Topic: ETFs

These 3 Canadian ETFs hold top stocks, but only 2 are buys

These ETFs mostly hold high-quality stocks that are widely traded on Canadian exchanges. Each fund mirrors, or tracks, the performance of a major stock market index. That’s different from ETFs focused on narrower indexes or themes such as solar power and biotechnology.

Of course, you pay brokerage commissions to buy and sell these ETFs. But their low management fees give them a cost advantage over most mutual funds.

Below, we update our advice on three Canadian ETFs that track major indexes—two buys and one we don’t recommend.

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SHARES S&P/TSX 60 INDEX ETF $24.99 (Toronto symbol XIU; buy or sell through brokers; is a good low-fee way to buy the top companies listed on the TSX. Specifically, the funds 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 2.9%.

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, 8.3%; TD Bank,
7.8%; Enbridge, 5.3%; Bank of Nova Scotia, 4.9%; CN Rail, 4.9%; Suncor Energy, 3.6%; Bank of Montreal, 3.5%; TC Energy (formerly TransCanada Corp.), 3.3%; Brookfield Asset Management, 3.1%; and BCE, 3.0%.

iShares S&P/TSX 60 Index ETF is a buy.

ISHARES CANADIAN SELECT DIVIDEND INDEX ETF $24.97 (Toronto symbol XDV; buy or sell through brokers; 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 4.5%.

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, 8.0%; Royal Bank, 6.5%; Bank of Montreal, 6.0%; Bank of Nova Scotia, 5.4%; BCE, 5.1%; TC Energy, 5.1%; TD Bank, 4.8%; Laurentian Bank, 4.6%; Emera, 4.2%, National Bank, 4.1%; and IGM Financial, 3.9%.

iShares Canadian Select Dividend is a buy.

ISHARES MSCI CANADA INDEX FUND $29.00 (New York symbol EWC; buy or sell through brokers; holds the stocks in the Morgan Stanley Capital International Canada Index. The fund has a 0.50% MER and yields 2.3%. It began trading on March 12, 1996.

The ETF’s top holdings are Royal Bank, 8.1%; TD Bank, 7.6%; Enbridge, 4.9%; Bank of Nova Scotia, 4.6%; CN Rail, 4.5%; Suncor, 3.6%; Bank of Montreal, 3.5%; TC Energy, 3.1%; and Brookfield Asset Management, 2.9%.

If you want to own a Canadian index fund, you should buy the iShares S&P/TSX 60 Index ETF (see page 52). You’ll pay about a third as much in management fees.

We don’t recommend the iShares MSCI Canada Index Fund.

For our views on why investors should be wary of many newer ETFs, read Investment Concepts: “Bells & Whistles” Should Be Avoided While Investing.

For our recent report on a high-yielding ETF with some complicated features, read This ETF’s high yield comes with higher risk.


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