In this post, we will discuss a popular ETF: XIT iShares S&P/TSX Capped Information Technology Index, offered by Blackrock. XIT is an exchange-traded fund that focuses on the Canadian tech sector. We will review: investment objective, MER and Holdings. we will finally try to answer the question if XIT is the right fund for you.
Many investors are interested in the tech sector, but unless you are tech-savvy, it’s tough to understand the industry and pick your stocks. A safer way is to invest in a technology-focused exchange-traded fund. By doing this, you will:
reduce your overall risk,
save on fees as ETFs are an excellent substitute for mutual funds, which usually carry higher fees,
XIT seeks long-term capital growth by replicating the performance of the S&P/TSX Capped Information Technology Index, net of expenses. The index tracked includes exclusively Canadian companies. In total, this ETF invest in 24 Canadian technology stocks. There is a 25% cap put in place to avoid over exposure to a particular stock.
XIT MER and Asset under management
Management Fee
0.55%
Management Expense Ratio (MER)
0.61%
The management expense ratio for XIT is 0.61%. This is the total of all fees including management fees and administration fees.
XIT ETF asset under management:
Symbol
AUM in M
XIT
643
In millions
XIT Dividends
XIT is an ETF focused on capital growth. The dividend yield is 0.02%. It’s not ideal for investors looking to build a dividendportfolio.
Historical performance
Updated daily
Thanks to Shopify, XIT had a great run in the past years. However, since the beginning of the year, the tech sector was hit hard by recent market volatility.
As you can see above, Shopify and Constellation software make up to 50% of XIT. Even with the cap in place, the fund does not offer true diversification.
XIT Sector allocation
Sector
Weight %
Application Software
49.09
Internet Services & Infrastructure
25.34
IT Consulting & Other Services
13.60
Data Processing & Outsourced Services
6.01
Systems Software
4.39
Communications Equip.
0.81
Electronic Manufacturing Sces
0.71
Cash and/or Derivatives
0.03
Conclusion
Choosing if XIT is the right ETF for you comes to answering the questions below:
Am I looking for an ETF that invests exclusively in Canadian tech stocks? If the answer is Yes, then XIT is a good fit for your portfolio. If you are open to investing in US companies, then other options are available. I would recommend particularly ETFs that track the Nasdaq 100. These ETFs offer better diversification and include some household names in the tech industry.
If you are looking for an ETF that invests in various sectors, then I would recommend a global index ETF or an all in one ETF. See below some suggestions:
Are you comfortable with the medium to a high level of volatility? Tech stock offers significant growth opportunities but also carries some risk and inherent fluctuations. In all cases, your portfolio should be diversified across various sectors. Putting all your money in the tech industry is risky.
Are you a big fan of Shopify and Constellation software? Shopify and constellation software make up to 50% of XIT’s fund. So, buying XIT is in a sense investing mainly in these two stocks.
In the ever-changing landscape of investments, the utility sector stands as a bedrock of stability and necessity. Companies involved in the generation, transmission, and distribution of electricity, natural gas, and water operate within a regulated and predictable environment, offering investors a reliable haven of steady cash flows. But why should you consider allocating a portion of your portfolio to the utility sector?
1. Resilience in Uncertain Times: The utility sector has proven resilient, even in the face of economic downturns. The essential services provided by utility companies ensure a consistent demand for their products, making their revenue streams less susceptible to the volatility experienced by other sectors. This stability can act as a buffer during challenging economic climates.
2. Predictable Cash Flows: Investing in utilities often means investing in predictable cash flows. As essential services providers, utility companies typically enjoy a steady demand for their products, translating into reliable revenue. This predictability is attractive to investors seeking a consistent income stream, making the utility sector a potential cornerstone for income-focused portfolios.
3. Defensive Nature of Investments: The defensive nature of utility stocks becomes evident during market downturns. Investors often turn to utilities as a defensive play, seeking refuge in sectors that are less influenced by economic cycles. This defensive characteristic can contribute to portfolio stability during periods of market turbulence.
Within the utility sector, Exchange-Traded Funds (ETFs) offer a strategic avenue for investment. Utilities ETFs curate diversified portfolios of utility stocks, providing investors not only with potential capital appreciation but also a reliable income stream. These ETFs enhance the resilience and diversity of your investment portfolio by spreading risk across multiple companies within the sector. Additionally, the liquidity and transparency of ETFs make them a convenient and efficient way to gain exposure to the utility sector.
1. Diversification Benefits: Utilities ETFs allow investors to access a broad spectrum of utility companies, reducing the risk associated with individual stock selection. Diversification helps mitigate the impact of poor-performing assets, contributing to a more stable and balanced investment portfolio.
2. Income Generation: Many utilities ETFs focus on high-dividend-yield stocks within the sector. This emphasis on income generation can be particularly appealing to investors seeking regular cash flow while benefiting from potential capital appreciation. The combination of dividends and potential stock appreciation enhances the overall return on investment.
Risks Associated with Utility Investments:
While the utility sector is known for its stability, it is not immune to risks. Understanding the potential pitfalls and challenges associated with investing in utilities is crucial for making informed decisions.
