ETFs
Exchange traded funds trade on stock exchanges, just like stocks. Investors can buy them on margin, or sell them short. The best exchange-traded funds offer well-diversified, tax-efficient portfolios with exceptionally low management ETF fees. They are also very liquid.
Investors use ETFs in a variety of ways, and some investors work only with ETFs and no other type of investment in portfolio creation.
An amazing aspect of ETFs is their diversity. Some investors may create an entire portfolio solely from a few well-diversified ETFs.
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.
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 taxes generated by the yearly distributions most conventional mutual funds pay out to unitholders.
ETFs have a place in every investor’s portfolio, at TSI Network we also recommend using our three-part Successful Investor strategy:
- Invest mainly in well-established companies;
- Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; the Consumer sector; Finance; Utilities);
- Downplay or avoid stocks in the broker/media limelight.
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ETFs Library Archives
Exchange-traded funds 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 of that index or sub-index and will allow the fund to “track” its performance.
The MER (Management Expense Ratio) is generally much lower on traditional ETFs than on conventional mutual funds. That’s because most traditional ETFs take a much simpler approach to investing. Instead of actively managing clients’ investments, ETF providers invest so as to mirror the holdings and performance of a particular stock-market index.
The MER (Management Expense Ratio) is generally much lower on traditional ETFs than on conventional mutual funds. That’s because most traditional ETFs take a much simpler approach to investing. Instead of actively managing clients’ investments, ETF providers invest so as to mirror the holdings and performance of a particular stock-market index.
Small companies have generated attractive returns over the long run, although those returns have come with considerable volatility. Nevertheless, the outstanding returns generated by large U.S. companies over the past decade have diminished interest in smaller companies to such an extent that valuation discounts on small companies are now historically significant. A positive change in small company sentiment could drive higher returns on these stocks over time.
One popular method of dividing listed equities into groups is by market value. This normally results in three groups: large, medium, and small companies.
One popular method of dividing listed equities into groups is by market value. This normally results in three groups: large, medium, and small companies.
Value investing has long been regarded as the investment style that yields superior returns over the long term. However, for more than a decade, “growth investing” produced much better results. That may, however, be changing as the valuation gap between value stocks and growth stocks widens.
There is no universal definition of value investing. However, most value investors will focus on the price that they pay for a stock relative to the company’s estimated value, earnings or assets—aiming to get a substantial discount to the perceived value of the assets. Growth investors, on the other hand, are more interested in a company’s growth prospects and tend to pay premiums for those with strong growth potential.
Most ETF managers focusing on value investing have pre-determined criteria for selecting stocks. Here are examples of their strategies:
There is no universal definition of value investing. However, most value investors will focus on the price that they pay for a stock relative to the company’s estimated value, earnings or assets—aiming to get a substantial discount to the perceived value of the assets. Growth investors, on the other hand, are more interested in a company’s growth prospects and tend to pay premiums for those with strong growth potential.
Most ETF managers focusing on value investing have pre-determined criteria for selecting stocks. Here are examples of their strategies:
This month, we highlight an interesting dividend-focused ETF from Franklin as well as a leveraged single-stock ETF from Purpose Investments.
Switzerland is home to several globally competitive businesses, particularly in the fields of luxury goods, machinery, chocolates, and pharmaceutical products. These companies perform well in the export markets. But this is also one of the reasons why the country was recently slapped with one of the highest import duties by the U.S. administration—39%.
The Swiss economy recovered well from the COVID-induced setback, with solid economic growth between 2021 and 2024. Inflation picked up after COVID, but has been quickly brought under control by the Swiss Central Bank.
Meanwhile, Switzerland has prospered with its export-oriented economy, but the country now faces a new challenge with very high tariffs being applied by the U.S.—a key export market for Swiss corporations.
Here is one ETF that provides exposure to the top Swiss public companies.
Meanwhile, Switzerland has prospered with its export-oriented economy, but the country now faces a new challenge with very high tariffs being applied by the U.S.—a key export market for Swiss corporations.
Here is one ETF that provides exposure to the top Swiss public companies.
Smaller firms can sometimes generate higher returns than their larger counterparts, but they are often riskier, less liquid, and may underperform for long periods. One way to offset some of the risk is to focus on ETFs that hold top-quality small-capitalization companies.
Here’s a look at three ETFs that meet that criteria. Meantime, please see the Supplement on page 100 for more on small caps in general.
Here’s a look at three ETFs that meet that criteria. Meantime, please see the Supplement on page 100 for more on small caps in general.
TD International Equity Index ETF $26.42 (Toronto symbol TPE; TSINetwork ETF Rating: Conservative; Market cap: $3.35 billion) tracks the Solactive Developed Markets Ex North America Index. That index includes large and medium listed companies in developed markets. Stocks are weighted based on their market values.
The geographical distribution of the portfolio assets is mostly to European Union countries (52% of assets), Japan (25%), and countries in Asia (12%).
Financial Services make up 24% of the portfolio, followed by Consumer Goods (15%), Industrials (17%), Healthcare (9%), and Technology (8%).
The geographical distribution of the portfolio assets is mostly to European Union countries (52% of assets), Japan (25%), and countries in Asia (12%).
Financial Services make up 24% of the portfolio, followed by Consumer Goods (15%), Industrials (17%), Healthcare (9%), and Technology (8%).
BMO Covered Call Canadian Banks ETF $22.49 (Toronto symbol ZWB) holds shares of Canada’s six largest banks (CIBC, TD Bank, Bank of Montreal, Bank of Nova Scotia, Royal Bank and National Bank).
The fund started up in January 2011. Its MER is a relatively high 0.71%.
BMO Canadian High Dividend Covered Call ETF yields a high 6.0%. However, the dividend income that the fund receives from its own portfolio is insufficient to cover the distribution to its unitholders. To make up the difference, it has to make a profit on trading its portfolio. The ETF also aims to raise its returns by writing call options on the portfolio’s securities.
The fund started up in January 2011. Its MER is a relatively high 0.71%.
BMO Canadian High Dividend Covered Call ETF yields a high 6.0%. However, the dividend income that the fund receives from its own portfolio is insufficient to cover the distribution to its unitholders. To make up the difference, it has to make a profit on trading its portfolio. The ETF also aims to raise its returns by writing call options on the portfolio’s securities.
As their name implies, value stocks trade lower than their fundamentals would suggest. Investors perceive them as undervalued with the potential to rise. Even so, it’s best for you to zero in on the shares of quality companies with a consistent history of sales and earnings (or the ETFs that hold them). A strong grasp on a growing clientele is another plus.
Here are two ETF buys. Each offers you to a portfolio of stocks selected for their low valuations. (See also the Supplement on page 99).
Here are two ETF buys. Each offers you to a portfolio of stocks selected for their low valuations. (See also the Supplement on page 99).