RESPs: How to Maximize a Great Savings Tool

RESPs: How to Maximize a Great Savings Tool

By James Parkyn - PWL Capital - Montreal

For parents and grandparents planning ahead for a child’s future, a Registered Education Savings Plan (RESP) one of the most valuable savings tools available to Canadian families.

Post-secondary school costs can easily eat up tens of thousands of dollars. Government grants and significant tax advantages make RESPs a very attractive way to cover expenses and build wealth for the next generation.

Yet, although RESP have been around for decades, there is still a lot of confusion about the benefits and how to maximize them. Young parents have competing priorities and may prefer to use limited funds to pay down a mortgage or invest in a Tax-Free Savings Account.

At PWL, it’s not unusual for us to require an hour in a client meeting to explain how RESPs work and the best ways to use them. Here is an explainer to complement our recent Capital Topics podcast on the same subject.

What is an RESP?

An RESP is a tax-advantaged savings account designed to help families save for a child’s post-secondary education. Investments grow on a tax-deferred basis, with withdrawals taxable in the hands of the student rather than the parent or other contributor.

As well, the government deposits generous grants based on how much is contributed.

There are three parties involved in an RESP. First, the subscriber—the person who opens and contributes to the account. This is usually a parent, but it can be anyone such as a grandparent or family friend.

Second, there is a beneficiary—the future student. Beneficiaries need to be a Canadian resident and have a Social Insurance Number (SIN). An individual plan has one child beneficiary, while a family plan can have multiple beneficiaries related by blood or adoption. For families with multiple children, family plans give more flexibility in how savings can be used.

Third, there is the promoter—the financial institution where the RESP is held. Some providers offer group RESP plans, but we generally don’t recommend those. They often come with more restrictions, higher fees and less flexibility than individual or family plans.

When can you create an RESP?

You can create an RESP as soon as a child has a SIN. We recommend getting a SIN as soon as a child is born in order to open the RESP right away and maximize the benefit of compound interest.

What can an RESP invest in?

An RESP can generally hold the same types of investments as an RRSP or TFSA. This includes stocks, bonds, ETFs, mutual funds, GICs, high-interest savings products and cash.

As always, the investment mix should reflect the risk tolerance, risk capacity and time horizon of the child and subscriber. We advise heeding the overwhelming evidence that a well-diversified long-term investing strategy is the best way to succeed in the markets.

What grants are available for RESPs?

The federal government gives the main grant—the Canada Education Savings Grant (CESG). This gives 20% of the RESP contributions made by the subscriber to an annual maximum grant of $500 per child (based on $2,500 of contributions). Think of this as a guaranteed 20% return on your contributions.

Some provinces offer additional grants. Quebec, for example, adds another 10% (to an annual maximum of $250) with its Quebec Education Savings Incentive (QESI).

The federal and Quebec grants thus total as much as $750 a year for a child—turning your $2,500 into $3,250.

These grants are available until the end of the calendar year when the beneficiary turns 17.

If you fail to maximize your contribution in a given year, unused grant room can be carried forward. However, there are limits on how quickly you can catch up. The federal grant is limited to a maximum of $1,000 per year; Quebec, the maximum is $500.

Special rules apply if you wait until the child is 16 or 17 to contribute to an RESP. Beneficiaries aged 16 and 17 can receive the CESG only if specific prior contribution milestones were met before the end of the calendar year when they turned 15.

How much can you contribute to an RESP?

Each beneficiary has a maximum lifetime contribution of $50,000. There is also a lifetime grant limit of $7,200 from the federal government and $3,600 from Quebec.

Obtaining the maximum in grants requires a total of $36,000 in contributions. This means you can contribute up to $14,000 more that won’t be eligible for grants, but will compound tax sheltered in the portfolio. Some or all of this $14,000 can be contributed whenever the funds are available in order to maximize the benefits of compounding.

Can grandparents contribute to an RESP?

