Exchange-traded funds that passively track benchmark indexes have generally performed better than comparable actively managed funds over the long term. Lower management fees charged by index tracking funds explain a big part of the difference in the returns. Below we discuss two ETFs that track the performance of a broad spectrum of global and Canadian companies.
The Supplement section starting on page 119 discusses the importance of fees for long-term investment returns, and the struggles of active managers to beat low-cost, index-tracking funds.
ISHARES CORE MSCI ALL COUNTRY EX CANADA ETF $59.04 (Toronto symbol XAW; TSINetwork ETF Rating: Aggressive; Market cap: $4.7 billion) passively tracks the MSCI ACWI ex-Canada Index. The index includes companies publicly listed on developed and emerging markets excluding Canada. Stocks are weighted according to their market capitalizations.
Companies from the U.S. have the largest weight in the portfolio (65%), followed by Japan (6%), Taiwan (4%), the U.K. (3%), China (2%), and Switzerland (2%). Stocks from Emerging Markets make up about 10% of the portfolio.
Technology stocks (31%) have the biggest weight in the portfolio, while Financials (15%), Industrials (11%), Consumer Cyclical (9%), and Healthcare (9%), are other key segments.
The ETF holds its investments through other iShares ETFs, indirectly holding a portfolio of more than 8,000 stocks, with the top 10 making up 22% of its assets. On a see-through basis, the top holdings include Nvidia (U.S., Technology; 4.7%), Apple (U.S., Technology; 4.4%), Microsoft (U.S., Technology; 3.4%), and Taiwan Semiconductors (Taiwan, Technology; 1.8%).
The ETF started up in February 2015 and charges a low MER of 0.22%. It has a large asset base and offers good liquidity with an average of $3.9 million in units trading daily.
The fund pays a fluctuating dividend twice a year; the cash payment amounted to $0.72 over the past 12 months for a yield of 1.2%. The p/e of the stocks in the portfolio is 15.7.
Over the past year, the ETF gained 11.2% compared to the 11.9% of the MSCI AC Equity Index. Over the past 5 years, the fund delivered a total return of 78.4%—slightly below the return of the benchmark.
BMO S&P/TSX CAPPED COMPOSITE INDEX ETF $48.78 (Toronto symbol ZCN; TSINetwork ETF Rating: Aggressive; Market cap: $18.6 billion) passively tracks the S&P/TSX Capped Composite Index. The index includes over 200 Canadian stocks that represent more than 90% of the Canadian equity market. Individual stock weights are capped at 10% of the index’s market capitalization.
Financial companies form a large part of the portfolio (34% of its assets), while Energy (17%), Basic Materials (17%), Industrials (10%), and Technology (9%) are other key segments.
The ETF currently holds a portfolio of 218 stocks; the top 10 make up 38% of its assets. Top holdings include Royal Bank (7.5%), Shopify (5.6%), TD Bank (5.4%), Canadian National Resources (3.0%), Enbridge (2.9%), Suncor (2.5%), Agnico Eagle Mines (2.5%), and CPKC (2.2%).
The ETF started in May 2009 and charges an extremely low MER of 0.06%. It has a large asset base and offers good liquidity with $12.3 million in units trading daily.
The fund pays a fluctuating quarterly dividend; the cash dividend amounted to $0.96 over the past 12 months for a yield of 2.0%. The p/e of the stocks in the portfolio is 16.6.
Over the past year the ETF gained 20.3% on par with the return of S&P/TSX Composite Index. Over the past 5 years, the fund delivered a total return of 94.3%—slightly more than the benchmark.
These ETFs offer a convenient and cost-effective way for investors to get exposure to a broad range of global and Canadian companies.
