The diversification trap threatening Canadian investors is never more of a risk than with dividend stocks.
The overall domestic market is roughly 37-per-cent weighted to financial stocks, but Canadian dividend ETFs tend to have much more than that in their portfolios. A solution for investors who want more balanced exposure to the various market sectors is a dividend ETF that focuses on markets outside this country.
In the sixth and final instalment of the 2016 Globe and Mail ETF Buyer's Guide, we look at dividend and income funds that target stocks from U.S., global and international (outside North America) markets. The guide has already covered Canadian, U.S. and international/global equity funds, as well as bond ETFs and Canadian dividend and income funds.
An important distinction between U.S. and international dividend ETFs is that some use currency hedging to limit the distortions that currency fluctuations cause to investment returns, and some don't. To further complicate things, many funds come in both hedged and unhedged versions. Typically, the larger of the two versions is shown in this guide. (For more on what goes into deciding between hedged and non-hedged ETFs, read a previous column here.)
Now for some 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 commissions racked up by the managers of an ETF as they shuffle 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. Note that some ETFs do so little trading that their TERs round down to zero.
Dividend yield: Supplied by Globeinvestor.com and based on recent monthly or quarterly payouts and the latest share price.
Average daily trading volume: Trading of fewer than 10,000 shares a day, on average, tells you an ETF isn't generating much interest from investors.
Top sector weightings: Here's where you'll notice how well foreign dividend ETFs complement Canadian funds, with their dominance by financials and resource stocks.
Returns: ETF companies typically disclose total returns, or share-price change plus dividends or distributions.
Click here to download an excel version of the table.
Notes: *management fee only; shown for newer funds that do not yet post a full MER (management fees are a component of MER). Source: ETF company websites, globeinvestor.com
Click here to download an excel version of the table.