Yes. Grandparents can create their own RESP for a child beneficiary or gift funds to parents to contribute in theirs. Keep aware that contribution and grant limits apply to the beneficiary, not an RESP account.

If parents and grandparents contribute to separate accounts for the same child, they should communicate to avoid overcontributions and possible tax penalties.

RESPs also need to be taken into consideration in estate planning. The subscriber is responsible for the account, and funds should be planned for in wills and protection mandates in case of incapacity.

Because of the complexity of managing multiple accounts for a beneficiary, we recommend that grandparents gift funds to the parents’ RESP.

How do you withdraw funds from an RESP?

It’s important to carefully plan withdrawals from an RESP. Failing to do so can leave grants behind or trigger unnecessary taxes.

Not all the funds in an RESP are treated the same when they’re withdrawn. The funds are divided into three buckets: contributions, government grants and investment earnings.

To withdraw funds, a child has to provide proof of enrollment in a qualifying educational program. This can include university, college, trade school or other designated institutions.

You send the proof of enrollment along with a form to the RESP provider specifying how much you’d like to withdraw of each type of funds. The funds are then deposited in a designated bank or investment account. In-kind withdrawals of investments are also usually possible to avoid selling them.

What is the best way to withdraw RESP funds?

There are two types of withdrawals. The first is a Post-Secondary Education Withdrawal (PSE). This comes from the contributions made to the RESP. Since those were made with after-tax money, they aren’t taxable when withdrawn.

The second type of withdrawal is an Educational Assistance Payment (EAP). This comes from the government grants and investment earnings. They’re taxable in the hands of the student rather than the subscriber.

The funds withdrawn in a given year get added to the student’s income for that year. Students generally have relatively low income while attending school, and so they may pay little or no tax on the funds.

It’s generally the most tax-efficient to prioritize EAP withdrawals while they can be taxed at the student’s low rate.

When planning a withdrawal schedule, it’s helpful to consider annual costs for the child, their employment income and how long they expect to go to school. Your contributions (the PSE portion) always belong to you as the subscriber and can generally be withdrawn with no tax consequences.

The EAP, on the other hand, should generally be treated as a “use it before you lose it” type of asset. If the student completes their education or quits school and the EAP amounts haven’t been fully withdrawn, the rules become much more restrictive. This is another reason why we generally want families in the early years of post-secondary education to prioritize withdrawals of EAP.

During the first 13 weeks of enrollment, you can withdraw up to $8,000 in EAP for full-time students and $4,000 for part-time students.

After that initial period, the rules become much more flexible and larger withdrawals are generally possible. There is, however, a maximum EAP threshold of $29,459 for 2026, above which you may need to show receipts and proof of expenses.

What can RESP funds be used for?

Funds can be used at the subscriber’s discretion—for example, for tuition, textbooks, living expenses, housing, transportation. There may even be excess funds that can be used to help provide a strong financial start for the child.

What happens to RESP funds if a child doesn’t pursue post-secondary education?

Contributions can be withdrawn tax-free as they were made with after-tax dollars. If a child doesn’t pursue qualifying post-secondary education, the grants generally must be returned. Investment earnings can be withdrawn as an Accumulated Income Payment, which is taxable to the subscriber and normally subject to an additional penalty tax.

Up to $50,000 of such income can be transferred to an RRSP if the subscriber has sufficient RRSP contribution room. This can significantly reduce or even eliminate the tax consequences.

An RESP can remain open for up to 35 years, so you can wait to close the account in case the child returns to school later.

As well, in a family plan, some assets can be redirected to another beneficiary, subject to applicable rules.

Overall, RESPs are a powerful tax-efficient savings vehicle and great long-term planning tool. The key is to take full advantage of the grants, invest wisely and keep taxes to a minimum.

RESPs can not only help you save money, but also give the next generation a stronger financial foundation and better start in life.

Find more commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.

Let us help you secure your legacy and make a lasting difference. Contact us today to learn more about our comprehensive wealth transfer and philanthropic planning services.

