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Last year’s big decline in the Canadian stock market offers a lesson for ETF investors on the importance of digging deep into a fund before buying.

The S&P/TSX composite index lost 8.9 per cent on a total return basis in 2018 (dividends plus share price changes), while the Canadian equity funds in the 2019 edition of the Globe and Mail ETF Buyers’ Guide lost as little as 2.8 per cent and as much as 10.1 per cent.

Eleven Canadian equity ETFs are covered – some that track major indexes, some that screen indexes for stocks with particular virtues and a couple of low-volatility funds. Their widely varying returns last year highlight how differently these strategies work in a down market.

Emphasize the five-year numbers in evaluating the ETFs in the guide – they mean the most. The one-year numbers simply show how much pain you might have to endure on the road to strong long-term results that justify the ups and downs of stock market investing. The pain factor is important because investors who know what to expect in down markets are more likely to avoid making damaging emotions-based changes to their portfolio.

There will be six 2019 ETF guide instalments appearing on alternating weekends through February and March. The Guide includes only established funds, which means a five-year track record at least.

An ETF is a low-fee version of a mutual fund that trades like a stock. The traditional ETF tracks major stock and bond indexes, while others follow specific screening strategies or have a manager who picks stocks. To invest in ETFs, you need a brokerage account. For help on that, consult the ranking of online brokers we will publish on Feb. 9.

Click here to download an Excel version of the guide.

Assets: Shown to indicate how a fund has resonated with investors. A $1-billion fund is considered huge, while $100-million is serious size.

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 stock-trading commissions incurred by the managers of an ETF as they maintain the portfolio. Add the TER to the MER for a full picture of a fund’s cost. Many ETFs do so little trading that their TERs round down to zero.

Dividend yield: Yields shown here are supplied by and based on recent monthly or quarterly payouts.

Number of holdings: A higher number suggests you’re buying the entire market, while a smaller number suggests a more selective process is used to build the portfolio. You’ll need to decide if that that process is adding value.

Top three sector weightings: Financial stocks dominate our stock market, but some Canadian equity ETFs are deeper into the sector than others.

Returns: ETF companies typically show total returns, which reflect changes in the stocks they hold as well as dividends.

Three-year beta: Beta is a measure of volatility that compares funds to the benchmark index (in this case, the S&P/TSX composite index), which always has a beta of 1.0. A lower beta means less volatility on both the up and down side. Beta offers a chance to see how well low-volatility ETFs deliver.

Inception date: The older an ETF is, the more likely it is that you can look back at a history of returns through good markets and bad.

Notes: Market data as of Jan. 18, 2019. Returns to Dec. 31, 2018.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 23/04/24 2:46pm EDT.

SymbolName% changeLast
BMO S&P TSX Capped Comp ETF
BMO Low Volatility CAD Equity ETF
CI Morningstar Cda Momentum Idx ETF
Horizons S&P Tsx60 Index ETF
Invesco SP TSX Low Vol Idx ETF
Ishares Core S&P TSX Capped Comp ETF
Ishares Jantzi Social Index ETF
Ishares S&P TSX 60 Index ETF
Vanguard FTSE Canada Index ETF
Vanguard FTSE Canada All Cap ETF

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