Canadian Equity ETFs
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Canadian Equity ETFs
Exchange Traded Funds (ETFs) are great ways to get exposure to equity markets for most individual investors. They allow investors to get exposure to certain types of markets, sectors or strategies while ensuring diversification. For example, investors that wish to remain passive can purchase a single ETF, let’s say the S&P/TSX 60 Index (XIU). This represents the 60 largest companies listed on the Toronto Stock Exchange. It may be difficult for an investor to purchase all 60 companies if they were to try and replicate the index, especially if they were investing a relatively small amount. ETFs are also low cost, typically with a management fee of 0.05% for passive strategies and up, but most falling in the 0.30% to 0.75% depending on the strategy. Therefore, they are very efficient to obtaining a particular investment exposure and are very low cost.
I have provided a short description and rationale for each ETFs inclusion below. More details can be found on the ETFs websites.
40% -Mackenzie Maximum Diversification Canada Index ETF (MKC) utilizes a patented mathematical formula, coined the “diversification ratio”, that takes into account the volatility and correlation of all stocks in the S&P/TSX Composite. The resulting portfolio is much more diversified across sectors than both the S&P/TSX 60 and S&P/TSX Composite. That is all well and good, but I like this ETF as the largest weight in the portfolio because, along with being more diversified in general, the sector weightings and holdings represent those that I believe will outperform the market benchmark going forward.
20% -iShares S&P/TSX 60 Index ETF (XIU) simply represents the 60 largest companies by market capitalization in the Canadian marketplace. It is included in the portfolio to have some exposure to the general market, in particular the securities that tend to drive our market’s performance.
15% iShares Equal Weight Bank & Lifeco ETF (CEW) owns the big 6 Canadian banks along with the biggest 4 Canadian insurance companies (Sun Life, Industrial Alliance, Manulife and Great-West Life) in equal weights. The ETF is equally weighted between all securities and is comprised of ~60% banks and ~40% insurance companies. The purpose of inclusion is to gain additional exposure to a recovering Canadian economy from the oil selloff and for additional exposure to companies who benefit from rising interest rates. Note that even with the addition of this product, the portfolio remains underweight financials as compared to the broad S&P/TSX Composite.
15% BMO S&P/TSX Equal Weight Oil & Gas Index ETF (ZEO) is comprised of the largest Canadian Oil and Gas companies. They tend to be less volatile than their mid- and small-cap peers because their businesses tend to be larger, more diversified and more secure. Given the partial recovery in crude oil and natural gas and the Donald Trump Presidency, these companies should see their earnings turn positive through this year and into next year and the weighting in this ETF will provide the portfolio with an overweight in the sector to benefit from this trend.
10% BMO S&P/TSX Equal Weight Industrials Index ETF (ZIN) will provide additional exposure, over the benchmark, to the Canadian industrials sector. This sector is poised to benefit from increased infrastructure spending in Canada and the US, pickup in economic activity and the recovery of the resources sector, which will likely lead to outperformance when compared to the S&P/TSX Composite.
This portfolio is intended for those individuals who have their investments at a discount brokerage, or a regular brokerage, who seeks to modestly outperform the Canadian equity market but who don’t have the time and/or patience to do research themselves. This portfolio will be monitored by me, showing weekly performance and longer quarterly analysis of return drivers against the market, as well as any updates to portfolio changes (i.e. additions or subtractions from the portfolio).
After two weeks:
Portfolio: +2.57%
Benchmark (XIC): +1.67%
I have provided a short description and rationale for each ETFs inclusion below. More details can be found on the ETFs websites.
40% -Mackenzie Maximum Diversification Canada Index ETF (MKC) utilizes a patented mathematical formula, coined the “diversification ratio”, that takes into account the volatility and correlation of all stocks in the S&P/TSX Composite. The resulting portfolio is much more diversified across sectors than both the S&P/TSX 60 and S&P/TSX Composite. That is all well and good, but I like this ETF as the largest weight in the portfolio because, along with being more diversified in general, the sector weightings and holdings represent those that I believe will outperform the market benchmark going forward.
20% -iShares S&P/TSX 60 Index ETF (XIU) simply represents the 60 largest companies by market capitalization in the Canadian marketplace. It is included in the portfolio to have some exposure to the general market, in particular the securities that tend to drive our market’s performance.
