Topic: How To Invest

Q: Hi. May I have your opinion regarding iShares Canadian Financial Monthly Income ETF? Thank you.

Article Excerpt

A: iShares Canadian Financial Monthly Income ETF, $6.82, symbol FIE on Toronto (Units outstanding: 90.1 million; Market cap: $614.5 million; www.blackrock.com/ca), invests primarily in common shares, preferred shares, corporate bonds and income trusts of firms in the Canadian finance industry. The fund has an MER of 0.93%, which is high by ETF standards. Its 7.4% yield is also high. The ETF’s portfolio does not generate enough dividend income to cover both its distributions to unitholders as well as its management expenses and fees. To make up the difference, iShares Canadian Financial Monthly Income ETF must make capital gains by trading the stock holdings of its portfolio. If those gains don’t materialize, then the fund will be forced to either cut its distributions—or more likely in the short term—sell some of its stockholdings to raise cash to maintain its exceptionally high distributions. Those monthly payments will then include a combination of dividends, interest, capital gains and also a “return of capital.” That’s any portion of…