1. Regulatory Uncertainties: The regulatory environment can impact the operations and profitability of utility companies. Changes in regulations, tariff structures, or government policies can introduce uncertainties that may affect the financial performance of companies within the sector. Investors need to stay vigilant and assess the regulatory landscape to anticipate potential impacts on their investments.
2. Environmental Risks: Environmental factors, such as climate change and natural disasters, can pose risks to utility infrastructure. Extreme weather events, regulatory shifts toward renewable energy, or environmental compliance costs may influence the long-term sustainability of certain utility investments. Evaluating how utilities adapt to and mitigate these risks is essential for assessing their long-term viability.
The BMO Covered Call Utilities ETF aims to provide investors with exposure to a diversified portfolio of Canadian utility companies. The ETF aims to achieve two main goals:
Provide investors with regular income payments every month, similar to receiving rent from a property you own.
Provide investors with the opportunity to grow their investment over time through capital appreciation. This means that the value of their investment can potentially increase.
To achieve these goals, the ETF invests primarily in Canadian utility companies, which are companies that provide essential services like electricity, water, and gas. Additionally, the ETF uses a strategy called “covered call,” which involves selling options to generate extra income.
ZWU ETF Holdings
Weight (%)
Name
Ticker
5.51%
FORTIS INC/CANADA
FTS
5.51%
BMO EQUAL WEIGHT UTILITIES INDEX ETF
ZUT
5.49%
BCE INC
BCE
5.13%
ENBRIDGE INC
ENB
5.09%
PEMBINA PIPELINE CORP
PPL
4.98%
PPL CORP
PPL
4.90%
DUKE ENERGY CORP
DUK
4.86%
TC ENERGY CORP
TRP
Consult issuers’ website for up-to-date data
ZWU Sector and geographic allocation
Sector
Allocation
Utilities
55.60%
Communication Services
23.42%
Energy
20.98%
Country
Allocation
Canada
65.52%
United States
34.41%
ZUT – BMO Equal Weight Utilities Index
The BMO Equal Weight Utilities Index ETF invests in a group of Canadian utility companies to generate income and growth.
Utility companies are businesses that provide essential services like electricity, water, and gas to homes and businesses. They are generally seen as stable and reliable because people need these services no matter what’s happening in the economy.
The ETF invests in a portfolio of stocks that is equally weighted, meaning that each company in the portfolio has the same weight or representation. This is different than a market capitalization-weighted portfolio where bigger companies have a greater representation.
The BMO Equal Weight Utilities Index ETF provides investors with exposure to the income-generating characteristics typically associated with utility companies. This means that it can potentially provide investors with a stable income stream, while also minimizing the risks.
XUT – iShares S&P/TSX Capped Utilities Index
The ETF invests in a portfolio of stocks that is designed to replicate the performance of the S&P/TSX Capped Utilities Index. The index is “capped,” which means that no single company can make up more than a certain percentage of the index.
The investment objective of the iShares S&P/TSX Capped Utilities Index ETF is to provide investors with exposure to the Canadian utility sector. the ETF aims to provide investors with a stable income stream, while also minimizing the risks.
HUTL – Harvest Equal Weight Global Utilities Income
The investment objective of the Harvest Equal Weight Global Utilities Income ETF is to provide investors with exposure to the defensive and income-generating characteristics typically associated with utility companies, while also seeking to minimize concentration risk and provide broader exposure to the global utility sector.
In simpler terms, the ETF aims to provide investors with a way to potentially make money by investing in a diversified portfolio of utility companies from around the world. Because utility companies provide essential services and are generally seen as stable and reliable, the ETF may be attractive to investors looking for a way to generate steady income and potentially reduce their investment risk.
The Harvest Equal Weight Global Utilities Income ETF is an investment fund that aims to help investors make money by investing in a diversified portfolio of utility companies from around the world, including Canada, the United States, Europe, and Asia.
Utility companies are businesses that provide essential services like electricity, water, and gas to homes and businesses. They are generally seen as stable and reliable because people need these services no matter what’s happening in the economy.
The ETF invests in a portfolio of utility stocks that is equally weighted. This helps to spread out the risk and make sure that no one company has too much influence over the performance.
UMAX: Hamilton Utilities Yield Maximizer ETF
Hamilton introduced a new ETF called UMAX, which focuses on the utilities sector (UMAX was launched June 14th 2023). This ETF is designed to provide investors with attractive monthly income while offering exposure to a diversified portfolio of utility services equity securities primarily listed in Canada and the U.S. UMAX aims to reduce volatility and enhance dividend income by employing an active covered call strategy. This post is also available in Video format.
Unlike some other income ETFs, UMAX does not utilize leverage. However, it still aims to generate higher monthly income for investors. It offers exposure to blue-chip Canadian utilities, including pipelines, telecoms, and railways. By implementing the covered call strategy, UMAX seeks to enhance monthly income and reduce volatility. Currently, the coverage through covered calls is approximately 50%.
UMAX targets a yield of 13% or more, with monthly distributions to provide consistent income.
