ETFs, including Canadian ETFs, trade on stock exchanges just like stocks. That’s different from mutual funds, which you can only buy at the end of the day at a price that reflects the fund’s value at the close of trading.
Prices of Canadian ETFs are quoted online. You pay brokerage commissions to buy and sell them, but their low management fees give them a cost advantage over most mutual funds.
Theme investing has a natural appeal. It simplifies things. Investors like it because they feel it can put their investment returns into overdrive. Some also feel it adds fringe benefits to their investing, by letting them support social or environmental objectives. Brokers also like it because it gives them a rationale to recommend a variety of stocks.
When you focus on theme investing, however, it’s easy to overlook the fundamentals. To find the best ETF in Canada, focus on fundamentals, not fads. This fund fits that requirement very well.
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iSHARES CANADIAN SELECT DIVIDEND INDEX ETF (Toronto symbol XDV; buy or sell through brokers; ca.ishares.com) is a buy. The fund 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 is limited to 10% of the fund’s assets. Its MER is 0.55%. The ETF, which began trading on September 28, 1999, yields a high 3.7%.
Most market indexes are set up for investors so that the stocks in the index are those with the highest market capitalization and are also the most widely traded.
ETFs: The higher MER exists for a reason
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 the sustainability of their dividend payouts. This means that the fund is more actively managed than the iShares S&P/TSX 60 Index ETF. As a result, it charges a higher MER.
The fund’s top holdings are Canadian Tire at 9.1%; Royal Bank, 8.0%; Bank of Montreal, 6.9%; National Bank, 5.8%; Bank of Nova Scotia, 5.4%; CIBC, 5.4%; TC Energy, 5.2%; TD Bank, 4.9%; and BCE, 4.2%.
Recommendation in Canadian Wealth Advisor: iShares Canadian Select Dividend Index ETF is a buy.
