Here’s an example of how mainstream ETFs have become: For every investing angle and trend, there are readers asking for exchange-traded funds to exploit it.
I’m not enthused about these requests. While investing trends like hot gold prices can make a lot of money for investors, there’s also a big risk of losing money by getting the timing wrong. In other words, buying after most of the gains have already been made, and then waiting too long after a price decline to sell.
A novel twist on thematic ETF investing arrived recently in the form of this reader question: “Can you recommend a stock ETF that contains companies which are most likely to survive and thrive during the COVID-19 pandemic?”
At first, I thought to punt on this one. It’s guesswork to find sectors that will thrive as a result of the pandemic and, even if I could identify one, there’s the problem of getting in too late. And then I thought of an old-school ETF in the Canadian market that holds big blue-chip companies - those with established franchises that should be able to survive the economic ups and downs ahead.
The fund I remembered is the iShares S&P/TSX 60 Index ETF (XIU-T), which has been around since September, 1999, and has roughly one-third of its assets in Shopify Inc., Royal Bank of Canada, Toronto-Dominion Bank, Canadian National Railway Co. and Enbridge Inc. I’m pretty confident all of these companies will survive the pandemic and thrive in the years after it’s done.
Frankly, the idea of picking funds and stocks to outflank the pandemic seems too risky because of all the unknowns about the disease and its ultimate effect on people and the economy. Going with a well-diversified ETF holding big, established companies seems a better approach.
An alternative to XIU is the Vanguard FTSE Canada Index (VCE-T), with a portfolio of 56 large companies and a low management expense ratio of 0.06 per cent (XIU is 0.18 per cent). XIU has been the mildly better performer with annualized gains of 5.7 per cent over the five years to July 31, compared with 5.3 per cent for VCE. But both are worth a look for investors seeking companies that can survive the pandemic and other setbacks to come.
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Rob Carrick