Sorting through the maze of ETFs
Let's simplify the search for exchange-traded funds to fill your portfolio needs.
Looking for exposure to small companies? You might want to pass on the iShares S&P/TSX Venture Index Fund. Infrastructure? The iShares Global Infrastructure Index Fund isn't an ideal choice. China? You can do better than the iShares China Index Fund.
With more than 300 ETFs listed on the TSX, all efforts to help investors make smart choices are welcome. So a big thanks goes to Yves Rebetez, proprietor of the website ETF Insight (etfinsight.ca), for creating a list of 10 funds investors can do without.
Mr. Rebetez, a chartered financial analyst, has also assembled a list of 13 ETFs investors should know more about. The common thread in his two lists: All the funds have less than $25-million in assets, which means they're either dud ETFs that never reached this basic threshold of success, or new products that haven't yet caught on.
Let's first look at the list of ETFs we don't need, which includes the Venture index, infrastructure and China funds:
1. iShares S&P/TSX Capped
Information Technology Index Fund: Canada's info tech index includes just six companies and two of them, CGI Group and Open Text, account for a combined 53 per cent of the whole. But Mr. Rebetez said there's more wrong with this ETF than insufficient diversification.Twice in its lifetime, unitholders in this ETF have ridden a stock higher and then been hurt when it plummeted. It happened with Nortel Networks and with Research In Motion, which is still the third-largest company in the index. "One bad name that is heavily weighted ends up dragging the whole thing down," Mr. Rebetez said.
2. iShares China Index Fund:
Another diversification disconnect. Mr. Rebetez said there are only 25 stocks in the index tracked by this ETF, and just over half of them are in the financial sector. "People who like the notion of 'China over the long haul' would do better with a basket that has more diversified exposure." Such an ETF is the iShares China All-Cap Index Fund (CHI), which tracks an index based on 183 stocks.
3. iShares Jantzi Social Index Fund: This ETF is built on an index of the big blue-chip companies with the best environmental and social records. Mr. Rebetez's criticism of this ETF is that its holdings are very similar to the iShares S&P/TSX 60 Index Fund (XIU), while the fee is much higher. The Jantzi ETF has outperformed XIU in the past year, but its cumulative five-year numbers are lower.
4. iShares Global Infrastructure Index Fund: This fund is almost two-thirds made up of utilities and industrial stocks, "but it sounds a lot better when you call it infrastructure," Mr. Rebetez said. "Also, this ETF launched in August, 2008, and unfortunately, timing is everything." In case you missed it, the global financial crisis broke big in September '08.
5. Horizons Gartman ETF: This actively managed fund - most ETFs track stock and bond indexes - is run by the well respected strategist Dennis Gartman. This ETF has lost a cumulative 11.6 per cent in the past three years, while the S&P/TSX composite index was up pretty much the same amount. Mr. Rebetz said results were undermined by a couple of trades that went awry.
6. to 9. Horizons Betapro S&P 500 Inverse ETF, S&P/TSX Capped Financials Inverse ETF, S&P/TSX Capped Energy Inverse ETF and S&P/TSX Global Gold Inverse ETF: These ETFs make money when the indexes or commodities they track fall in value (and vice versa). Mr. Rebetez said investors are much more interested in leveraged funds from the Horizons family that give investors two times the decline of their target index or commodity. One single-inverse ETF that has caught on targets the S&P/TSX 60 index, and it trades under the ticker HIX.
10. iShares S&P/TSX Venture Index Fund: Invests in stocks listed on the S&P/TSX Venture Select Index - home to small, speculative stocks. "It's a casino-type idea," Mr. Rebetez said. "Was this something that people were clamouring for? I really doubt it, given how much money is in it." Total assets: $1.1-million, which is negligible.
And now for the ETFs not getting enough attention:
1. to 8. BMO Low Volatility Canadian Equity ETF; PowerShares S&P/TSX Composite Low Volatility Index ETF; PowerShares S&P 500 Low Volatility (CAD Hedged) Index ETF; iShares MSCI Canada, MSCI USA, MSCI EAFE, MSCI Emerging Markets and MSCI All Country WorldMinimum Volatility index funds: The idea behind these ETFs is to allow people to invest in indexes that have been tweaked to focus on more stable stocks while avoiding the most volatile. "In the United States, low-volatility ETFs have garnered a fair amount of interest," Mr. Rebetez said. Expect these funds to lessen the downside while not necessarily providing all of the upside.