Stay informed and inspired. Subscribe to our Bi-Weekly Newsletter for the latest podcasts, blogs, and James & François’ top reads from the past two weeks.

Long-Term Investing Paid Off Handsomely: 126 Years of Data

Long-Term Investing Paid Off Handsomely: 126 Years of Data

By James Parkyn - PWL Capital - Montreal

What can 126 years of market history tell us about investing? An enormous amount, according to the 2026 UBS Global Investment Returns Yearbook.

Stocks have handsomely rewarded investors over the long run, but earning those returns has meant enduring substantial risk along the way. This is one of the central lessons from 126 years of data in the UBS yearbook.

Now in its 27th edition, the report is a must-read for interpreting markets through the lens of history.

It is published by the Swiss bank UBS in collaboration with London Business School professors Paul Marsh and Mike Staunton and Cambridge University’s Elroy Dimson, who have been involved for all 27 editions.

Long horizon

We’ve been covering the yearbook for the past five years in our blog and podcast because its long horizon puts current financial market events into a useful historic context. This aligns perfectly with our investing approach at PWL.

Many people feel the long term is 10 to 20 years. The yearbook shows that we should consider an even longer time horizon when making investment decisions.

“Much longer periods are needed to understand risk and return from stocks and bonds because markets are so volatile,” the yearbook notes.

3,296-fold gain for U.S. equities

What did the latest yearbook find? Since 1900, U.S. equities have enjoyed 9.8% annualized returns versus 4.6% for bonds, 3.4% for T-bills and inflation at 2.9%. Real annualized returns, net of inflation, were 6.9% for U.S. equities compared to 1.7% for bonds and 0.5% for T-Bills.

A dollar invested in U.S. equities in 1900, with dividends reinvested, would have grown in purchasing power by 3,296 times (after inflation). This remarkable return shows the magical power of compounding.

The same in bonds would have grown 7.4 times, while a T-bill investment would have gone up 1.8 times.

Risk paid off

“Over the long run, the law of risk and return has therefore held, with the riskiest assets providing the highest return and risk-free bills giving the lowest return,” the yearbook concludes.

“Over the last 126 years, equities have outperformed bonds, bills and inflation in every country. They have dominated bonds which are somewhat less risky, while bonds have outperformed Treasury bills.”

Real stock returns were positive in all 21 countries that have data going back to 1900. Gains ranged from 3% to 6.9%, with a 4.5% real return for the World-ex U.S. Index in U.S. dollar terms. This translates into purchasing power growth of 249 times since 1900.

Returns were highest in industrialized and resource-rich countries, while the worst-performing markets were those afflicted by wars and resulting economic dislocation.

Canada had the lowest volatility

Volatility was the price to pay for the equity gains. During the 126 years under study, there were six years with annual U.S. equity returns below negative 40%. On the other hand, six years saw gains of over 40%.

Of 21 countries with reliable data back to 1900, Canada had the lowest-risk market for real equity returns, with a standard deviation of 16.7%. Next were Australia (17.2%), New Zealand (19.0%), Switzerland (19.1%), the U.K. (19.3%) and the U.S. (19.8%).

The average standard deviation for the 21 countries was 23.4%. The yearbook presents a World Index for equities based on each country’s market capitalization, which had a 17.3% standard deviation. This shows the power of global diversification in reducing risk.

Emerging markets have been more volatile than developed markets, but the gap has declined over the last 25 years. Volatility in the former has fallen, narrowing the gap in standard deviations with developed markets to less than 5% at the end of 2025.

Lower volatility in bonds and T-bills

Turning to bonds, volatility has been significantly lower. Real bond returns averaged a 13.1% standard deviation since 1900 versus 23.0% for equities and 7.5% for Treasury bills. (These figures exclude Austria.)

At the same time, bonds have experienced protracted periods of very low or high returns. Recent high bond market returns and volatility reflect a golden age of low interest rates that boosted bond prices and ended in 2022 with the return of inflation. Projecting these returns into the future was not appropriate, as the yearbook notes, real returns on U.S. and U.K. bonds were -31% and -39% respectively from 2022 to 2025.

