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Number Cruncher

REIT and real-return bond ETFs emerge as winners Add to ...

What are we looking for?

Exchanged-traded funds have become more popular in recent years. These investments, which trade like stocks, are similar to mutual funds but with lower fees.

While investors may use them to do short-term trades, let's see how they have fared over the longer term.

The screen

We looked at best and worst eight performers among Canadian-listed ETFs with a three-year record to May 31. There were too few ETFS with a five-year history. U.S. dollar and leveraged ETFs were excluded.

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What did we find?

ETFs invested in real estate investment trusts (REITs) and real-turn bonds emerged as the big winners, while those tracking commodities and foreign markets were in the red.

The iShares S&P/TSX Capped REIT ETF was the top gainer with an annualized return of 9.5 per cent.

The strong performance has been driven by a growing demand for income-oriented REITs from investors looking for yield in a low-interest rate environment, said Oliver McMahon, director of product management for iShares ETFs at BlackRock Canada. "There is an expected distribution of above 5 per cent after fees for XRE."

The iShares DEX Real Return Bond ETF trailed slightly with annualized 7.3-per-cent return. "Real return bonds have performed well as investors remain concerned about increasing inflation levels over the next five years," Mr. McMahon added.

A surging gold price over the past three years has also helped the iShares S&P/TSX Global Gold ETF gained an annualized 6.9 per cent.

Among those swimming in red ink, Claymore Natural Gas Commodity ETF has suffered a depressing 52.7-per-cent annualized loss because of the continued slump in the price of natural gas.

The Claymore Japan ETF, hedged to Canadian dollars, has also lost an annualized 20 per cent because of the weak Japanese stock market, and rising yen.

And the iShares MSCI EAFE ETF, hedged to Canadian dollars, and Claymore International ETF, respectively, have shed an annualized 6.8 per cent and 4.5 per cent over three years. These investments have struggled because they are largely invested in countries such as Japan as well as in Europe, whose markets have been on roller-coaster ride in recent times because of sovereign debt woes.

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