It’s time for another visit to the inbox to see what questions are on readers’ minds.
Wants less China
Q - Can you recommend an emerging market ETF that is not so heavily weighted to China? I’m looking for one with more exposure to India, and less to China. Or is there a specific India ETF I should consider? Thank you. – Peter D.
A – The BMO MSCI India ESG Leaders Index ETF (ZID-T) has been on the Internet Wealth Builder recommended list since 2017 and has performed well. We have a capital gain of almost 80 per cent to date plus distributions. We continue to rate it a Buy.
If you want a fund with more geographic scope, look at the iShares MSCI Emerging Markets ex China ETF (EMXC-Q), which trades on Nasdaq. It has performed well recently, up 10.6 per cent year-to-date.
The fund was launched in 2017 and has been quite volatile, with double-digit losses in 2018 and 2022 but decent gains in the other years. The five-year average annual compound rate of return to July 31 was 3.7 per cent.
Taiwan is the largest geographic holding in the portfolio, at 21.5 per cent of total assets. It’s followed by India (20.6 per cent), South Korea (17.8 per cent), and Brazil (7.9 per cent). Information technology is the largest sector (almost 26.7 per cent), followed by financials (24.6 per cent).
The MER is a reasonable 0.25 per cent. The fund has US$4.8-billion in assets under management. – G.P.
What about annuities?
Q - Thanks for your balanced outlook and advice for senior investors. I have a friend who enjoys looking at stocks and markets but finds it difficult to follow the market consistently due to issues with his eyes. He is considering investing in annuities with recent rise in interest rates. What is your advice: annuities or a balanced portfolio of ETFs, GICs, etc.? He is in his early seventies and wouldn’t mind leaving his money to his children. - Sudhir D.
A – You’re right. Annuities are paying more than a year ago, and the income is guaranteed until death.
But if your friend wants to leave anything for the children, he will have to give up some income if he wants to move to annuities. Normally, payments end when the annuitant dies, and there is no residual capital to pay to the estate. He can opt for a guaranteed annuity, which means that if he dies before the guarantee expires (typically 5 or 10 years) the remaining payments will go to designated beneficiaries or the estate. There is no refund of capital, just a continuation of payments until the guarantee period ends.
If he outlives the guarantee period, the heirs get nothing.
I appreciate the vision problem would create difficulties for your friend in terms of following markets. But he might consider using a financial advisor to handle his wealth. With appropriate due diligence, I’m sure he could find someone appropriate. – G.P.
Sell TC Energy?
Q - I have held TC Energy (TRP-T) for over 10 years and although I have enjoyed receiving a great dividend (currently 8 per cent), I am down almost 18 per cent! The shares comprise less than 2 per cent of my portfolio. Should I continue to hold, or sell and claim a capital loss against any capital gains? Thank you very much for your investing wisdom. - Salim S.
A - It depends on your investment goals. If you’re looking for income, consider holding the stock. The dividend should be safe, although the company did shock investors by cutting it when it ran into financial problems in 1999. I doubt that will happen again, especially as the company has announced its intention to spin-off its Liquids Pipelines operation next year. A dividend cut would erode investor confidence in the plan.
If you are more interested in capital gains you should hold for the short term. The stock looks oversold, as investors worry about the strength of the balance sheet. Many market analysts think the sell-off has been overdone and are looking for a snap back to the $55 range. If you want to exit, that would be the time. – G.P.
Investing for one year
Q - Due to market uncertainties, what is the best route for a short term e.g., one-year investments? Thank you. – Mary D.
A – Many interest-sensitive stocks, like REITs and pipelines, are offering high yields at present, but it sounds like you want nothing to do with the stock market. That implies a fixed-income investment,and currently there are some good choices.
The safest would be a one-year GIC that is protected by deposit insurance. The best one-year GIC rate, according to Ratehub.ca, is 5.6 per cent from Motive Financial, which is owned by Canadian Western Bank. It’s protected by the Canada Deposit Insurance Corporation.
Several financial institutions offer 5.5 per cent including Tangerine Bank (owned by ScotiaBank), EQ Bank, and Oaken Financial. So, you have lots of choice. – G.P.
Taxing bond ETFs
Q - Are ETFs such as XBB, which trade like stocks but hold bonds in their portfolio, taxed by the CRA as are shares in a corporation or like bonds? – Al O.
A – Distributions are taxed based on their nature – interest income, dividends, capital gains, return of capital, etc. These are calculated by the sponsoring company, and you’ll receive a tax slip from your broker. In the case of XBB, which is a universe bond fund, most of the distribution income will be in the form of interest and taxed accordingly, unless the units are held in a registered account.
Sales of an ETF are all calculated as capital gains or losses, regardless of whether the fund invests in stocks, bonds, or anything else. – G.P.
If you have a money question you’d like answered send if to me at gordonpape@hotmail.com and write Globe Question on the subject line. I can’t guarantee a personal reply but I’ll answer as many questions as possible in this space.
Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters.
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Gordon Pape