index etf

These six ETFs hold mostly blue chip, widely traded stocks on Canadian and U.S. exchanges. All of them mirror, or track, the performance of major stock market indexes. That’s opposed to narrower indexes focused on, say, resources or themes such as solar power or biotech. 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 all six—five buys and one we don’t recommend....

ISHARES CANADIAN SHORT-TERM BOND INDEX ETF $28.47 (Toronto symbol XSB; buy or sell through brokers) mirrors the performance of the DEX Short-Term Bond Index. This index consists of a range of investment-grade federal, provincial, municipal and corporate bonds with one- to five-year terms to maturity. The fund holds 437 bonds with an average term to maturity of 2.94 years. The bonds in the index are 65.0% government and 35.0% corporate. The fund’s MER is 0.28%. The iShares Canadian Short-Term Bond Index Fund yields 2.4%, but this high yield is due to the fact that some of the fund’s bonds pay above-market interest rates. As a result, they trade above their face value. When these bonds mature, holders will only get the bonds’ face value, meaning the portfolio will incur predictable capital losses. These losses will offset some of the appeal of the above-market yields....

ISHARES CANADIAN UNIVERSE BOND INDEX ETF $31.87 (Toronto symbol XBB; buy or sell through brokers) mirrors the performance of the Canadian Universe Bond Index. The 957 bonds in the portfolio have an average term to maturity of 10.26 years. The fund’s MER is 0.33%. The bonds in the index are 72.0% government and 28.0% corporate. The fund yields 2.8%, compared to the Short-Term Bond Fund’s 2.4%. Its yield to maturity is 1.96%, 0.75 percentage points above the Short-Term Fund. That reflects the added risk of long-term bonds....

The Bank of Canada is unlikely to raise interest rates any time soon. That’s because low prices for oil and other commodities will likely continue to offset higher exports due to a low Canadian dollar, as well as increased government spending. Even so, the long-term outlook is for higher interest rates. That’s because heavy deficit spending and the expansion of the money supply in the past few years make higher inflation more likely. We continue to advise against investing in bonds right now. That’s because today’s low interest rates make bonds unattractive, and rising rates would push down their future value....

BMO MSCI All Country World High Quality Index ETF, $23.57, symbol ZGQ on Toronto (Units outstanding: 1.4 million; Market cap: $33.0 million; www.etfs.bmo.com), aims to replicate the performance of the MSCI All Country World High Quality Index. Bank of Montreal launched the ETF on November 5, 2014. The underlying MSCI (Morgan Stanley Country Index) was formed in 1995. The BMO MSCI All Country World High Quality Index ETF focuses on the U.S. (68.2% of assets). Its next highest weightings are the U.K. at 8.5%, Switzerland at 6.3% and Denmark at 2.1%. The ETF’s MER is 0.52%, and it yields 1.2%. The fund mostly holds large-capitalization global companies: Apple, Microsoft, Johnson & Johnson, Exxon Mobil Corp., Roche Holding AG, Nestle SA, Procter & Gamble, Alphabet Inc. and Home Depot....

The Direxion iBillionaire Index ETF tries to duplicate the success of billionaire investors, Warren Buffet, Carl Icahn

The Direxion iBillionaire Index ETF, $21.51, symbol IBLN on New York (Units outstanding: 1.4 million; Market cap: $30.1 million; www.direxioninvestments.com), is designed to profit from copying the moves of billionaire investors such as Warren Buffett, Carl Icahn, Daniel Loeb and David Tepper.

The ETF began trading on August 1, 2014. Its MER is 0.65%—lower than most mutual funds, but high for an ETF.

The Direxion iBillionaire Index ETF selects up to 10 billionaire investors from a pool of 50, based on their personal net worth, source of wealth, stock turnover and performance over time. It then selects stocks from their investment firms or hedge funds.

Each of the companies in the index is equally weighted (3.33% each) and rebalanced quarterly. That’s because the ETF’s managers aim to ensure that each stock’s contribution to the fund’s performance is identical.

The fund’s managers select stocks by looking at Form 13F, a publicly available document that institutions, such as banks, hedge funds and investment firms, must file with the Securities and Exchange Commission (SEC). Form 13F discloses long positions, or stocks held with the intention of profiting if their prices go up.

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ISHARES CANADIAN SELECT DIVIDEND INDEX ETF $20.37 (Toronto symbol XDV; buy or sell through brokers; ca.ishares.com) holds 30 of the highestyielding Canadian stocks. Its selections are based on dividend growth, yield and payout ratio. The weight of any one stock is limited to 10% of the ETF’s assets. The fund’s MER is 0.55%, and it yields 5.0%. Its top holdings are CIBC, 9.7%; Bank of Montreal, 7.4%; Royal Bank, 6.8%; BCE, 6.5%; Bank of Nova Scotia, 5.6%; Rogers Communications, 5.2%; Laurentian Bank of Canada, 5.0%; Manitoba Telecom, 5.0%; TD Bank, 4.7%; IGM Financial, 4.4%; and TransCanada Corp., 4.4%. The ETF holds 58.6% of its assets in financial stocks. The top Canadian finance stocks have sound prospects, but 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....

ISHARES S&P/TSX 60 INDEX ETF $18.65 (Toronto symbol XIU; buy or sell through brokers; ca.ishares.com) is a good 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. The ETF’s MER is just 0.18% of assets, and the units yield 3.2%. The index mostly consists of high-quality companies. However, it must ensure that all sectors are represented, so it holds a few we wouldn’t include. The index’s top holdings are Royal Bank, 8.7%; TD Bank, 8.0%; Bank of Nova Scotia, 5.6%; CN Railway, 4.8%; BCE, 4.0%; Bank of Montreal, 3.9%; Suncor Energy, 3.8%; Valeant Pharmaceuticals, 3.5%; Enbridge Inc., 3.3%; and Manulife Financial Corp., 3.1%....

We feel that investors will profit the most by holding a well-balanced portfolio of high-quality stocks. However, if you don’t want to build a portfolio, or you want to supplement your individual stock holdings, then ETFs can provide a great alternative. The main factors we use to evaluate ETFs are the stocks they hold, the diversification of their holdings across the five economic sectors and the fees (MERs) they charge. In general, investors holding mainly ETFs would want, say, 60% in Canadian ETFs and 20% to 30% in U.S. ETFs....