UMAX Portfolio of stocks
TICKER
NAME
WEIGHT
BCE
BCE Inc
7.7%
TRP
TC Energy Corp
7.7%
ENB
Enbridge Inc
7.7%
RCI/B
Rogers Communications Inc
7.7%
FTS
Fortis Inc/Canada
7.7%
EMA
Emera Inc
7.7%
PPL
Pembina Pipeline Corp
7.7%
WCN
Waste Connections Inc
7.7%
CNR
Canadian National Railway Co
7.7%
H
Hydro One Ltd
7.7%
T
TELUS Corp
7.7%
NPI
Northland Power Inc
7.7%
CP
Canadian Pacific Kansas City Ltd
7.7%
Introduction:
In the ever-evolving landscape of real estate investment, Residential Real Estate Investment Trusts (REITs) in Canada have emerged as a lucrative avenue for investors seeking stability and returns. As the demand for quality housing continues to rise, identifying the best residential REIT becomes crucial. In this comprehensive guide, we delve into the intricacies of financial ratios to help investors make informed decisions and spotlight the top contenders in the Canadian residential REIT sector.
Understanding Residential REITs:
Residential REITs, also known as apartment or multifamily REITs, specialize in owning and managing residential properties. Their revenue streams primarily come from rental income, making them an attractive option for investors looking for steady cash flow. When evaluating the best residential REITs in Canada, it’s essential to consider key financial ratios that provide insights into their financial health and potential for growth.
Best Residential REIT Canada
Dividend Yield:
Morguard North American Residential REIT (MRG-UN.TO) has the highest trailing annual dividend yield at 5.37%, followed closely by European Residential REIT (ERE-UN.TO) at 5.38%. A higher dividend yield can be attractive for income-focused investors.
Market Cap:
Canadian Apartment Properties REIT (CAR-UN.TO) has the largest market cap at $7.69B, indicating its significant size and stability in the market.
Financial ratios
Free Cash Flow:
Boardwalk REIT (BEI-UN.TO) and Morguard North American Residential REIT (MRG-UN.TO) have positive and relatively high free cash flows, indicating their ability to generate cash from core operations.
Debt/Equity Ratio:
InterRent REIT (IIP-UN.TO) and Canadian Apartment Properties REIT (CAR-UN.TO) have comparatively lower Debt/Equity Ratios, suggesting a more balanced capital structure. On the other hand, European Residential REIT (ERE-UN.TO) has a significantly higher ratio, indicating higher financial leverage.
Total Cash per Share:
Boardwalk REIT (BEI-UN.TO) and Morguard North American Residential REIT (MRG-UN.TO) stand out with higher total cash per share, indicating a stronger liquidity position.
Top Residential REITs in Canada:
Canadian Apartment Properties REIT (CAR-UN): CAPREIT has garnered attention for its impressive dividend yield and stable occupancy rates. The REIT’s strategic focus on urban centers and commitment to property enhancements positions it as a strong contender in the residential REIT landscape.
Boardwalk REIT (BEI-UN): BRE’s emphasis on community-building and tenant satisfaction has contributed to its sustained success. With a well-balanced debt-to-equity ratio and a history of prudent financial management, BRE offers investors a combination of stability and growth potential.
Exploring Financial Ratios:
Funds from Operations (FFO): FFO is a critical metric for evaluating the performance of REITs. It represents the cash generated by a REIT’s core operations and is a reliable indicator of its ability to sustain and grow dividends. Investors should prioritize REITs with a consistent and growing FFO.
Price-to-Earnings (P/E) Ratio: The P/E ratio compares a REIT’s share price to its earnings per share. A lower P/E ratio may indicate that a REIT is undervalued, presenting an opportunity for investors. However, it’s essential to consider other factors alongside the P/E ratio for a comprehensive analysis.
Dividend Yield: For income-focused investors, the dividend yield is a crucial metric. It represents the annual dividend income as a percentage of the REIT’s current share price. A sustainable and growing dividend yield reflects the REIT’s ability to provide consistent returns to investors.
Debt-to-Equity Ratio: Assessing a REIT’s leverage is vital for understanding its financial risk. A lower debt-to-equity ratio suggests a healthier balance between debt and equity, indicating a more secure financial position.
Occupancy Rates: High occupancy rates are indicative of a strong demand for a REIT’s residential properties. Investors should look for REITs with consistently high occupancy rates, as this directly influences rental income and overall financial performance.
Conclusion:
Choosing the best residential REIT in Canada requires a meticulous examination of financial ratios and a deep understanding of market dynamics. Investors should prioritize REITs with a proven track record of financial prudence, sustainable dividend growth, and a strategic approach to property management. By focusing on key metrics like FFO, P/E ratio, dividend yield, debt-to-equity ratio, and occupancy rates, investors can make informed decisions to optimize their real estate investment portfolios and unlock long-term success in the Canadian residential REIT sector.
In this article, we will review the best Canadian index ETFs. I have only selected the most popular ETFs in Canada with a minimum asset under management of 3 billion dollars. First, we will go over some definitions, the pros and cons of holding an index ETF. After that, we will compare the selected ETFs to help you identify the best ETF in 2024 that meets your expectations. Note: if you are looking for the best index ETFs that replicate the performance of the American stock exchanges, please refer to this article: Best S&P 500 Index ETFs in Canada.
