Retirees, this instalment of the 2016 Globe and Mail ETF Buyer's Guide is for you.
Covered here are exchange-traded funds designed primarily for the income-seeking investor. There are dozens of income-focused ETFs on the market today, so the field has been narrowed down by focusing on core products. That means dividend and preferred share funds, as well as balanced funds combining stocks and bonds.
We'll close out the 2016 edition of the ETF Buyer's Guide by looking at U.S. and global dividend and income funds on June 4. The guide has already covered Canadian, U.S. and international/global equity funds, as well as bond ETFs.
ETFs are a low-fee version of mutual funds that trade like a stock. Traditionally, exchange-traded funds tracked major stock and bond indexes; today, many funds use a screening process to build portfolios or have a manager who picks stocks.
To invest in ETFs, you need a brokerage account. For help on that, consult my latest ranking of online brokers. Here are explanations of some of the terms you'll find in the guide.
- Assets: Shown to give you a sense of how interested other investors are in a fund; unless they’re new, the smallest funds may be candidates for delisting.
- Management expense ratio (MER): The MER is the main cost of owning an ETF on an ongoing basis; published returns are shown on an after-fee basis.
- Trading expense ratio (TER): The TER is the cost of trading commission racked up by the managers of an ETF as they make adjustments to the portfolio of investments; add the TER to the MER for a fuller picture of a fund’s cost.
- Yield: Supplied by Globeinvestor.com and based on monthly or quarterly payouts and the latest share price; may reflect payments of dividends, bond interest and return of capital; check the fund profiles on ETF issuer websites to find out what kinds of income have been contained in distributions in recent years.
- Average daily trading volume: Trading of fewer than 10,000 shares a day on average tells you an exchange-traded fund isn’t generating much interest from investors or is still building a following.
- Top sector weightings: Financial stocks dominate in income ETFs.
- Returns: ETF companies typically disclose total returns, or share-price change plus dividends or distributions.
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Click here to download an excel version of the table.
Notes: *management fee only; shown for newer funds that do not yet posted a full MER (management fees are a component of MER); **not a cumulative portfolio weighting, but rather for a specific series of preferred shares. Source: ETF company websites, globeinvestor.com
Click here to download an excel version of the table.