9. Horizons North American Growth ETF: Mr. Rebetez sees this as a way to buy into manager Steve Rogers' expertise in managing a portfolio of stocks selected for their high rates of revenue and profit growth (yes, this is an actively managed fund). Strong returns, but you can hear the crickets chirping when you look at daily trading patterns. Days go by without a single share changing hands.
10. Horizons Dividend ETF: Another actively managed ETF, this one run by Srikanth Iyer of Guardian Capital. "He's very much in demand right now," Mr. Rebetez said. "He and his team are trying to build a system where they detect early signs of risk up ahead. They really want to make sure they invest in dividend stocks with a margin of safety." Mr. Iyer has done well with a global dividend ETF in the Horizons family that trades under the ticker HAZ.
11. 12. First Asset Morningstar Canada Dividend Target 30 Index ETF, Morningstar U.S. Dividend Target 50 Index ETF: Mr. Rebetez likes the long-term track record of Morningstar Canada's CPMS division, which specializes in stock screening. He says these two ETFs give you a wide breadth of dividend stocks with less of an emphasis on financial stocks than other dividend ETFs, and less exposure to medium- and small-size companies with less secure dividends.
13. BMO Equal Weight U.S. Banks: U.S. bank stocks are nobody's idea of a safe and secure investment, but Mr. Rebetez said they're a lot cheaper than Canada's banks by several measures.
For more personal finance coverage, follow me on Twitter (rcarrick) and Facebook (Rob Carrick).
10 ETFS INVESTORS COULD DO WITHOUT
|iShares S&P/TSX Capped Information Tech Index Fund||XIT-T||$ 23,543,550||-11.35%|
|iShares China Index Fund||XCH-T||$ 20,808,575||-13.14%|
|iShares Jantzi Social Index Fund||XEN-T||$ 18,209,653||-3.83%|
|iShares Global Infrastructure Index Fund||CIF-T||$ 15,570,875||4.70%|
|Horizons Gartman ETF||HAG-T||$ 7,670,232||3.10%|
|Horizons BetaPro S&P 500 Inverse ETF||HIU-T||$ 6,231,240||-10.98%|
|Horizons BetaPro S&P/TSX Capped Financials Inverse ETF||HIF-T||$ 4,423,440||-4.82%|
|Horizons BetaPro S&P/TSX Capped Energy Inverse ETF||HIE-T||$ 1,316,030||3.96%|
|Horizons BetaPro S&P/TSX Global Gold Inverse ETF||HIG-T||$ 1,135,440||17.82%|
|iShares S&P/TSX Venture Index Fund||XVX-T||$ 1,067,767||-15.88%|
13 ETFS INVESTORS SHOULD PAY ATTENTION TO
|BMO Low Volatility Canadian Equity ETF||ZLB-T||$ 22,652,240||5.79%|
|PowerShares S&P/TSX Composite Low Volatility Index ETF||TLV-T||$ 5,590,357||n/a|
|PowerShares S&P 500 Low Volatility Index ETF,||ULV-T||$ 8,139,821||n/a|
|iShares MSCI Canada Minimum Volatility Index Fund||XMV-T||$ 4,062,492||n/a|
|iShares MSCI USA Minimum Volatility Index Fund||XMU-T||$ 4,030,300||n/a|
|iShares MSCI EAFE Minimum Volatility Index Fund||XMI-T||$ 2,033,531||n/a|
|iShares MSCI Emerging Markets Minimum Volatility Index Fund||XMM-T||$ 2,022,810||n/a|
|iShares MSCI All Country World Minimum Volatility Index Fund||XMW-T||$ 2,014,262||n/a|
|Horizons North American Growth ETF||HAW-T||$ 13,491,830||n/a|
|Horizons Dividend ETF||HAL-T||$ 11,506,739||1.69%|
|First Asset Morningstar Canada Dividend Target 30 Index ETF||DXM-T||$ 5,533,504||n/a|
|First Asset Morningstar U.S. Dividend Target 50 Index ETF||UXM-T||$ 12,027,167||n/a|
|BMO Equal Weight U.S. Banks ETF||ZUB-T||$ 19,568,085||18.73%|