15% iShares Equal Weight Bank & Lifeco ETF (CEW) owns the big 6 Canadian banks along with the biggest 4 Canadian insurance companies (Sun Life, Industrial Alliance, Manulife and Great-West Life) in equal weights. The ETF is equally weighted between all securities and is comprised of ~60% banks and ~40% insurance companies. The purpose of inclusion is to gain additional exposure to a recovering Canadian economy from the oil selloff and for additional exposure to companies who benefit from rising interest rates. Note that even with the addition of this product, the portfolio remains underweight financials as compared to the broad S&P/TSX Composite.
15% BMO S&P/TSX Equal Weight Oil & Gas Index ETF (ZEO) is comprised of the largest Canadian Oil and Gas companies. They tend to be less volatile than their mid- and small-cap peers because their businesses tend to be larger, more diversified and more secure. Given the partial recovery in crude oil and natural gas and the Donald Trump Presidency, these companies should see their earnings turn positive through this year and into next year and the weighting in this ETF will provide the portfolio with an overweight in the sector to benefit from this trend.
10% BMO S&P/TSX Equal Weight Industrials Index ETF (ZIN) will provide additional exposure, over the benchmark, to the Canadian industrials sector. This sector is poised to benefit from increased infrastructure spending in Canada and the US, pickup in economic activity and the recovery of the resources sector, which will likely lead to outperformance when compared to the S&P/TSX Composite.
This portfolio is intended for those individuals who have their investments at a discount brokerage, or a regular brokerage, who seeks to modestly outperform the Canadian equity market but who don’t have the time and/or patience to do research themselves. This portfolio will be monitored by me, showing weekly performance and longer quarterly analysis of return drivers against the market, as well as any updates to portfolio changes (i.e. additions or subtractions from the portfolio).
After two weeks:
Portfolio: +2.57%
Benchmark (XIC): +1.67%
http://www.anonymouslyinvesting.com - Simple and honest investment advice that is transparent and trackable
Re: Canadian Equity ETFs
I will believe it when I see it.AnonymouslyInvesting wrote:This portfolio will be monitored by me, showing weekly performance and longer quarterly analysis of return drivers against the market, as well as any updates to portfolio changes (i.e. additions or subtractions from the portfolio).
"The term is over: the holidays have begun. The dream is ended: this is the morning."-C.S.Lewis, The Last Battle
Re: Canadian Equity ETFs
Nice data mining!AnonymouslyInvesting wrote:After two weeks:
Portfolio: +2.57%
Benchmark (XIC): +1.67%
Making predictions is difficult, especially about the future.
finiki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
- Peculiar_Investor
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Re: Canadian Equity ETFs
While I can appreciate the comprehensive and detailed posts you are making, FWF isn't a dumping ground for complete cut-and-paste articles from your blog. I would also suggest you familiarize yourself with FWF's no solicitation rule.
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Normal people… believe that if it ain’t broke, don’t fix it. Engineers believe that if it ain’t broke, it doesn’t have enough features yet. – Scott Adams
Re: Canadian Equity ETFs
2 weeks is not much of a test. It will be interesting how this plays out.
"And the days that I keep my gratitude higher than my expectations, well, I have really good days" RW Hubbard
Re: Canadian Equity ETFs
to all 4 replies above to the original post.
Re: Canadian Equity ETFs
Not that I know diddly squat but this doesn't look any better than XIU to me, way higher Mer, less distribution yield and still crappy sector allocation.Mackenzie Maximum Diversification Canada Index ETF
CEW would cost me an extra $2000 a year in fees instead of just holding the 10 stocks.
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
Re: Canadian Equity ETFs
It is good for the salesmen who collect the trailerBRIAN5000 wrote:Not that I know diddly squat but this doesn't look any better than XIU to me, way higher Mer, less distribution yield and still crappy sector allocation.Mackenzie Maximum Diversification Canada Index ETF
CEW would cost me an extra $2000 a year in fees instead of just holding the 10 stocks.
Maybe we will still be around in 10 years to see 1, 3, 5 and 10 year performance comparison reports by the OP?