Is an index ETF the best choice for investors?
Index funds are a popular choice for investors due to their simplicity, low cost, and overall solid performance. Here are a few reasons why investors often choose to invest in index funds:
Diversification: Index funds are designed to track a specific market index, such as the S&P 500 or the Dow Jones Industrial Average. This means the fund’s portfolio is diversified and includes stocks from many different companies, spread across various sectors and industries.
Low management fees: Index funds are generally cheaper to manage than actively managed funds, as they require less research and analysis. This results in lower management fees, meaning investors can keep a larger portion of their returns.
Solid performance: Although index funds don’t necessarily beat the market, they tend to closely follow the performance of the index they track. Therefore, investors can benefit from market growth without having to worry about picking the right individual stocks. It’s also worth mentioning that it’s rare for active fund managers to beat the index!
Accessibility: Index funds are easily accessible to investors of all levels, from beginners to experienced investors. They can be purchased through an online broker, a financial advisor, or even directly from the fund management company.
Does a TSX Index fund pay dividend?
Yes they do. Since Index ETFs holds all shares of companies part of the index, if these companies pay dividends then a dividend will be distributed. See below the performance table, the dividend yield is included.
Index definition
The S&P/TSX Capped Composite Index
is a comprehensive measure of the Canadian equities market, encompassing over 200 of Canada’s highest-ranking stocks. This wide-ranging index covers approximately 95% of the nation’s equity market by capitalization. To be included and remain in the Index, constituent securities must meet specific criteria, including minimum requirements for float-adjusted market capitalization and liquidity. To ensure diversification and minimize concentration risk, individual stock weights are limited to a maximum of 10% of the Index’s total float-adjusted market capitalization. These weightings are evaluated and adjusted on a quarterly basis to reflect market changes.
The S&P/TSX 60 Index
focuses on the 60 largest and most influential companies listed on the Toronto Stock Exchange (TSX). By including only the top-tier companies, the S&P/TSX 60 offers investors a snapshot of the health and performance of Canada’s leading corporate entities, spanning various industries.
The FTSE Canada All Cap Index
provides a broad perspective on the Canadian market by including large-, mid-, and small-cap companies. As a market-capitalization-weighted index, it reflects the performance of a wide spectrum of Canadian businesses, offering a comprehensive view of the country’s economic landscape. This inclusivity makes the FTSE Canada All Cap Index a valuable tool for investors seeking exposure to the entire Canadian equity market, from the largest conglomerates to emerging enterprises.
Given that these are index ETFs, it’s understandable that their performance figures are closely aligned. Index ETFs are designed to mirror the performance of a specific market index, which means their returns are often similar, especially when they track indices within the same market, such as the Canadian equity market. This tight performance range reflects the inherent nature of index ETFs to replicate the movements of their respective indices, resulting in similar growth patterns and returns for investors. The slight variations in their performance can be attributed to differences in their specific index targets, expense ratios, and the efficiency of their tracking mechanisms. This characteristic of index ETFs makes them a favored choice for investors seeking diversified exposure to a particular market segment with the expectation of returns that closely follow the market’s overall performance.
The notable aspect of HXT.TO, an index ETF, lies in its appeal to investors who prioritize capital appreciation over direct dividend payouts. Unlike traditional ETFs that distribute dividends to shareholders, HXT.TO automatically reinvests these dividends back into the fund. This feature is particularly advantageous for investors looking for a compounding effect on their investments without the immediate income from dividends.
-Low MER: Because Index ETFs are a passive style of investment, they do not require an active manager. This is why the cost to operate an Index ETF is cheaper than say an Actively managed ETF. Low MER means you will benefit more from the returns the funds makes;
-Investing in a index fund has proven to be a great strategy in the long term (if you have more than 5 years horizon).
Cons:
-Index ETFs are volatile since they are tied directly to the performance of a stock exchange. Exchanges tend to rally quickly on a glimpse of good economic news but also fall sharply when investors are pessimistic about the near term. This is why it’s important when you buy an index ETF to keep it for the long run and not short term.
-Some investors prefer to have control over their investments and cherry pick stocks. Obviously, this is not possible under an index fund which basically holds all stocks part of the index without any pre-selection process.
Ishares S&P TSX 60 Index ETF (XIU.TO)
iShares S&P/TSX 60 Index ETF as its’ name implies, it’s a fund that invests in 60 largest companies that are members of the TSX. It’s the most popular ETF in Canada with 10 Billion dollars in Assets. This ETF is representative of the Canadian economy which is dominated by the Energy and Financial sector as you can see below n the sector allocation table.
The number of holdings for the ETF is 60. It has the highest MER in the list but this did not really impact its long term performance in comparison with the other funds.
