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portfolio strategy

The past 12 months have been nasty for Canadian stocks and the exchange-traded funds that hold them.

How fortunate that the third edition of the annual Globe and Mail ETF Buyer's Guide is able to document this adversity for investors. The previous two guides appeared at a time of strong market returns. But a basic rule of selecting investments is to check their performance under stress. Here's your chance to do this with ETFs that provide core exposure to the Canadian stock market.

Stay tuned to the Portfolio Strategy column in the next couple of months for further instalments of this guide. The schedule: Canadian equity ETFs first, then funds focusing on Canadian dividend stocks, bonds, U.S. stocks, international stocks and U.S. and international dividend stocks.

ETFs are a low-fee version of mutual funds that trade like a stock. The traditional ETF tracks major stock and bond indexes, but a growing number follow specific strategies 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, published late last year (read it here).

Here is an explanation of the terms you'll find in this ETF Buyer's Guide:

Assets: Shown to give you a sense of how interested other investors are in a fund; several ETFs listed here are smaller than they were a year ago as a result of market declines and investors moving money into other areas.

Management expense ratio (MER): The main cost of owning an ETF on an ongoing basis; as with virtually all funds, published returns are shown on an after-fee basis. MERs have been more or less flat in the past year.

Trading expense ratio (TER): 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 many ETFs do so little trading that their TERs round down to zero.

Dividend yield: Mainstream indexes can be a good source of dividend income; shown here are yields based on recent actual payouts.

Average daily trading volume: Trading of less than 10,000 shares a day on average tells you an ETF isn't generating much interest from investors; the less liquid an ETF is, the more potential there is for buyers to have to pay a premium to market price when buying.

Top three sector weightings: Most Canadian market ETFs reflect the fact that financials, energy and materials account for two-thirds of the S&P/TSX composite index; a few ETFs attack the market differently.

Top three stocks: Another view on which ETFs take a different approach to tracking the Canadian market.

Click here to download an excel version of the table.


Source: ETF company websites,

Click here to download an excel version of the table.