From the amount of attention they get, you’d never guess that exchange-traded funds in Canada represent just a small fraction of the money held in mutual funds.
Clearly, a lot of investors are still in exploratory mode with ETFs and not yet ready to buy. Here are a few stats about ETFs that may help give them confidence to actually try ETFs as a replacement for costly mutual funds that disappoint or stock-picking that generates mediocre or worse results:
64/32.3/3.7
That’s the percentage breakdown of ETF assets in Canada between stocks, bonds and other miscellaneous categories. On the whole, money in ETFs is invested in a sensible, balanced sort of way.
20.9 per cent
That’s the proportion of ETF assets in Canadian stocks, compared with 20.1 per cent for U.S. stocks, 8.7 per cent in international stocks and 2.2 per cent in emerging markets (money is also invested in sector funds). Again, this is a sensible breakdown. You could fault investors for not having more international content, but this is a category that has never consistently delivered strong returns. The emphasis on U.S. stocks has really paid off in recent years.
$174-billion
That’s the amount invested in ETFs offered by the four largest companies in the field – BlackRock, Bank of Montreal, Vanguard and Horizons. These companies tend to be most competitive on fees, which means a lot of investors are in a position to benefit from the low-cost advantage of ETFs over mutual funds.
$4.2-billion
Here we have the amount of net sales for ETFs in June, which compares with $3.9-billion for mutual funds. Mutual funds had net assets of $1.6-trillion at midyear, compared with $218-billion for ETFs. From a much smaller base, ETFs are generating more interest from investors.
$10.6-billion
The largest ETF in Canada, the BMO S&P 500 Index ETF (ZSP), has this much in assets. Good choice, investors. The management expense ratio for this definitive index for investing in U.S. stocks is just 0.09 per cent.
93
This is how many new ETFs were launched in the 12 months to June 30, bringing the total for the Canadian market to 808. The burden on investors to find good funds gets bigger. For help, try the Globe and Mail 2020 ETF Buyer’s Guide
-- Rob Carrick
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The Rundown
The U.S. election is getting ugly - and investors are getting nervous
Investors are increasingly preparing for the risk of a contested U.S. presidential election come the fall, worried that an ugly political situation will create volatility across markets. A key risk is that Republican President Donald Trump is already questioning the legitimacy of the election, analysts said. His Democratic challenger, former Vice President Joe Biden, currently has a 9 percentage point advantage among likely voters and a significant advantage among voters who are undecided, according to a Reuters/Ipsos opinion poll. Reuters reports.
Europe’s markets are having a moment
Europe has a bad rep with investors. For years, asset managers and bank strategists have characterized the region by its anemic growth rate and shaky political union, and steered investors away. Now, a crisis has turned into an unlikely investment opportunity as the region appears to have handled the pandemic better than some other parts of the world. In the past few months, European assets have staged a comeback. New York Times reports
Others (for subscribers)
The week’s most oversold and overbought stocks on the TSX
Canadian REITs: ‘No rent left behind’
Friday’s analyst upgrades and downgrades
Friday’s Insider Report: Senior VP buys shares of this large-cap dividend stock
Loonie watch: Vanguard sees 4 reasons to worry
Thursday’s analyst upgrades and downgrades
How strong is too strong? Euro’s 10% rally fans fears of side effects
Others (for everyone)
It’s August, what could go wrong? World market themes for the week ahead
Outlook for U.S. value stocks uncertain with cloudy economic picture
Global funds favour bonds over stocks on surging coronavirus infections
Cratering economy offsets Wall Street gains in 2020 campaign
Oil set for fragile recovery as economies limp towards normal: poll
Shopping for a mortgage? Variable rates are a gamble you don’t need to take
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Ask Globe Investor
Question: I would like to get some technology exposure for my portfolio. What do you recommend?
Answer: 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.
-- John Heinzl
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Compiled by Globe Investor Staff