Stick to Canadian companies as an investor and you miss out on what's happening in 97 per cent of the global stock market.
Adding U.S. stocks to your Canadian holdings brings you up to 55 per cent of the global market. To access opportunities in the rest of the world, try an exchange-traded fund covering international markets. Or, consider a global equity ETF that covers off the United States and beyond in one convenient package. Both of these fund categories are covered in this fourth instalment of the 2018 Globe and Mail ETF Buyers' Guide.
Canada's stock market has dramatically underperformed U.S. and international markets in recent years because of its heavy exposure to the depressed resource sector. The Canadian market will rise again when global energy and metal prices start to rise. Until that day, diversify globally. Spreading your holdings evenly among Canadian, U.S. and international funds is a starting point.
The focus in this instalment of the Buyer's Guide is on core funds that invest in developed international markets, sometimes with some emerging market exposure as well. There are ETFs that focus on emerging markets alone or on single regions like Europe, but you're making a specific bet when you hold these instead of more diversified funds.
The ETFs listed here tend to be available in versions that do and do not use hedging to mute the effects that currency fluctuations have on investment returns outside Canada. It's useful to have hedging when the Canadian dollar is rising, but it's a drag on returns when our currency is falling. Where hedged and unhedged options exist for an ETF, the more widely traded and/or more established fund is listed in the Guide.
Previous instalments of the ETF Buyer's Guide have included only funds with a history of five years or more. Few international and global ETFs have been around that long, so we'll go with a three-year history here. Funds must also be popular enough with investors to have generated an average daily trading volume over the past 30 days of 4,000 shares or more. This is a rough and ready rule for avoiding unloved funds that might be tricky to sell at a competitive price.
The ETF Buyer's Guide has already covered funds in the Canadian and U.S. equity categories, as well as bonds. Still to come in the weeks ahead: Canadian dividend and diversified income ETFs, followed by U.S. and international dividend and income funds.
Assets: Shown to give you a sense of how interested other investors are in a fund.
Management expense ratio (MER): The main cost of owning an ETF on an ongoing basis; returns are shown on an after-fee basis.
Trading expense ratio (TER): The cost of trading commissions racked up by the managers of an ETF as they adjust the portfolio to keep it in line with a target index; add the TER to the MER for a fuller picture of a fund's cost.
Dividend yield and distribution frequency: There's a fairly wide variation in the yield produced by global and international ETFs. Income-seekers, note that many funds in these categories pay income only twice a year.
Holdings: Top-three country weightings are important in understanding how an ETF approaches international or global exposure.
Notes: Market data as of March 20. Average daily trading volume is for the previous 30 days. *Fund returns are annualized to Feb. 28.