Our market statistics page shows the toll on bond returns from inflation. The latter has surpassed bond returns in Canada over the last 10 years.

Limited impact from geopolitics

Geopolitical risk has been a central concern in today’s landscape of tariffs, wars and disruption to the global oil supply. The yearbook takes a sanguine view of the impacts from such risks.

“These events are relatively rare,” the report says. “Much of the time, investors would be correct to ‘look through the noise’ of geopolitics. At the same time, however, they require judgement to distinguish the signal from the noise.”

Wars, in fact, have been far less damaging to world equities than the four great peacetime bear markets, the yearbook found.

“These bear markets represented the actualization of downside economic risk. Three of them were triggered by economic factors, while the fourth, the 1973-74 stock market crash, was activated by geopolitics, but played out as an economic crisis.”

Expect lower future returns

What about going forward? In our blog and Capital Topics podcast, we recently noted that the last few years’ exceptional equity gains are unlikely to persist. The yearbook came to a similar conclusion.

“Global investors can expect an equity premium (relative to bills) of around 3½%. The corresponding arithmetic mean risk premium would be around 5%,” UBS says.

“Our estimate is below the long-run historical premium and well below the premium in the second half of the 20th century. Some investment books still cite figures as high as 7% for the geometric, and 9% for the arithmetic, mean. We believe investors who rely on such numbers are likely to be disappointed.”

Our current geometric mean assumption for a market cap weighted global portfolio with Canadian home country bias is 6.92%, and for cash it is 2.88%, making our assumption for the equity premium over bills 3.93% vs. the Dimson, Marsh et Staunton figure of 3.5%.

Diversify and think long term

The lesson from all this is that diversification across stocks, markets and asset classes doesn’t eliminate risk, but it can lead to better risk-adjusted returns over the long horizon.

Consider your long-term goals, risk profile, ability to take risks and time horizon when building your portfolio. Keep in mind that over shorter terms, even the most sensible investment decisions can result in temporary losses.

But riding out the volatility and sticking with your investment plan can lead to remarkable gains.

Find more commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.

Let us help you secure your legacy and make a lasting difference. Contact us today to learn more about our comprehensive wealth transfer and philanthropic planning services.

Stay informed and inspired. Subscribe to our Bi-Weekly Newsletter for the latest podcasts, blogs, and James & François’ top reads from the past two weeks.

Soaring Markets Are Unlikely to Persist

Soaring Markets Are Unlikely to Persist

By James Parkyn - PWL Capital - Montreal

Investors have enjoyed several years of extraordinary returns. Canada’s total stock market has soared 23.5% annually over the past three years as of June 30th, 2026. The U.S. total market has gained 23.2%.

Can such lofty numbers continue? Twice a year, at PWL we make our best effort to look ahead to estimate future market returns for the next 30 years. We don’t do this to make predictions—no one can forecast the future.

Rather, these are expected returns that we estimate for use in our financial planning software when making long-term retirement projections for our clients. We arrive at the figures by combining 125 years of past data with estimates for the future based on current valuations and economic conditions.

PWL Senior Researcher Raymond Kerzérho joined us on our Capital Topics podcast to go over the latest figures.

The main finding of PWL’s research team: Recent exceptional equity gains are unlikely to continue. “We should be grateful for the great recent returns, but they’re unlikely to be repeated to the same extent in the future,” Raymond says.

“Strong recent returns do not necessarily imply equally strong future returns.”

Inflation and residence

Our projection for inflation is unchanged from last year at an average of 2.5% annually over the next 30 years.

We also make a projection for primary residences, which is unchanged too: a 1% expected annual gain after inflation (not including maintenance and property taxes).

Bonds

We make two estimates for bonds. These are nominal projections (before inflation) and before fees but including product management expense ratios.

• We expect annual short-term bond gains of 3.07% over the next 30 years. This is up from last year’s projection of 3.01% in expected gains.

