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The U.S. stock market had a bad year in 2018. Or did it?

Your actual experience as an investor holding a U.S. equity exchange-traded fund last year depended to a large extent on which one you owned. With an S&P 500 index fund using currency hedging to smooth out the impact of fluctuations in the value of our dollar, you lost money in 2018. Without hedging, that S&P 500 fund produced a reasonable gain. Low-volatility funds without hedging did even better.

This latest installment of The Globe and Mail 2019 ETF Buyer’s Guide is designed to help you sort out which U.S. equity fund might work for your portfolio. The focus here is on core funds – your one and only ETF for the U.S. market – with a history of at least five years.

Let’s start by talking about hedging. When buying a TSX-listed U.S. equity ETF, you’ll often have the choice of versions with and without currency hedging. Hedging means you get the returns of the underlying portfolio, with no distortions caused by currency fluctuations. Your U.S. returns won’t be undermined when our dollar rises, nor will they be enhanced when the dollar falls.

Unhedged funds rule when our dollar is falling and lag when the dollar rises. Unhedged was the way to go last year, but currency swings are highly unpredictable. Some investment pros believe there's no point in hedging if you have a long time horizon.

Low-volatility ETFs are growing in popularity and the reason is obvious. Their focus on stable companies with shares that move around in price less than the broader market has, over the past five years, produced returns that often beat the S&P 500. Low-volatility funds typically get their comeuppance in a strong bull market, but their behaviour in down markets has offset that risk.

Click here to download an Excel version of the 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 a continuing 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; add the TER to the MER for a full picture of a fund’s cost. With one exception, the U.S. equity ETFs included here don’t do enough trading to generate much of a TER.

Yield: An annualized number based on the latest dividend payout.

Distribution frequency: If you’re primarily focused on dividend income, note that few U.S. equity ETFs make monthly dividend payments. Many other types of ETFs do pay monthly.

Number of holdings: Gives you an indication of whether a fund offers broad stock market coverage, or holds a more concentrated portfolio that may behave differently than benchmark indexes.

Sector weightings: Included to help you verify how well a U.S. equity ETF will diversify your Canadian holdings with exposure to sectors such as tech and health care.

Three-year beta: Beta is a measure of volatility that compares funds to a benchmark stock 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.

Note: Market data as of Feb. 26, 2019. Returns to Jan. 31, 2019.

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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 22/04/24 11:59pm EDT.

SymbolName% changeLast
BMO DJIA Hedged To CAD Index ETF
BMO S&P 500 Index ETF
BMO Low Volatility US Equity ETF CAD
Horizons S&P 500 Index ETF
Ishares Core S&P 500 ETF CAD Hdg ETF
Vanguard S&P 500 Index ETF
Vanguard US Total Market ETF
Invesco S&P 500 Low Volatility ETF

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