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PORTFOLIO STRATEGY

Welcome to The Globe and Mail ETF Buyer’s Guide – 2015 edition Add to ...

Low costs are a strong argument for building portfolios with exchange-traded funds, and fee cuts since last year make them all the more attractive. This week: Canadian equity ETFs

It’s welcome but slightly troublesome news that exchange-traded fund companies have been cutting fees. Welcome because low costs are a strong argument for building portfolios with ETFs, and fee cuts make them all the more attractive. Troublesome because some of the fee information in The Globe and Mail ETF Buyer’s Guide published last year is outdated. We’ll fix that in the second edition of the guide, which begins here and will continue over the months ahead. The schedule: Canadian equity ETFs first, then dividend ETFs, bond ETFs, U.S. equity ETFs and international equity ETFs.

Another reason to update the buyer’s guide is to see how returns are unfolding for the many newer products available to investors. Many recently introduced funds follow different indexes than the S&P/TSX composite or S&P/TSX 60, the standard benchmarks for Canadian market returns. Are there some up-and-coming ETFs following different indexes that you should know about? Read on.

ETFs are a low-fee version of mutual funds that trade like a stock. Traditionally, ETFs tracked major stock and bond indexes; today, many funds follow more obscure indexes 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; the smallest funds may be candidates for delisting.

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.

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 per 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 almost 70 per cent of the market; 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.

 

* management fee only; the fund is too new to have computed a management expense ratio.
Sources: ETF company websites, Globeinvestor.com

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