• Projections for the Canadian bond universe, which includes long-term bonds, are up by about the same number of basis points from 3.53% to 3.58%.

Equity

Expectations for equity gains, on the other hand, have declined.

• In Canadian equities, we expect annual gains of 6.87% over the next three decades. This is down 14 basis points from last year’s projection of 7.01%.

• We project that U.S. equities will gain 6.44% annually, which is also down from our expectation of 6.48% made last year.

• The biggest change is in international equities. We expect gains of 7.04% annually in the next 30 years. This is down 24 basis points from 7.28% that we projected last year.

• A 60-40 stock-bond portfolio, on the other hand, remains virtually unchanged from last year. We expect a 5.73% annual gain, down from 5.76%.

Recent gains drove revisions

Equities saw downward revisions after their excellent performance over the past year. International equities, in particular, saw the biggest downward change.

This is because international stocks saw the most spectacular returns among equity asset classes. Emerging markets large and mid caps, for example, returned 49.9% in the 12 months ending June 2026. (See complete market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team.)

It’s also noteworthy that expected returns for Canadian and international equities remain higher than those for the U.S. This is because U.S. equities currently trade at a higher valuation. In other words, investors are paying more for each dollar of earnings generated by U.S. companies.

All else being equal, the more investors pay for a given level of earnings today, the lower the return they can expect in future.

How do our expectations stack up against those of other firms? Compared to BlackRock, Vanguard and AQR, “our estimates are more optimistic by at least half a percentage point,” Raymond says.

60-40 mix still a good option?

Some readers may question the value of having bonds in their portfolio given the low expectations for bond returns. After inflation and tax, returns may actually be negative.

Bonds have indeed been at the centre of debate about balanced portfolios, such as the classic recommended mix of 60% of assets in stocks and 40% in bonds.

There’s no single ideal mix that works for everyone, as investment manager Ben Carlson has pointed out. The ideal allocation depends on your time horizon, risk capacity and tolerance for volatility.

High-quality bonds can help cushion portfolio losses when inevitable corrections occur in equity markets. “That cushioning effect can give investors the confidence to stay invested through the difficult periods, rather than selling equities after a major decline,” Raymond says.

That said, it’s worthwhile to factor in expected returns when deciding on the right mix.

Actual returns exceeded expectations

How do actual market returns compare to expected returns in recent years? Data for our model portfolios as of June 30, 2026, shows compound returns have been significantly higher than expected returns. 

I’ll highlight the returns for our clients’ most common allocations. (These are pre-PWL fees but include the cost of the investment products.)

• A 60-40 portfolio saw a 10-year return of 8.45% annually and 7.12% over 20 years. If you had invested $100,000, it would have been worth $225,000 after a decade and $396,000 after two decades.

• A more aggressive 70-30 mix saw a 9.62% annual return over 10 years and 7.79% over 20 years. A $100,000 investment would have grown to $251,000 after 10 years and $448,000 after 20.

• An 80-20 mix saw a 10.78% return over 10 years and 8.46% over 20. An investment of $100,000 would have been worth $278,000 in 10 years and $507,000 after 20.

Stay the course

What are the takeaways from all these numbers? I think there are three.

1. Staying on course gives you the best long-term results. Despite the global financial crisis, pandemic and return of high inflation, stocks have generated returns well above long-term averages.

2. Investors should consider the estimated expected returns when deciding on their stock-bond allocation. The future may be different than the recent past. Recent past bond returns have been below expectations, while estimated future bond returns are just barely above inflation.

3. Reassess your risk capacity and tolerance in light of recent large gains. Be realistic about your true tolerance for downside volatility. This will help you set the right asset allocation for your investments.

Prudent investors know that strong past returns are no guarantee of returns in the future. Bear markets are a rare but unavoidable part of investing. They’re not a bug of the system; they’re part of the system.

Keeping this in mind and being prepared with a well-crafted investment plan will help you stay disciplined and in the market when things get tough. As we’ve seen over the last 20 years, this is the best way to ensure a successful investing experience.