XIU Holdings
Name
Weight %
ROYAL BANK OF CANADA
7.94
SHOPIFY SUBORDINATE VOTING INC CLA
7.37
TORONTO DOMINION
7.07
BANK OF NOVA SCOTIA
4.35
ENBRIDGE INC
4.28
CANADIAN NATIONAL RAILWAY
4.22
BROOKFIELD ASSET MANAGEMENT INC CL
3.76
BANK OF MONTREAL
3.68
CANADIAN IMPERIAL BANK OF COMMERCE
2.87
CANADIAN PACIFIC RAILWAY LTD
2.86
Please consult issuers’ website for up-to-date data / best etf canada 2024
XIC Sector allocation
Sector
Weight %
Financials
35.90
Energy
14.30
Materials
10.70
Information Technology
10.69
Industrials
9.89
Communication
5.84
Consumer Discretionary
4.16
Consumer Staples
3.61
Utilities
3.16
Health Care
0.84
Please consult issuers’ website for up-to-date data / Best Canada ETF 2023
Ishares Core S&P TSX Capped Comp ETF (XIC.TO)
Seeks long-term capital growth by replicating the performance of the S&P®/TSX® Capped Composite Index, net of expenses. While XIU has 60 holdings in total, XIC is much larger with 219 Canadian companies. In terms of performance both XIU and XIC are quite close. XIC has a lower MER 0.06% in comparison to XIU at 0.18%. This fund is dominated by Energy and Financial companies which is the same case for XIU.
XIC Ishares Core S&P TSX Capped Comp ETF Holdings
Name
Weight %
ROYAL BANK OF CANADA
6,24
SHOPIFY SUBORDINATE VOTING INC CLA
5,79
TORONTO DOMINION
5,55
BANK OF NOVA SCOTIA
3,42
ENBRIDGE INC
3,36
CANADIAN NATIONAL RAILWAY
3,31
BROOKFIELD ASSET MANAGEMENT INC CL
2,95
BANK OF MONTREAL
2,89
CANADIAN IMPERIAL BANK OF COMMERCE
2,26
CANADIAN PACIFIC RAILWAY LTD
2,24
Please consult issuers’ website for up-to-date data / best etf canada 2024
Please consult issuers’ website for up-to-date data
BMO S&P TSX Capped Comp ETF (ZCN.TO)
ZCN is the third contender in this list of Best Index ETFs in Canada. The BMO S&P/TSX Capped Composite Index ETF (ZCN) has been designed to replicate, to the extent possible, the performance of the S&P/TSX Capped Composite Index (Index), net of expenses. Both ZCN and XIC are quite similar. They both track the S&P/TSX Capped Composite index.
ZCN BMO S&P TSX Capped Comp ETF Holdings
Weight (%)
Name
6.23%
ROYAL BANK OF CANADA
5.79%
SHOPIFY INC
5.55%
TORONTO-DOMINION BANK/THE
3.42%
BANK OF NOVA SCOTIA/THE
3.36%
ENBRIDGE INC
3.31%
CANADIAN NATIONAL RAILWAY CO
2.95%
BROOKFIELD ASSET MANAGEMENT INC
2.89%
BANK OF MONTREAL
2.26%
CANADIAN IMPERIAL BANK OF COMMERCE
2.24%
CANADIAN PACIFIC RAILWAY LTD
Please consult issuers’ website for up-to-date data
Please consult issuers’ website for up-to-date data
Vanguard FTSE Canada All Cap ETF (VCN)
Vanguard FTSE Canada All Cap Index ETF seeks to track the performance of a broad Canadian equity index that measures the investment return of large-, mid- and small-capitalization, publicly traded securities in the Canadian market.
VCN Vanguard FTSE Canada All Cap ETF Holdings
Name
Weight
Royal Bank of Canada(RY)
6.37%
Shopify Inc. Class A(SHOP)
6.13%
Toronto-Dominion Bank(TD)
5.82%
Enbridge Inc.(ENB)
3.66%
Bank of Nova Scotia(BNS)
3.60%
Canadian National Railway Co.(CNR)
3.59%
Brookfield Asset Management Inc. Class A(BAM.A)
2.84%
Bank of Montreal(BMO)
2.83%
Canadian Pacific Railway Ltd.(CP)
2.37%
TC Energy Corp.(TRP)
2.26%
Please consult issuers’ website for up-to-date data
Horizons S&P/TSX 60™ INDEX – HXT
HXT has the same strategy as XIU, ie to replicate the S & P / TSX 60 index which is made up of the 60 largest Canadian companies.
HXT Holdings
Name
Weight
SHOPIFY INC
8.99%
ROYAL BANK OF CANADA
7.86%
TORONTO-DOMINION BANK/THE
6.95%
ENBRIDGE INC
4.42%
BANK OF NOVA SCOTIA/THE
4.30%
CANADIAN NATIONAL RAILWAY CO
4.07%
BROOKFIELD ASSET MANAGEMENT INC
3.90%
BANK OF MONTREAL
3.61%
CANADIAN PACIFIC RAILWAY LTD
2.79%
CANADIAN IMPERIAL BANK OF COMMERCE
2.78%
Please consult issuers’ website for up-to-date data
HXT sector allocation
Financials (35.50%)
Energy (14.13%)
Information Technology (12.49%)
Materials (10.00%)Industrials (9.72%)
Communication Services (5.80%)
Consumer Discretionary (4.06%)
Consumer Staples (3.57%)
Utilities (3.14%)
Health Care (0.81%)
Real Estate (0.77%)
VCN Vanguard FTSE Canada All Cap ETF Sector allocation
Sector
Fund
Financials
33.5%
Energy
13.2%
Basic Materials
11.3%
Technology
10.1%
Industrials
9.4%
Consumer Discretionary
6.3%
Utilities
5.8%
Telecommunications
4.8%
Real Estate
2.3%
Consumer Staples
2.2%
Health Care
1.1%
Please consult issuers’ website for up-to-date data
The data on this website is for your information only. It does not constitute investment advice, or advice on tax or legal matters. Any information provided on this website does not constitute investment advice or investment recommendation nor does it constitute an offer to buy or sell or a solicitation of an offer to buy or sell shares or units in any of the investment funds or other financial instruments described on this website. Should you have any doubts about the meaning of the information provided herein, please contact your financial advisor or any other independent professional advisor.
