index etf

If you need stable income and want to hold bonds, these two Canadian bond ETFs offer low fees and high-quality holdings.

Exchange traded funds (ETFs) are set up to mirror the performance of a stock market index or sub-index. They hold a more or less fixed selection of securities that represent the holdings that go into the calculation of the index or sub-index. 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 ETFs are quoted in newspaper stock tables and online. You pay brokerage commissions to buy and sell them, but their low management fees give them a cost advantage over most mutual funds....

The Bank of Canada cut its key interest rate to 0.50% from 0.75% in July 2015. The move came as the Canadian economy slowed along with falling prices for oil and other commodities. Even so, the long-term outlook is for higher interest rates—especially after the U.S. Federal Reserve raised its benchmark rate by 0.25% in December 2015 and signaled further increases to come. 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....

iShares Core S&P 500 Hedged ETF aims to cut currency risk by hedging against movements of the U.S. dollar vs. the Canadian dollar. Our view.

ISHARES S&P/TSX 60 INDEX ETF $20.99 (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. Expenses are just 0.17% of assets.

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, 8.3%; TD Bank, 7.3%; Bank of Nova Scotia, 5.7%; CN Railway, 4.7%; Suncor Energy, 3.9%; Bank of Montreal, 3.8%; Valeant Pharmaceuiticals, 3.8%; Enbridge, 3.7%; BCE, 3.2%; Manulife Financial, 2.9%; TransCanada Corp., 2.9%; CIBC, 2.9%; Canadian Natural Resources, 2.8%; CP Rail, 2.5%; and Potash Corp., 2.5%.

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ISHARES MSCI CANADA INDEX FUND $24.49 (New York symbol EWC; buy or sell through brokers; ca.ishares.com) holds the stocks in the Morgan Stanley Capital International Canada Index. The fund has a 0.48% MER and yields 1.7%.

The index’s top holdings are Royal Bank, 7.7%; TD Bank, 7.1%; Valeant Pharmaceuticals, 5.6%; Bank of Nova Scotia, 4.9%; CN Railway, 4.4%; Suncor Energy, 3.7%; Bank of Montreal, 3.5%; Enbridge, 3.1%; and Manulife Financial, 3.0%. If you want to own a Canadian index fund, you should buy the iShares S&P/TSX 60 Index ETF (see previous page). You’ll pay about a third of the management fees.

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

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ISHARES CANADIAN SELECT DIVIDEND INDEX ETF $22.48 (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 4.3%.

The fund’s top holdings are CIBC, 9.7%; Bank of Montreal, 6.8%; Royal Bank, 6.5%; BCE, 5.8%; Bank of Nova Scotia, 5.5%; Laurentian Bank of Canada, 5.0%; Rogers Communications, 4.5%; Manitoba Telecom, 4.4%; TD Bank, 4.4%; National Bank, 4.1%; IGM Financial, 4.0%; and Emera Inc., 3.8%.

The ETF holds 53.7% 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.

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ISHARES S&P/TSX 60 INDEX ETF $20.47 (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. Expenses are just 0.18% of assets, and the units yield 3.1%.

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, 8.3%; TD Bank, 7.7%; Valeant Pharmaceuticals, 6.0%; Bank of Nova Scotia, 5.6%; CN Railway, 4.7%; Suncor Energy, 4.0%; Bank of Montreal, 3.7%; BCE, 3.6%; Enbridge, 3.3%; Manulife Financial, 3.2%; CIBC, 3.0%; Brookfield Asset Management, 2.8%; and TransCanada Corp., 2.4%.

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This week’s first question helps illustrate a common practice in today’s investment business, particularly in ETFs (Exchange Traded Funds). ETFs are a little like conventional mutual funds, but with two key differences. First, ETFs trade on a stock exchange throughout the day, much like ordinary stocks. So you can buy them through a broker whenever the stock market is open, and generally you pay the same commission rate that you pay to buy stocks. In contrast, you can only buy most conventional mutual funds at the end of the day. Commissions vary widely, depending on negotiation with your broker for fund dealer....

iShares Core S&P 500 Hedged ETF (CAD-Hedged), $23.17, symbol XSP on Toronto (Units outstanding: 125.4 million; Market cap: $2.9 billion; www.blackrock.com), holds the stocks in the S&P 500 Index, which is comprised of 500 major U.S. stocks chosen by market size, liquidity and industry group.

The index’s 10 highest-weighted stocks are Exxon Mobil, Apple, Berkshire Hathaway, Microsoft, Wells Fargo, General Electric, AT&T, Johnson & Johnson, JPMorgan Chase & Co. and Pfizer. It has a 1.6% dividend yield.

iShares Core S&P 500 Hedged ETF (CAD-Hedged) is hedged against movements of the U.S. dollar against the Canadian dollar. The fund’s Canadian-dollar value rises and falls solely with the movements of the stocks in its portfolio.

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