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How the Loblaw-Shoppers deal will affect your ETFs

Loblaw executive chairman Galen G. Weston, left, and Shoppers chair of the board Mart Holger Kluge shake hands during a news conference in Toronto, July 15, 2013.

MARK BLINCH/REUTERS

The recent announcement of a blockbuster $12.4-billion deal by Loblaw to acquire Shoppers at a rather decent premium (29 per cent) won't have a massive impact on the S&P/TSX 60, where its combined weighting as at Friday's close stood at 1.3 per cent.

Where the biggest impact will be felt is within the iShares S&P/TSX Staples ETF, where the two comprised close to a third (31.07 per cent) of assets as at July 12th.

Will there be Competition Bureau related issues and concerns to deal with, and will that prompt some to look at taking profits?

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Or will the prospect of significant synergies and earnings accretion be the key to getting investors to stay put?

We are obviously about to find out. We should also find out in short order whether this transaction is deemed to have positive, or negative implications for Loblaw's recently launched REIT.

In the meantime, to get broader diversification in the consumer space than what is available with XST, investors could have a look at the relatively recently launched S&P Global Consumer Discretionary ETF. If they wish to stay with the "staples" angle, consider either a U.S. staples sector ETF such as the Consumer Staples SPDR or the iShares Global Consumer Staples ETF.

No matter what they opt to do, the deal will serve as a reminder as to why investors should appreciate legendary fund manager Peter Lynch's simple wisdom of buying businesses they use, know, and understand.

Here are some more ETFs with Shoppers and/or Loblaw exposure and percentages as at July 12, 2013:

  • BMO Low Volatility Canadian Equity ETF: 10.79 per cent (SC: 4.18 per cent; L: 3.03 per cent; WN: 3.58 per cent).
  • First Asset Morningstar Canadian Value ETF: 6.42 per cent (combined L and WN – no SC).
  • iShares MSCI Minimum Volatility Canada Index Fund: 4.85 per cent (combined L; WN; and SC).
  • First Asset Canada Dividend Target 30 ETF: 3.42 per cent (SC)
  • iShares Canadian Fundamental Index Fund: 2.13 per cent (combined L; WN; and SC).

ETFinsight is a website dedicated to helping Canadians connect with relevant ETF solutions. Read more at www.etfinsight.ca , follow us on Twitter @etfinsight and Yves Rebetez can be contacted at: yves@etfinsight.ca

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