In the ever-evolving landscape of ETFs, two heavyweights have caught the attention of Canadian investors: iShares NASDAQ 100 Hedged to CAD ETF (TSX:XQQ) and BMO NASDAQ 100 Equity Index ETF (CAD-Hedged) (TSX:ZQQ). Both of these ETFs offer a ticket to the tech-heavy NASDAQ 100 Index, a realm dominated by the giants of the non-financial world. (XQQ vs ZQQ)
The Market Dips, Opportunities Rise
Enter XQQ and ZQQ, brought to the stage by BlackRock and BMO Global Asset Management, respectively, both offering low-cost, high-liquidity options for investors seeking NASDAQ 100 exposure.
XQQ vs. ZQQ: Fees – A Stalemate
When it comes to fees, it’s a neck-and-neck race. Both XQQ and ZQQ share an identical management expense ratio (MER) of 0.39%. In the financial realm, this means that for every $10,000 invested, you’re looking at an annual fee of $39, making this category a draw between the two contenders.
Size is a crucial factor in the world of ETFs, influencing liquidity, trading volume, and overall stability. XQQ flaunts assets under management (AUM) totaling $2 billion, outmuscling ZQQ, which stands strong with AUM at $1.4 billion. While both are substantial for the buy-and-hold investor, XQQ takes the lead as the more popular choice among Canadian investors.
Holdings: Tracking the Titans
XQQ and ZQQ share a common mission: tracking the NASDAQ 100 Index, home to the top 100 non-financial companies on the NASDAQ exchange. It’s a playground for mega-cap growth stocks, heavily leaning towards the technology and telecommunications sectors.
Both ETFs implement currency hedging to mitigate the impact of CAD-USD fluctuations. However, the real-world application introduces some tracking error, creating a performance drag compared to the index. With identical MERs and performance, the choice between XQQ and ZQQ boils down to personal preference rather than a significant difference in AUM.
Performance comparison
ZQQ and XQQ present nearly identical returns with only a negligible variance. Given that both ETFs closely follow the NASDAQ 100 index, this slight difference is expected. While tracking errors may contribute to this minimal discrepancy, there’s no need for concern. Over the long term, the performance of these two ETFs is anticipated to align closely with that of the NASDAQ 100, ensuring a consistently similar trajectory.
The NASDAQ 100: A Rollercoaster with Rewards
Despite the high volatility of the NASDAQ 100, opportunistic investors view it as a chance to buy high-value stocks at a discount. XQQ and ZQQ serve as gateways to this potentially lucrative market, offering a chance for investors to ride the tech wave when bargains will come by.
In conclusion, whether you opt for XQQ or ZQQ, you’re securing a piece of the tech pie. Both ETFs are well-positioned to capitalize on the NASDAQ 100’s eventual rebound. So, pick the one that resonates with you.
The BMO Covered Call Utilities ETF is an investment fund that aims to provide investors with exposure to a diversified portfolio of Canadian utility companies. The ETF aims to achieve two main goals:
Provide investors with regular income payments every month, similar to receiving rent from a property you own.
Provide investors with the opportunity to grow their investment over time through capital appreciation, which means that the value of their investment can potentially increase.
To achieve these goals, the ETF invests primarily in Canadian utility companies, which are companies that provide essential services like electricity, water, and gas. Additionally, the ETF uses a strategy called “covered call,” which involves selling options on some of the stocks in its portfolio to generate extra income.
What’s a covered call ETF?
What’s unique about this ETF is that it uses covered calls to protect against downside risk. This being said, the covered call strategy provides limited downside protection. Also, when you write a covered call, you give up some of the stock’s potential gains. These ETFs will tend to have a higher yield and a lower performance.
ZWU is an excellent option for conservative investors looking for a steady income, moderate volatility and exposure to the Utility sector.
Summary table Risk vs Benefits of a covered call strategy
Aspect
Description
Strategy
Selling call options on a security already owned in the portfolio
Name
Covered call strategy
Risk
Potential for limited upside if the stock price rises above the strike price
Benefit
Generates additional income through premium payments received from selling call options
Goal
To earn income from stock holdings while potentially reducing downside risk
Use
Often used by investors who are willing to sell their stock at a certain price if it reaches that level
Outcome
If the stock price stays below the strike price, the option expires worthless, and the investor keeps the premium payment. If the stock price rises above the strike price, the option buyer may exercise their right to buy the stock, and the investor must sell the stock at the strike price, but still keeps the premium payment.
