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There were no bad choices for ETF investors in the U.S. equity category last year.

Every single exchange-traded fund listed in the U.S. equity installment of the 2020 Globe and Mail ETF Buyer’s Guide made between 20 and 30 per cent in the 12 months to Jan. 31, and the three- and five-year returns were all in double digits.

Want a likely path to investing disappointment? Buy a U.S. equity ETF based on those backward-looking return numbers. Dig into the other data in the Buyer’s Guide if you want to understand how these ETFs might behave in the future.

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Check the weighting in tech stocks, for example. If this high-flying sector falters, a tech-heavy ETF would be vulnerable. Check the fees – the drag on returns caused by fees is much more tangible in weak or down markets than in years when everyone makes double-digit returns.

Also check the beta for each ETF in the guide. Beta measures an ETF or stock’s tendency to move around in price compared with a benchmark index, in this case the S&P 500. If you’re looking for a low volatility ETF to take the edge off a future stock market downturn, beta is an important indicator of a fund’s tendency to do what the index does.

ETFs included in this guide have at least a five-year track record and can be considered for core U.S. exposure, which means they could be your one and only U.S. equity fund. Most funds in this edition of the Buyer’s Guide do not use currency hedging, which gives you the returns of the underlying portfolio with no distortions caused by currency fluctuations.

With hedging, your U.S. returns won’t be undermined when our dollar rises, nor will they be enhanced when the dollar falls. Unhedged funds do better when our dollar is falling and lag when the dollar rises. Unhedged funds have had the edge in recent years because of weakness in the Canadian dollar compared with the U.S. buck. Some investment pros believe there’s no point in hedging if you have a long time horizon.

Click here to download an Excel version of the guide.



Here’s a look at some of the terms used in the ETF Buyer’s 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.

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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 fuller picture of a fund’s cost. Most of the U.S. equity ETFs included here don’t do enough trading to generate much of a TER.

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. Also note the low yields of these funds.

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: A benchmark stock index always has a beta of 1.0. A lower beta means less volatility on both the up and down side.

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Launch 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.

Notes: Market data as of Feb. 18. Returns to Jan. 31. Sources: ETF company websites, Globeinvestor.com, TMX Money

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