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Re: Canadian Equity ETFs
If I use my imagination and creativity to "rob banks" does that make it ok too?Working for a big bank can sometimes feel like doing yoga in a straight jacket. After being approached to post for an online investment website offering educational content, I received an abrupt and unequivocal NO from my employer. But this is the 21st century; where imagination and creativity trump rules and tradition. If the former can't happen then we create the latter. For that reason, I must remain Anonymous.
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
Re: Canadian Equity ETFs
Because I visited AI on my Facebook page I received this promo, guess he/she is getting ready to jump ship?
This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
Re: Canadian Equity ETFs
I don't have a problem with someone serving up investment advice on a webpage, blog, newsletter or whatever. There's seems to be lots of people doing it. We are free to decide if we think the ideas are good or bad. I'm not offended that AI uses this forum to promote his webpage. If the promotion becomes repetitive like a Chia pet commercial at Christmas time, I will be annoyed.
Re: the proposed portfolio. I don't like it. If I calculated it correctly, the expense ratio for this portfolio is 0.55%. The expense ratio for XIC is 0.10%, so advantage XIC. There will be less trading costs and easier tracking of ACB. I have to go with 1 ETF rather than 5. KISS.
Re: the proposed portfolio. I don't like it. If I calculated it correctly, the expense ratio for this portfolio is 0.55%. The expense ratio for XIC is 0.10%, so advantage XIC. There will be less trading costs and easier tracking of ACB. I have to go with 1 ETF rather than 5. KISS.
Re: Canadian Equity ETFs
The expense ratio on XIC is 0.06%. That would be an order of magnitude less than OP's portfolio.
Re: Canadian Equity ETFs
Dang. I was lazy and used Bloomberg's site to get the expense ratios. https://www.bloomberg.com/quote/XIC:CN
Looks like Bloomberg reported the rest of them OK, so the 0.55% I calculated should be good.
Looks like Bloomberg reported the rest of them OK, so the 0.55% I calculated should be good.
Re: Canadian Equity ETFs
How has it performed in subsequent weeks (the numbers above, from my perspective at least, are pure data mining, being published a posteriori).On Dec 9, 2016, AnonymouslyInvesting wrote:This portfolio will be monitored by me, showing weekly performance and longer quarterly analysis of return drivers against the market, as well as any updates to portfolio changes (i.e. additions or subtractions from the portfolio).
After two weeks:
Portfolio: +2.57%
Benchmark (XIC): +1.67%
finiki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
Re: Canadian Equity ETFs
Sic transit gloria mundi...
Username: AnonymouslyInvesting
Joined: 03 Dec 2016, 17:39
Last active: 31 Dec 2016, 13:34
Last post: 16 Dec 2016, 22:32
zzzzzz
Username: AnonymouslyInvesting
Joined: 03 Dec 2016, 17:39
Last active: 31 Dec 2016, 13:34
Last post: 16 Dec 2016, 22:32
zzzzzz
finiki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
Re: Canadian Equity ETFs
AnonymouslyInvesting , you were last visiting the forum on 12 Jan 2017, 18:58, while your last post was on 16 Dec 2016, 22:32.
Have you taken a vow of silence?
Have you taken a vow of silence?
This portfolio is intended for those individuals who have their investments at a discount brokerage, or a regular brokerage, who seeks to modestly outperform the Canadian equity market but who don’t have the time and/or patience to do research themselves. This portfolio will be monitored by me, showing weekly performance and longer quarterly analysis of return drivers against the market, as well as any updates to portfolio changes (i.e. additions or subtractions from the portfolio).
finiki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]
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Re: Canadian Equity ETFs
A simple total market ETF for Canada would be sufficient or a top 60 ETF for a greater concentration to the main sectors. The suggested portfolio is redundant and over exposes the portfolio to certain sectors in the Canadian market. It's a gamble that these sectors outperform. When they underperform you would take an increased hit on the Canadian portion of the portfolio. Better to select a few choice stocks to supplement the Canadian portion of the portfolio if so inclined.
Re: Canadian Equity ETFs
Another option is to simply get rid of the Home bias thing and be a real indexer. Buy 100% XAW (for your equities) and be done with it. And if you feel, you really have to have Canada in it, make it 3% ZCN and/or VCN and/or XIC and/or HXT and 97% XAW.
Allocating assets based on geographical considerations is just another form of active investing.
Allocating assets based on geographical considerations is just another form of active investing.