– Total return: Though the focus here is on the dividend yield, you have to keep in mind the total return. The profit or loss we make on any investment combines both dividend income and capital gain or loss. Looking at the long-term performance of the fund is crucial. An ETF that provides a good capital appreciation with a high dividend yield is preferable.
–Diversification: A diversified ETF is always a safer option. Some high yield ETFs are sector-specific (Financials, Energy or Gold). The ones focused on Energy and Gold have had an inferior long-term performance and carry high volatility risk.
–Volume and liquidity of the ETF. The higher the asset under management, the lower the trading costs of the ETF (difference between the bid and ask price).
ZWU Dividend history
Distrib Period
Ex-Div Date
Pay Date
Total Distrib
January 2023
January 27, 2023
February 02, 2023
0.080000
February 2023
February 24, 2023
March 02, 2023
0.080000
March 2023
March 29, 2023
April 04, 2023
0.080000
April 2023
April 26, 2023
May 02, 2023
0.080000
May 2023
May 30, 2023
June 05, 2023
–
ZWU ETF Holdings
Weight (%)
Name
Ticker
5.51%
FORTIS INC/CANADA
FTS
5.51%
BMO EQUAL WEIGHT UTILITIES INDEX ETF
ZUT
5.49%
BCE INC
BCE
5.13%
ENBRIDGE INC
ENB
5.09%
PEMBINA PIPELINE CORP
PPL
4.98%
PPL CORP
PPL
4.90%
DUKE ENERGY CORP
DUK
4.86%
TC ENERGY CORP
TRP
Consult issuers’ website for up-to-date data
ZWU Sector and geographic allocation
Sector
Allocation
Utilities
55.60%
Communication Services
23.42%
Energy
20.98%
This table shows that the ETF has the highest allocation of its investments (55.60%) in the utilities sector, followed by communication services (23.42%), and energy (20.98%).
Country
Allocation
Canada
65.52%
United States
34.41%
This table shows that the ETF has a majority of its investments (65.52%) in Canadian utility companies, while also holding investments (34.41%) in utility companies located in the United States.
Introduction
The Vanguard FTSE Developed All Cap ex North America Index ETF (ticker: VIU.TO) is a popular choice for investors seeking broad exposure to developed markets outside of North America. This ETF, offered by Vanguard Canada, is designed for investors looking to diversify their portfolios internationally. Let’s delve into what makes VIU.TO a noteworthy option.
ETF Overview
VIU.TO aims to track the performance of the FTSE Developed All Cap ex North America Index. It provides exposure to large-, mid-, and small-cap companies in developed markets, excluding the United States and Canada.
Investment Strategy
VIU.TO employs a passive management strategy, aiming to replicate the performance of its benchmark index. This includes investments across Europe, Asia, and Australia, providing a diversified international exposure. The strategy is suitable for investors looking to complement their North American holdings.
Performance Analysis
The performance of VIU.TO, compared to similar ETFs like XEC.TO, ZEA.TO, and VEE.TO, shows a strong and consistent pattern:
VIU.TO has shown a respectable performance with a YTD return of 13.54%, a 3-year average return of 4.42%, and a 5-year average return of 6.85%. This indicates steady growth and resilience over varying market conditions.
Fees and Costs
With a Management Expense Ratio of 0.23%, VIU.TO is competitively priced compared to similar ETFs. It’s important to consider these fees, as they can impact long-term returns. There are no significant transaction costs outside of the usual brokerage fees.
Actual Management Fee
0.20%
Actual Mgmt. Expense Ratio (MER)
0.23%
Holdings and Sector Allocation
VIU.TO’s top holdings typically include major companies in sectors like financials, healthcare, and technology. The ETF’s broad sector allocation aligns with its strategy to provide diversified exposure across various industries in developed markets.
Country
Fund
Japan
23.9%
United Kingdom
14.6%
France
9.8%
Switzerland
8.5%
Germany
7.4%
Australia
7.3%
Holding Name
% of Market Value
Sector
Novo Nordisk A/S
1.72%
Pharmaceuticals
Nestle SA
1.65%
Food Products
ASML Holding NV
1.35%
Production Technology Equipment
Samsung Electronics Co. Ltd.
1.35%
Telecommunications Equipment
Shell plc
1.24%
Integrated Oil and Gas
Tax Considerations
For Canadian investors, foreign dividend income from VIU.TO is subject to withholding tax. However, this can be partially offset in taxable accounts. It’s advisable to consult with a tax professional for personalized advice.
Liquidity and Trading
VIU.TO is characterized by a high trading volume and a narrow bid-ask spread, making it easily tradable. This liquidity is a plus for investors looking for flexibility and ease in managing their investments.
Pros and Cons
Pros:
Diversification across developed international markets
Low fees compared to actively managed international funds
Strong liquidity
Cons:
Exposure to currency risk and geopolitical uncertainties
Potentially lower growth compared to emerging markets
Who Should Consider This ETF?