Find more commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.

Let us help you secure your legacy and make a lasting difference. Contact us today to learn more about our comprehensive wealth transfer and philanthropic planning services.

Stay informed and inspired. Subscribe to our Bi-Weekly Newsletter for the latest podcasts, blogs, and James & François’ top reads from the past two weeks.

2026 Mid Year Market Check In

2026 Mid‑Year Market Check‑In

By James Parkyn - PWL Capital - Montreal

We’ve reached the halfway point of 2026, and as we usually do at this time every year, we’re taking a step back to look at what has shaped global markets over the past six months.

If I had to summarize the first half of 2026 in one word, it would be… eventful. Not chaotic like last year, but full of surprises that kept investors on their toes.

The big drivers have been geopolitical tensions, especially in the Middle East, and the tug‑of‑war between higher inflation and slowing growth. Add to that continued frenzy around artificial intelligence (AI) and the hype around the latest SpaceX initial public offering (IPO).

In short, investors had a lot to digest.

Markets shrugged off Iran war

Starting with geopolitics, the biggest shock of the first half of 2026 was the Iran war. The conflict triggered global stock market volatility and a sharp spike in oil prices. Crude oil shot up from around USD $70 to $125 a barrel driven by fears of supply disruptions.

The market reaction was fast and violent, with major stock market indexes losing roughly 10% in a matter of days. It’s important to remind ourselves that none of this was predictable. Investors who tried to trade around the headlines would have had a very hard time getting it right.

Even as the Strait of Hormuz remained closed to oil tankers for three and a half months, global stocks markets found themselves in positive territory at mid-year. In fact, the U.S. stock market rallied 15.5% in the second quarter, enjoying its best three months since spring 2020.

Go figure!

AI mania, return of big IPOs

Another big theme of 2026 was the AI boom. U.S. markets last year focused mostly on the so-called Magnificent 7 tech giant stocks. The excitement this year has spread to cloud infrastructure, networking equipment, data centers and advanced chip manufacturing.

We also saw the return of big, headline‑grabbing IPOs. After a long drought in the IPO market, 2026 is shaping up to be a big year. Elon Musk’s SpaceX came to market in June as the largest IPO in history. Open AI and Anthropic, both leading U.S. AI stocks, are also expected to go public in coming months.

For long‑term investors, it’s important to stay grounded and not get swept up in the hype. IPOs have historically been good for institutional investors that own shares before the stock went public. But for individual investors, their long‑run performance is far more mixed. They’re often unable to beat the return of a diversified benchmark like the S&P 500 Index.

Inflation is back

Turning to the economy, in Canada inflation has accelerated to its highest level in more than two years to reach 3.2% in May. This increase is due mainly due to the war in Iran and the resulting rise in the price of oil.

The Bank of Canada is currently dealing with mixed signals of a slowing economy marked by two successive quarters of GDP contraction and a possible need to fight inflation. For now, the central bank rate remains unchanged for the year at 2.25% and market expectations are that there won’t be any changes in rates in 2026.

Meanwhile in the U.S., inflation has risen to 4.2% in May, the highest level since April 2023 and well above the Federal Reserve’s target. Despite this news the Fed has kept the fed funds rate unchanged at the last meeting at 3.75%. The U.S. economy continues to defy expectations growing at 2.7% annually in Q1. Consumer spending is strong, and unemployment remains low at 4.2%.

Meanwhile, the European Central Bank raised interest rates by 25 basis points in June to 2.4% in order to keep a lid on inflation, which increased to 3.2% in the Euro zone in May. In the U.K., the Bank of England kept its benchmark rate unchanged at 3.75%.

Modest bond returns

Turning to market statistics, Canadian short‑term bonds, which are at the core of our fixed income portfolios, returned a modest 1.4% year‑to‑date, while the Canadian Universe Bond Index, which holds longer-dated bonds, delivered a slightly higher 2.1%.

