Looks Magnificent The U.S. presidential election is a week away (more on that below) and the markets seem to be in a holding pattern, with stocks down a bit last week but still near all-time highs. Investors are also biding their time ahead of some big reveals this week from Q3 earnings season: nearly 2,500 companies are set to report, including five of the "Magnificent Seven" mega-cap tech companies — Apple, Microsoft, Meta, Google, and Amazon. Analysts expect those five companies alone to log a combined 18% increase in profits, once again driving nearly all of the growth in the U.S. stock market. This earnings season is already off to a strong start, with 75% of all companies so far beating expectations. But Tesla's earnings report last week demonstrated what a different ballgame it is when a Mag 7 member shows its cards. Profits topped expectations and $TSLA — the most-heavily traded retail stock of the past five years — rallied more than 20%. THE WEEK IN ONE NUMBER 80,000 How much Canada’s population is expected to decline over the next two years, following Ottawa’s decision to curb immigration. The population grew by 3.2% last year, which made some concerned that the increase contributed to higher home prices. But most experts consider population decreases to be a rare, and unwanted, phenomenon. Economists say if it weren’t for immigration, the country would have entered a recession last year and that a shrinking population would shrink our GDP too. WHAT HAPPENED LAST WEEK IMPORTANT Does the stock market care who the next U.S. president is? Americans choose their new president next week, and while the world powerlessly awaits its fate, take comfort in one thought: you might care a lot who wins, but your investment portfolio might not. According to TD Economics, the stock market tends to fare slightly better in year one of Democratic administrations than Republican ones. But before you go hacking any voting machines, here's a fact that any party looking to take credit for the economy's success might not appreciate: those numbers have little to do with policy and more to do with timing. Democrats tend to take office in better economic times, while voters often shift right amid economic downturns. If you zoom out across entire presidential terms, markets have gone up 90% of the time since the 1940s, regardless of who is in office, and basically every president has also presided over a bear market. Ski season is melting away. Some of this stuff doesn’t take a degree in climatology: a warming planet is bad for the ski-and-snowboard industry. But an article in The Logic last week drove home the urgent reality for small businesses: a calendar that keeps shrinking every year. Blue Mountain ski hill in Ontario recorded 37% less snow than average last season, and Airbnb occupancy for the area bottomed out at 27%, the lowest monthly rate on record. Officials in nearby Collingwood are forecasting that the season will shrink by 36 days over the next two decades. Colder destinations like British Columbia won’t suffer as acutely, but Whistler is still expecting to lose about a week of operations, in a business where every day counts like three. INTERESTING Rivian’s rep is getting some dents. Rivian has won fans by being the anti-Tesla — the luxury EV for people who think Elon Musk is a buffoon and abusing your workers is wrong. But with demand increasing, the strain of ramped-up production is leading to some Tesla-esque workplace horror stories. The company has just one U.S. factory and a much smaller workforce than its competitors, and yet it’s racked up more serious safety violations so far this year than any other automaker. Earlier this spring, Rivian closed down that single factory for a month to rethink operations, necessitating a 15% cut in its 2024 production forecast. The company still hopes to be profitable, but let’s start with no more shift workers vomiting “Rivian blue” from huffing paint fumes, please. Canada’s largest VC firm makes all of Canada look silly. Georgian Partners, which manages US$5.6 billion in assets, wrote down US$430 million in 28 investments, including four complete write-offs, in the first half of this year alone, according to investor reports obtained by The Globe and Mail. How’d this happen? Like many VCs, Georgian bet heavily on Big Tech during the 2021 bubble, didn’t diversify enough, took a big hit, and now it’s bouncing back slower than its rivals. “It was only a matter of time,” according to Doug Soltys of Betakit, who argues that Georgian’s missteps could tarnish the reputation of Canada’s entire fledgling VC industry, and hurt startups’ chances at attracting investments. –Sarah Rieger FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🧑‍💻 Survey finds 29% of Canadian workers do second jobs during work hours. Leaves them more time for their side hustles. Source 🐔 Chick-fil-A launching a multitiered streaming platform. Want to tell compelling fowl-focused stories that champion new clucks from emerging beaks. Source 🎒 More Canadians are embracing the adult gap year. “How cool!” say the Canadians with second jobs. Source 🐰 Hugh Hefner’s son wants to buy back Playboy for US$100 million. Insists pyjamas, smoking jackets be dry-cleaned. Source CRASH & BURN TO THE MOON 🚗 Toronto drivers spend 199 hours a year in traffic. Silver lining: that’ll get them about halfway through Barbra Streisand’s audiobook. Source ✈️ New Zealand airport bans goodbye hugs over three minutes, so now they’re only two minutes and 55 seconds too long. Source 🏒 Leafs forward John Tavares endorses amulet that protects against “dangerous electromagnetic fields.” And scoring, apparently. Source 🚫 Meta bans accounts that track celebrities’ private jets. Stalkers, you’ll have to rely on the telepathic messages they send you. Source WHO CARES THE BIG IMPORTANT STORY BOOMS