transcanada

ISHARES MSCI CANADA INDEX FUND $29.28 (New York symbol EWC; buy or sell through brokers; ca.ishares.com) is like a market-cap-based index fund, but its managers try to improve performance by tinkering with the index-fund formula. They do this through their Morgan Stanley Capital International Canada Index. The fund has an MER of 0.55%. The index’s top holdings are Royal Bank, 6.5%; TD Bank, 5.5%; Bank of Nova Scotia, 4.8%; Suncor Energy, 4.4%; Barrick Gold, 4.0%; Potash Corp., 3.7%; Canadian Natural Resources, 3.3%; Bank of Montreal, 2.8%; Goldcorp, 2.8%; CN Railway, 2.6%; CIBC, 2.5% and TransCanada Corp., 2.2%. If you want to own a Canadian index fund, you should buy the iShares S&P/TSX 60 Index Fund (see previous page). You’ll pay about a third of the management fees....

ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND $20.26 (Toronto symbol XDV; buy or sell through a broker; 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 assets. The fund’s MER is 0.50%. It yields 5.3%. The fund’s top holdings are CIBC, 8.0%; Bank of Montreal, 6.4%; National Bank, 5.7%; TD Bank, 5.6%; Telus, 5.2%; Bank of Nova Scotia, 4.6%; Manitoba Telecom, 4.5%; IGM Financial, 4.2%; Royal Bank, 4.0%; Enbridge, 3.5%, TMX Group, 3.5%; and TransCanada Corp., 3.3%. The fund holds 60.1% of its assets in financial stocks. Utilities are next, at 23.0%. 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....

Exchange-traded funds (ETFs) may have a place in your portfolio. That’s because, unlike many other financial innovations, they don’t load you up with heavy management fees, or tie you down with high redemption charges if you decide to get out of them. Instead, they give you a low-cost, flexible, convenient alternative to mutual funds. ETFs trade on stock exchanges, just like stocks. Prices are quoted in newspaper stock tables and online. You’ll have to pay brokerage commissions to buy and sell ETFs. However, ETFs’ low management fees still give them a cost advantage over most conventional 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....

TRANSCANADA CORP. $37.42 (Toronto symbol TRP; Shares outstanding: 693 million; Market cap: $25.9 billion; SI Rating: Above Average; Dividend yield: 4.3%; www.transcanada.com) agreed to build a natural-gas-fired electrical-power plant in Oakville, Ontario, in 2008. It also signed a 20-year deal to sell this plant’s electricity to Ontario’s power regulators. However, the Ontario government now feels that the plant is no longer needed, and has cancelled the project. As a result, the government will pay TransCanada an undisclosed termination fee to compensate the company for the funds it has spent on the project to date. TransCanada is still a buy....

Inter Pipeline Fund, $13.67, symbol IPL.UN on Toronto (Units outstanding: 256.9 million; Market cap: $3.5 billion), transports, stores, markets and processes oil and natural gas. The fund has three divisions: pipelines (conventional and oil sands), extraction (natural gas liquids from natural gas) and storage (under the Simon Storage and TLG banners). In the three months ended June 30, 2010, Inter Pipeline’s revenue rose 22.4%, to $241.4 million from $197.3 million. Cash flow per unit rose 13.3%, to $0.34 from $0.30. The fund paid out 65% of its cash flow as distributions in the latest quarter. Inter Pipeline Fund’s outlook generally rises and falls with oil prices. Lower oil prices cut drilling activity and production levels, and encourage producers to close or abandon producing wells. That lowers the amount of oil and gas that Inter Pipeline Fund handles, and cuts its revenue. Inter Pipeline Fund’s concentration in Alberta also adds risk. However, the addition of its Corridor Pipeline expansion should add to the fund’s cash flow and provide future growth potential....

AGRIUM INC., $88.15, Toronto symbol AGU, rose 8% this week after the U.S. Department of Agriculture predicted that U.S. corn production would fall 3% in 2010. Wheat production is also expected to be lower. That’s good news for fertilizer producers like Agrium, because farmers will aim to increase their crop yields in 2011 to make up for this year’s shortfall. That means they will likely use more fertilizer. Despite its recent rise, the stock still trades at a reasonable 17.8 times Agrium’s likely 2010 earnings of $4.91 U.S. a share. The company’s earnings could reach $6.09 U.S. a share in 2011. The stock trades at 14.3 times that estimate....

ISHARES DEX UNIVERSE BOND INDEX FUND $30.29 (CWA Rating: Income) (Toronto symbol XBB; buy or sell through a broker) mirrors the performance of the DEX Universe Bond Index. This index consists of a wide range of investment-grade Canadian government and corporate bonds with terms to maturity of more than one year. The 351 bonds in the portfolio have an average term to maturity of 9.04 years. The fund’s MER is 0.30%. The bonds in the index are 71.4% government and 28.6% corporate. The fund sticks with high-quality government bonds from issuers such as Canada Housing Trust, Government of Canada and Province of Ontario, plus high-quality corporate bonds from issuers such as Bank of Montreal, TransCanada Pipelines, Bank of Nova Scotia and Bell Canada....

We continue to recommend that you cut your investment risk by spreading your money out across the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities). Most investors should have investments in most, if not all, of these five sectors. The proper proportions depend on your circumstances and temperament. If you’re an income-seeking or conservative investor, you may want to place more emphasis on Utilities. That’s because these firms’ operations (such as power plants and pipelines) generate steady cash flows. That cuts their risk, and gives them plenty of flexibility to invest in new-growth projects. It’s also why utilities are among the best Canadian dividend stocks. In a just-published issue of Canadian Wealth Advisor, our newsletter for conservative investing, we update our buy/sell/hold advice on a utility that’s investing heavily in new-growth projects: TransCanada Corp. (symbol TRP on Toronto). We’ve covered TransCanada for many years in Canadian Wealth Advisor and our flagship publication, The Successful Investor....

TRANSCANADA CORP. $38.36 (Toronto symbol TRP; Shares outstanding: 692.8 million; Market cap: $26.6 billion; SI Rating: Above Average; Dividend yield: 4.2%) operates a 60,000-kilometre pipeline network that pumps natural gas from Alberta to eastern Canada and the U.S. The company also owns, or has interests in, over 10,900 megawatts of power generation. That includes Bruce Power LP, a nuclear facility in Ontario, and the Ravenswood facility, which serves New York City. In the three months ended June 30, 2010, TransCanada’s revenue fell 3.1%, to $1.92 billion from $1.98 billion a year earlier. Earnings fell 6.1%, to $295 million from $314 million. Per-share earnings fell 18%, to $0.41 from $0.50, on more shares outstanding. The weaker U.S. dollar, higher costs at Bruce Power and a delayed rate increase pushed down TransCanada’s results. Even so, cash flow per share rose 23.6%, to $1.36 from $1.10....

We continue to advise against investing in bonds right now, because today’s low interest rates make them unattractive. That’s especially so in light of the potential rise in inflation that may follow the heavy deficit spending and rapid expansion of the money supply that is now underway. However, if you need stable income and want to hold bonds, here are two bond funds that have low fees and high-quality holdings. ISHARES DEX SHORT TERM BOND INDEX FUND $29.15 (CWA Rating: Income) (Toronto symbol XSB; buy or sell through a broker) mirrors the performance of the DEX Short-Term Bond Index....