On June 30, the yield on the benchmark 10-year Government of Canada bond was relatively unchanged since the beginning of the year at 3.37% versus 3.45% on December 31, 2025.

(As a reminder, a full array of market statistics is available on our team page on the PWL Capital website. Also find this data and the performance of our model portfolios on our Capital Topics website in the resources section.)

Canadian equities on fire

What about equities? In Canada, the S&P/TSX Composite Index was up 11.2% in the first half, driven mostly by energy and financial services which soared nearly 25% and 21% respectively. These two sectors have a huge impact on the TSX since they’re the two largest constituents—together representing over 50% of the index. For the last 12 months, the S&P/TSX Composite is up a massive 32.9%.

The surprise in Canada was that contrary to other markets, especially the U.S., the information technology sector has struggled and not kept pace with the AI story. The sector was negative 8.5% for the period.

U.S. and international stocks red hot

The U.S. market is also up nicely YTD reaching new all-time highs. The S&P 500 and the NASDAQ-100 Index shot up 15.5% and 21% respectively over the last quarter alone.

Interestingly, equities are up despite the Magnificent 7 tech companies having a difficult first half. These seven stocks represent roughly a third of the S&P 500. Yet, as a group, they’re down 3.4% YTD as of June 29.

Yet another surprise is that despite the AI story, U.S. value stocks have outperformed growth for the past six and 12 months.

Developed international equities, measured by the MSCI EAFE fund, had a strong first half too—up almost 10% in Canadian dollars. Meanwhile, emerging markets rose an impressive 28.4%; for the last year they are up 49.9%.

Ignore the noise, stick with the plan

The big lesson is that markets rarely follow the script investors expect. Between the war in Iran, oil price spike, rising inflation, AI boom, SpaceX mania and Mag 7 downturn, there were plenty of reasons to worry. Yet, staying the course with a broadly diversified portfolio and long-term plan delivered solid returns.

Review whether your portfolio still matches your time horizon, risk tolerance and capacity. You may also need to periodically rebalance your allocations to make sure you’re in line with your targets.

We can’t predict how eventful the second half of 2026 will be. But we can prepare by staying disciplined and grounded in evidence.

Find more commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.

Let us help you secure your legacy and make a lasting difference. Contact us today to learn more about our comprehensive wealth transfer and philanthropic planning services.

Stay informed and inspired. Subscribe to our Bi-Weekly Newsletter for the latest podcasts, blogs, and James & François’ top reads from the past two weeks.

FNB mania—more doesn’t mean better

FNB mania—more doesn’t mean better

By James Parkyn - PWL Capital - Montreal

Want to invest in companies that could benefit from alien contact? There’s now an FNB for that.

The Tuttle Capital UFO Disclosure FNB is one of a record number of new funds hitting the market as providers compete to carve out ever more specialized niches.

Over 360 new FNBs were launched in Canada last year, while in the U.S. the figure was over 1,150. The latter number is more U.S. exchange-traded funds than existed in total 20 years ago. The U.S. now has more FNBs than individual stocks being traded.

Active funds now dominate

It’s not just the unprecedented volume of FNBs that stands out. It’s also their holdings and strategies.

FNBs were until recently synonymous with low-cost passive index investing. You bought them if you wanted broad market exposure, low fees, tax efficiency and transparency.

That has changed. Nearly two-thirds of new FNBs in both countries last year were actively managed. There are now more actively managed FNBs than passively managed ones.

And this doesn’t even include a large category of FNBs that technically fall into the passive bucket, but are mostly used by active traders. These include leveraged, inverse, crypto-asset and other sector FNBs.

“I don’t need aliens to be real”

Some of the new FNBs tap into fads or esoteric ideas in order to stand out and attract investors. This includes the UFO Disclosure FNB (ticker UFOD), which invests in companies “positioned to benefit from government disclosure, confirmation or exploitation” of UFO “advanced technologies.”