VIU.TO is ideal for long-term investors seeking international diversification in developed markets. It can complement a portfolio heavily weighted in North American stocks, offering a balance and potentially reducing overall portfolio risk.
Conclusion
Vanguard’s VIU.TO offers a cost-effective and diversified way to invest in international developed markets. While it comes with its set of risks, its advantages make it an attractive option for suitable investors. As always, it’s crucial to align any investment with your overall portfolio strategy and risk tolerance.
BMO Canadian Dividend ZDV ETF focuses on companies that demonstrate a track record of dividend growth. With a diversified portfolio, the fund maintains a large number of holdings while allocating a maximum of 5% per position. This investment strategy aims to capture the potential for consistent dividend payments and capital appreciation.
Source: TD Market research, Beta is measure of volatility over 5 years period. The higher the Beta / The higher the volatility. A beta of 1 means the stock or ETF is as volatile as the TSX.
– Total return: Though the focus here is on the dividend yield, you have to keep in mind the total return. The profit or loss we make on any investment combines both dividend income and capital gain or loss. Looking at the long-term performance of the fund is crucial. An ETF that provides a good capital appreciation with a high dividend yield is preferable.
–Diversification: A diversified ETF is always a safer option. Some high yield ETFs are sector-specific (Financials, Energy or Gold). The ones focused on Energy and Gold have had an inferior long-term performance and carry high volatility risk.
–Volume and liquidity of the ETF. The higher the asset under management, the lower the trading costs of the ETF (difference between the bid and ask price).
–Management expense ratio.
Is HTA a good investment?
Investors seeking consistent monthly income with exposure to the dynamic tech sector may find Harvest Tech Achievers Growth & Income (HTA ETF) appealing. This investment suits income-oriented individuals who value the monthly dividend payouts, especially with an attractive yield of around 10%. The covered call strategy employed by HTA, while enhancing income potential, may have shortcomings. Investors who prioritize capital appreciation over income may find the strategy limiting, as it involves selling call options on underlying stocks, capping potential gains in exchange for premium income. Additionally, during periods of rapid market ascent, the covered call strategy may result in missed opportunities for substantial profit participation. Therefore, while HTA caters to income-focused investors, those seeking aggressive capital growth might explore alternative strategies.
How had Covered call ETF’s performed historically?
In historical contexts characterized by bear markets, range-bound markets, and moderate bull markets, a covered call strategy has typically demonstrated the ability to outperform its underlying securities. However, during robust bull markets, when the underlying securities experience frequent rises beyond their strike prices, covered call strategies have historically exhibited slower growth. Nevertheless, even in these bullish phases, investors typically realize moderate capital appreciation alongside the accrual of dividends and call premiums.
One of the most popular high interest ETFs in Canada is CSAV CI High Interest Savings ETF. In this post, we will discuss CSAV’s objective, Fees and historical performance. We will also compare CSAV with similar ETFs.
What’s a High interest savings ETF?
High interest savings ETF are financial instruments designed to give investors a means to save capital while earning a competitive interest rate. Furthermore, they can provide investors with better returns than typical savings accounts or money market funds (while maintaining a high level of liquidity and safety, one of their main benefits).
High interest savings ETFs are often seen as relatively low-risk investments, in contrast to stocks or other types of investments.
CSAV investment objective
CSAV is relatively low risk investment suitable for investors looking for an alternative to high interest deposit accounts.
You can click on the ticker of each ETF to visit the issuer’s website. Please note the dividend yield shown on the issuers’ websites corresponds to the forward dividend yield. The latter is a projection based on the last dividend paid.
The trailing dividend yield shown in the table above is the dividend yield calculated using the dividend paid in the last 350 days.
GIC vs High interest saving ETFs
Investment Option
GIC
High-Interest Savings ETF
Type of Investment
Low-risk
Low to moderate risk
Return
Guaranteed fixed rate of return
Potentially higher rate of return
Term
Typically 1 to 5 years
No fixed term
Interest Rate
Typically higher than savings accounts
Varies depending on market conditions
Risk
Very low risk
Higher risk than GICs
Guarantee
Guaranteed by the issuing institution
No guarantee of return
Suitability
Suitable for risk-averse investors
Suitable for those seeking higher returns with moderate risk toleranc
Difference between Forward and Trailing dividend yield
Forward dividend yield and trailing dividend yield are both measures of a company’s dividend payout to its shareholders, but they differ in the time period used to calculate them.
Trailing dividend yield is calculated based on the dividends paid over the past 12 months, divided by the current stock price. It provides an indication of how much a company has paid out in dividends over the past year, relative to its current stock price.
Forward dividend yield, on the other hand, is calculated based on the expected dividends that will be paid out in the future, divided by the current stock price. It provides an indication of how much a company is expected to pay out in dividends over the next 12 months, relative to its current stock price.
The main difference between the two is that forward dividend yield is a projection of what is expected to happen in the future, whereas trailing dividend yield is based on actual historical data. As a result, forward dividend yield can be more speculative and less reliable than trailing dividend yield.
Investors may use both measures in combination to get a more complete picture of a company’s dividend payout.