How ETFs Went From Bran Flakes to Cocoa Puffs This summer we talked about the recent rise of exchange-traded funds, or ETFs — low-fee funds that are easy to buy and sell and let you invest in a bunch of assets at once. They often mimic indexes like the Nasdaq or the S&P 500, so they’ve long been thought of as a prudent, responsible, and low-fee way to make diversified, “passive” investments. The bran flakes of the financial world, if you will. Historically, investing in index ETFs has been a pretty smart use of one’s money. But it’s not necessarily that interesting or exciting in a double-your-money-in-a-month kind of way. In recent years, though, there’s been a boom in all kinds of ETFs, from the safe, bran-flake kind, to creative, niche Cocoa Puffs ETFs that present their buyers with the opportunity to go big and dip one’s toes in strategies more commonly associated with Wall Street (or day) traders. There are so many ETFs being launched, in fact, that the U.S. is running out of ticker symbols to give them. In Canada, meanwhile, the ETF market has grown by 30 percent in just a year. Let’s retrace how we got here. How the ETF boom began In 2019, the U.S. Securities and Exchange Commission streamlined the process for approving new ETFs. That timing coincided with the rise of app-driven retail trading and “influencer”-driven investment content on sites like TikTok, Reddit, and YouTube. The many flavours of ETFs You can get ETFs in a whole lot of stuff, these days. There are ETFs that track the price of the gold market and crypto, providing investors who might be new to those markets a simple way to get involved in them. Then there are varieties that are built on the use of options and other derivatives. There are “leveraged” ETFs that will deliver two or three times the return — or loss — of their underlying subject, which is often a single high-profile company, like Nvidia or Tesla (i.e. if Tesla goes up $5, the value of your ETF share goes up $10 or $15.) There are “inverse” ETFs that do the opposite of what their stock does, and so-called “option income” ETFs that make big, regular payouts. And there are even things called buffer ETFs, which are designed to track an index’s gains without ever losing value. (As you might imagine, there’s a trade-off there, which is that they don’t gain as much value during bull markets, either.) All in all, Bloomberg estimates, the $300 billion market for derivative-based ETFs is now six times as big as it was before regulations changed. What happened to the boring old index ETFs? Well, they’re still around — and, at the moment, doing just fine. There’s about $500 billion alone held just in SPY, the most popular ETF that tracks the performance of the S&P 500. Boring isn’t always a bad thing, of course Morningstar has estimated that leveraged and inverse ETFs run out of money and close down nearly twice as often as other ETFs, while there are warnings about the potential long-term wobbliness of options-income ETFs all over the financial press. So what should you do about it? One industry pro told Bloomberg in 2022 that investing in leveraged ETFs was like reaching into a “drawer full of razor blades.” Whether sticking your hand into that drawer is the right move is a question you should approach like you would any other risky investment, namely by asking whether you have a reason to believe your understanding of the market and the product in question justifies the danger, and whether you can afford to lose every single dollar of the money you’re putting in. If you wouldn’t know how to make a risky trade yourself (without the help of a one-click ETF), it might be a good idea to hold off on touching the sharp stuff until you better understand the risks you’re taking. —Ben Mathis-Lilley OTHER VERY GOOD READS 🍎 Apples Have Never Tasted So Delicious. Here’s Why. We are living in a golden age of apples. | Scientific American 🐦 Inside the Bungled Bird Flu Response When profits collide with public health. | Vanity Fair 🤑 The 7 Essential (and Simple-ish!) Steps to Plan a Successful Retirement Here’s how to set yourself up for some 24-carat golden years. | Wealthsimple *Article is paywalled, which, yeah, is kind of annoying. But we think good journalism is worth paying for. POSTS OF WISDOM It’s kind of beautiful how your tabs are always there waiting for you — reliable, constant, eternal. THOUGHTS ON TODAY’S ISSUE? Love it Good So so This week’s newsletter contributors: Ben Mathis-Lilley (writer), Devin Gordon (writer), Stacey Woods (writer), Sarah Rieger (news writer), Ambrose Martos (fact checker), Ciara Rickard (copy editor), Clare Douglas (copy editor), Sara Black McCulloch (fact checker), Mohini Tailor (lifecycle marketing manager), Matthew Karasz (markets editor) Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Wealthsimple Media Inc. 80 Spadina Ave Suite 400 Toronto, ON, M5V 2J4 VIEW IN BROWSER PRIVACY POLICY UNSUBSCRIBE TLDR is offered by Wealthsimple Media Inc. and is for informational purposes only. Any views expressed are those of the individual author and/or of Wealthsimple Media Inc., not of Wealthsimple Financial Corp or any of its other subsidiaries or affiliates. The content in TLDR is not investment advice, a recommendation to buy or sell assets or securities, nor any other kind of professional advice. TLDR is not a research report and should not serve as the basis for making investment decisions. Wealthsimple Media Inc. does not endorse any third-party views referenced in this content. When you invest, your money is at risk and it is possible that you may lose some or all of your investment. Past performance is not a guarantee of future results. Historical returns, hypothetical returns, expected returns and images included in this content are for illustrative purposes only. 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