investor clinic

I want to compare my portfolio’s performance to that of the S&P/TSX Composite Index. However, when I look up the S&P/TSX’s yearly returns, the numbers vary from one website to another. Is there a reliable source for the index’s returns?

It’s possible that returns published by some websites measure only the change in the index, without dividends, while others measure the total return, which assumes all dividends were reinvested.

To do an apples-to-apples comparison with your portfolio, and to make sure you are getting a complete picture of the S&P/TSX’s performance, you should be looking at the index’s total return, with dividends. The method I’ll show takes a bit of work, but it can be customized for any time frame and will also allow you to convert the S&P/TSX’s total return for any period to an annualized number.

The good news is you don’t have to actually add up all the dividends paid by the stocks in the index to calculate its total return. Just go to Investing.com and look up the S&P/TSX Composite Total Return Index (enter the symbol TRGSPTSE). This souped-up version of the S&P/TSX measures the index’s performance with all dividends reinvested. By clicking on “historical data” and adjusting the date range, you can look up values of the S&P/TSX Composite Total Return Index for any time period.

Let’s say you’re interested in how the S&P/TSX Composite Total Return Index performed for the 10 years ended June 30. According to Investing.com, the index closed at 55,943.07 that day. Ten years earlier, on June 30, 2010, it closed at 30,229.89. To calculate the total return for that period, subtract the starting value from the ending value. Then divide the difference – 25,713.18 – by the starting value. The answer is about 0.85, or a total return of 85 per cent, including reinvested dividends.

Now, what does that total return of 85 per cent over the past 10 years work out to on a compound annual basis? You could use a spreadsheet or a scientific calculator to figure this out. Or, to make things easier, use a web-based annual rate of return calculator.

With a google search, I found a calculator at here. I chose a start date of June 30, 2010, and end date of June 30, 2020, then entered the respective total return index values in the “initial deposit” and “future value” boxes (the calculator is designed for dollar amounts, but index values work just as well). Then I clicked “calculate,” which revealed that the compound annual rate of return over the period was 6.35 per cent.

(Incidentally, the compound annual return for the plain-vanilla S&P/TSX Composite Index over the same period, excluding dividends, was about 3.2 per cent – or roughly half of the total return with dividends included. This shows how important dividends are to an investor’s returns.)

If the above sounds like too much work for you, there’s an easier way to find the S&P/TSX Composite Total Return Index’s annualized performance over various periods. However, it doesn’t give you as much flexibility to customize date ranges.

Go to the iShares Canada website and find the page for the iShares Core S&P/TSX Capped Composite Index ETF (XIC). Next, click on “performance.” The row labelled “Benchmark %” provides the annualized total return of the S&P/TSX Composite Index – with dividends reinvested – over one-, three-, five- and 10-year periods. You can specify a month-end date – such as June 30, 2020, or Dec. 31, 2019 – or look up the index’s total return for calendar years going back to 2015.

I would like to get some technology exposure for my portfolio. What do you recommend?

Unless you have a deep understanding of the technology space, I would not recommend buying individual tech stocks. A low-cost exchange-traded fund that provides diversified exposure is a better bet because it will help to control your risk. I’ll discuss a few worthy candidates among the dozens available.

The iShares Core S&P U.S. Growth ETF (IUSG) isn’t specifically a technology fund, but nearly 40 per cent of its weighting is in tech stocks such as Microsoft Corp. (MSFT), Apple Inc. (AAPL), Amazon.com Inc. (AMZN), Facebook Inc. (FB) and Alphabet Inc. (GOOG). You’ll also find plenty of non-tech growth stalwarts such as Johnson & Johnson (JNJ) and Procter & Gamble Co. (PG), which increases diversification and may enhance stability. IUSG’s management expense ratio is a rock-bottom 0.04 per cent and the fund pays a modest dividend yield of about 1.4 per cent.

For a pure-play tech fund, consider the Vanguard Information Technology ETF (VGT), which has an MER of 0.1 per cent. If you’re investing in IUSG, VGT or any of the dozens of other U.S.-listed growth or technology ETFs, keep in mind that you’ll need to buy them in U.S. dollars. This exposes you to currency conversion costs and exchange-rate volatility. If you want to eliminate or at least minimize such currency impacts, consider a Canadian-listed ETF such as the BMO Nasdaq 100 Equity Hedged to CAD Index ETF (ZQQ), which has about half of its assets in technology stocks and charges an MER of 0.39 per cent.

E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.