Topic: ETFs

These 3 Canadian ETFs hold quality stocks, but only two are buys

In volatile markets, high-quality stocks typically hold up better than most, and are often first to recover when markets improve.

These three ETFs hold mostly high-quality stocks traded on Canadian exchanges. Each fund mirrors the performance of a major stock index or sub-index. Although you pay brokerage commissions to buy and sell these ETFs, their lower management fees give them a cost advantage over most mutual funds. We have two of these Canadian ETFs as buys, but rate the third as a hold


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ISHARES S&P/TSX 60 INDEX ETF (Toronto symbol XIU; buy or sell through brokers; ca.ishares.com) is a good low-fee way to buy the top companies listed on the TSX. Specifically, the fund’s holdings represent the S&P/TSX 60 Index. It focuses on the 60 largest, most heavily traded stocks on the exchange.

The ETF began trading on September 28, 1999. Its MER is just 0.18%; it yields 3.0%.

The S&P/TSX 60 Index mostly consists of high-quality companies. However, it must ensure that all sectors are represented, so it holds a few companies we would not include.

The fund’s top holdings are Royal Bank, 8.8%; TD Bank, 8.5%; Bank of Nova Scotia, 5.6%; CN Rail, 5.0%; Suncor Energy, 4.8%; Enbridge, 4.2%; Bank of Montreal, 4.0%; Canadian Imperial Bank of Commerce, 3.2%; and Canadian Natural Resources, 3.1%.

Recommendation in Canadian Wealth Advisor: iShares S&P/TSX 60 Index ETF is a buy.

ETFs: In addition to yield, dividend growth and payout ratio count for Select Dividend ETF

ISHARES CANADIAN SELECT DIVIDEND INDEX ETF (Toronto symbol XDV; buy or sell through brokers; ca.ishares.com) holds 30 of the highest-yield Canadian stocks. The ETF also considers dividend growth and payout ratios to make its selections. The weight of any one stock holding is limited to 10% of the fund’s assets. Its MER is 0.55%, and the ETF, which began trading on September 28, 1999, yields a high 4.4%.

Most market indexes are set up so that the stocks in the index are those with the highest market capitalization and are also the most widely traded. However, the iShares Canadian Select Dividend Index ETF focuses on the 30 stocks that it sees as having the highest dividend yields; it also considers their prospects for dividend growth and sustainability. That means this ETF is more actively managed than, say, the iShares S&P/TSX 60 Index ETF. As a result, its MER is higher.

The fund’s top holdings are CIBC, 9.2%; Bank of Mon­treal, 6.9%; Royal Bank, 6.5%; Bank of Nova Scotia, 5.3%; BCE, 4.7%; TransCanada, 4.3%; TD Bank, 4.2%, National Bank, 4.1%; and Norbord (wood products), 4.0%.

Recommendation in Canadian Wealth Advisor: iShares Canadian Select Dividend is a buy.

ISHARES MSCI CANADA INDEX FUND (New York symbol EWC; buy or sell through brokers; ca.ishares.com) buy or sell through brokers; ca.ishares.com) holds the stocks in the Morgan Stanley Capital International Canada Index. The fund has a 0.49% MER and yields 2.2%. It began trading on March 12, 1996.

The ETF’s top holdings are Royal Bank, 8.3%; TD Bank, 8.0%; Bank of Nova Scotia, 5.0%; CN Rail, 4.7%; Suncor, 4.5%; Enbridge, 3.9%; Bank of Montreal, 3.8%; CIBC, 2.9%; and Canadian Natural Resources, 2.8%.

If you want to own a Canadian index fund, you should buy the iShares S&P/TSX 60 Index ETF (see above). You’ll pay about a third as much in management fees.

Recommendation in Canadian Wealth Advisor: We don’t recommend the iShares MSCI Canada Index Fund.

What to Read Next 

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