“I don’t need aliens to be real for my thesis to work, but it’s a lot more fun if they are,” portfolio manager Matthew Tuttle was quoted saying by The Wall Street Journal. The fund charges a 0.99% annual fee and has $2 million in assets.

Another odd duck is the Nicholas Bitcoin and Treasuries AfterDark FNB. This one is based on the notion that bitcoin outperforms outside U.S. market hours. It holds bitcoin when the market is closed, then flips into U.S. Treasury bills or cash when the market opens.

It charges 0.97% annually.

Average MER tops 0.65%

Such eye-popping fees, once the reserve of mutual funds, are now becoming more of the norm among FNBs. Driven higher by active funds, the average Canadian FNB’s management expense ratio is now over 0.65%.

This is many times above that of traditional indexed FNBs, which generally charge less than 10 basis points for Canadian and U.S. equities.

The danger is that investors see “FNB” and assume a fund has low fees.

Stocking picking and timing doesn’t work

Also concerning is that the flood of new FNBs makes it harder for long-term investors and advisors to choose appropriate investment tools. At PWL, we’ve been investing in FNBs for over 20 years as low-cost passive vehicles to get broadly diversified market exposure. We became known as “the FNB guys” because of our early adoption.

We base our strategy on solid evidence showing that investors have subpar results when they try to pick stocks or time the markets. As Warren Buffett has said, “The only value of stock forecasters is to make fortune tellers look good.”

No one knows which companies or countries will outperform. In fact, just 4% of stocks accounted for all stock market wealth creation above a risk-free investment in Treasury bills from 1926 to 2023, one study found.

How do we ensure we own those 4%? Owning the entire market—and diversifying internationally—enables us to gain no matter what.

FNB slop

The tsunami of new FNBs can mislead investors who don’t fully understand the risks of niche, complex, high-fee products. Our colleague Ben Felix calls them “FNB slop.” Many seem to be designed with marketing in mind to gather assets—not with investors’ long-term benefit at the forefront.

Because many of the funds are so fringe, they often gather only a few million dollars and eventually shut down. A record 146 active FNBs closed or merged in the U.S. in 2025, a Morningstar report said.

“Most of the FNBs had small asset bases. Funds cost money to operate, and those that don’t garner enough assets are susceptible to being liquidated or merged away,” Morningstar said.

1 in 5 US active funds beat peers over 10 years

Ironically, as the FNB universe gets noisier, the evidence for broad-based, low‑cost indexing keeps getting stronger. Two new reports drive this message home.

Morningstar’s US Active/Passive Barometer Report found that only 38% of U.S. active funds survived and outperformed their average passive peers in 2025. U.S. managers had a 37% success rate, while international managers did a little better, with 48% outperforming.

Among bond managers, 40% beat passive peers, while just 4% of corporate bond managers managed to.

97% of Canadian active funds lagged

Longer term, active managers fared far worse, with only 21% of U.S. active funds surviving and outperforming their passive counterparts over 10 years. That drops to just 8.1% for U.S. large-cap equity funds. Over 20 years, the rate is even worse—a mere 6.4% among active U.S. large caps. Higher fees were a big factor in the active funds’ poor results.

In Canada, 85.4% of active funds underperformed their benchmarks in 2025, according to the SPIVA Canada Scorecard. Over 10 years, the results were even worse—with 97% of active funds being bested by their benchmark.

4 FNB mania takeaways

What to make of the FNB mania? Here are our four takeaways.

1. Don’t confuse innovation with improvement.

2. Simplicity wins.

3. Stick to the evidence.

4. Filter the noise.

The markets are like a giant supermarket with many aisles full of junk food. To eat healthy, you need to choose wisely.

While the FNB universe gets more chaotic, the core principles of sound investing remain unchanged: Low fees, broad diversification and long‑term discipline pay off.

Find commentary on personal finance and investing, our podcast, past blog posts, eBooks, model portfolios and market statistics on the website of PWL Capital’s Parkyn-Doyon La Rochelle team and our Capital Topics website.

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