Most stock markets have risen lately. But as always, they remain subject to unexpected downturns. Even so, we feel the long-term outlook is for higher stock prices. One way to profit from rising markets is to add exchange traded funds (ETFs) that track major stock indexes to your portfolio.
ETFs trade on stock exchanges, just like stocks. Prices are quoted in newspaper stock tables and online. You must pay brokerage commissions to buy and sell ETFs, but their low management fees still give them a cost advantage over most mutual funds.
As well, shares are only added or removed when the underlying index changes. As a result of this low turnover, you won’t incur the regular capital gains bills generated by the yearly distributions most conventional mutual funds pay out to unitholders.
ISHARES S&P/TSX 60 INDEX FUND (Toronto symbol XIU; ca.ishares.com) is a low-fee way to buy the top stocks on the TSX. The units are made up of stocks that represent the S&P/TSX 60 Index, which consists of the 60 largest, most heavily traded stocks on the exchange. Expenses are just 0.17% of assets.
The index mostly consists of high-quality companies. However, as the fund must ensure that all sectors are represented, it holds a few stocks we wouldn’t include.
The index’s top holdings are Royal Bank, 7.8%; TD Bank, 6.7%; Bank of Nova Scotia, 6.0%; Suncor Energy, 4.6%; Bank of Montreal, 3.6%; CN Railway, 3.6%; Potash Corp., 3.3%; Enbridge, 3.1%; Trans-Canada Corp., 3.0%; BCE Inc., 3.0%; CIBC, 2.9%; Canadian Natural Resources, 2.9%; Barrick Gold, 2.9%; Goldcorp, 2.6%; Manulife Financial, 2.3%; Cenovus Energy, 2.2%; and Telus Corp., 1.9%.
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Dividend fund relies heavily on Canadian financial stocks
ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND (Toronto symbol XDV; ca.ishares.com) holds 30 of the highest-yielding Canadian stocks. Its selections are based on dividend growth, yield and payout ratio. The weight of any one stock is limited to 10% of its assets. The fund’s MER is 0.50%. It yields 4.2%.
The fund’s top holdings are CIBC, 6.7%; Bonterra Energy, 6.0%; National Bank, 6.0%; TD Bank, 5.5%; Bank of Montreal, 5.4%; Royal Bank, 4.4%; Telus Corp., 4.4%; Bank of Nova Scotia, 4.1%; BCE Inc., 4.1%; and IGM Financial, 3.9%.
The fund holds 51.5% of its assets in financial stocks. The top Canadian finance stocks have sound prospects. However, if you invest in this ETF, be sure to adjust the rest of your portfolio so it won’t be overly concentrated in the financial sector.
In the latest issue of Canadian Wealth Advisor, we also examine three leading ETFs in the U.S. that may be suitable for some Canadian investors—and one other Canadian index fund. We conclude with our clear buy-hold-sell advice on all six of these ETFs.
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The Successful Investor Inc. and its affiliate Successful Investor Wealth Management (referred to hereafter as TSI Network) know that you care how information about you is used and shared, and we appreciate your trust that we will do so carefully and sensibly. This notice describes our privacy policy. By visiting websites owned by or associated with TSI Network, you are accepting the practices described in this Privacy Policy.
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The contents of this web site and our publications are based upon sources of information believed to be reliable, but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Any opinion reflects the Successful Investor’s judgment at the date of publication and neither the Successful Investor, nor any of its affiliated companies, nor any of their officers, directors or employees, accepts any responsibility in respect of the information or recommendations contained in the publications or on this web site. Moreover, the information or recommendations are subject to change without notice.
Information presented on this web site or contained in our publications is not an offer, nor a solicitation, to buy or sell any securities referred to on the web site or in the publications. The material is general information intended for recipients who understand the risks associated with an investment in any securities referred to in the publications or on this web site. The Successful Investor has made no determination regarding whether an investment, course of action, or associated risks are suitable for the recipient.
