What is a solid Canadian market ETF?

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frankrom
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What is a solid Canadian market ETF?

Post by frankrom » 03 Aug 2017 09:29

I have been hesitant to add Canadian equities in my portfolio... I don't particularly like how - financials, energy and material account for 75% of the TSX.

If i wanted to add a Canadian ETF what one would you guys recommend?

BMO Low Volatility Canadian Equity ETF (ZLB.TO) seems to be one that is affected least by the cyclical markets.

Opinions? Feedback?

Thegipper
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Re: What is a solid Canadian market ETF?

Post by Thegipper » 03 Aug 2017 10:01

Financials and energy make about 50% of the TSX. Not great from a diversification standpoint. The same sectors account for 10 to 15 % of the S&P500 .

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AltaRed
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Re: What is a solid Canadian market ETF?

Post by AltaRed » 03 Aug 2017 10:16

If an investor feels they can stock pick successfully, the Canadian market is the place to do that... to avoid, or downplay the amount they have in financials, or in my specific opinion, the cyclicals like energy/commodities/materials. I choose to stock pick Canada because I have the time to do so and I avoid the resource/commodity sector. For most investors though, they are better off in an index ETF.

By defnition, ZLB will avoid the cyclicals because it avoids high volatility. IMO, there is nothing wrong with ZLB as an ETF and it is a good choice. However, it will overperform the broad Cdn market in some years (the last 3-4 I think) and it will underperform when commodities are strong (perhaps the next few years). The key issue for you is whether you will second guess yourself when ZLB underperforms for 2-4 years straight and jump off that wagon into a broad market ETF (at precisely the wrong time). If you are incliined to jump on and off wagons based on near term performance, then you won't stay the course with ZLB. You would be better off in a classic broad Cdn market ETF like XIC/XIU/VCN, etc. and save yourself some Tums/Rolaids. A key point for success: Know your own strengths and weaknesses.
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frankrom
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Re: What is a solid Canadian market ETF?

Post by frankrom » 03 Aug 2017 10:19

I appreciate that...

Thoughts on avoiding the canadian market all together given how poorly diversified it is? Is that a big deal? A mistake? or simply ones perspective and nor good nor bad?

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AltaRed
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Re: What is a solid Canadian market ETF?

Post by AltaRed » 03 Aug 2017 10:51

frankrom wrote:
03 Aug 2017 10:19
Thoughts on avoiding the canadian market all together given how poorly diversified it is? Is that a big deal? A mistake? or simply ones perspective and nor good nor bad?
If you are a Canadian spending some of your money on Canadian sourced goods and services, it is a good idea to have some of your 'skin' in your home country currency. Some investors might be as low as Canada's place in the global markets, e.g. 3.5%... or as high as 100%. I believe it is a good idea to be about 25-30% or so in the Canadian market simply because of what one sources* in Canada for their living costs.

Overall, the Canadian market has performed pretty good on the world scene over the past 50 years even with its poor diversification. Don't count it out just because it is skewed to certain sectors.

* People forget just how much of our living costs are effectively priced in a currency other than our loonie. Much of our fresh food comes from outside of Canada, the commodity component of our energy (home heating and gasoline) is priced in world (USD) equivalents, as are our appliances, electronics, cars, tires and most everything else you can think of. Example: If we were a Venezuelan right now and our loonie was worth 10 cents USD, we'd have rampant inflation and our monthly bills would skyrocket. We don't ever expect that kind of thing to happen here but we've come close at least once (mid-90s when Paul Martin had to do a hard turn to avoid our dollar crashing below 60 cents).
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Mordko
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Re: What is a solid Canadian market ETF?

Post by Mordko » 04 Aug 2017 07:13

Canada has little Healthcare or Technology. By going "low volatility" and cutting out several other sectors of the economy, you will be even more concentrated in the remaining sectors. One of these remaining sectors gets hit - for whatever reason - and your portfolio won't seem like "low volatility".

On the other hand, if you allocate 30% to a broad Canadian index and 70% to the rest of the world then you will have a full cross-section of the economic sectors in your portfolio. You will still end up a little overweight in certain sectors but is 24.5% in Financials really that much of a problem (vs 21.7% worldwide)?

longinvest
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Re: What is a solid Canadian market ETF?

Post by longinvest » 04 Aug 2017 08:12

frankrom wrote:
03 Aug 2017 09:29
If i wanted to add a Canadian ETF what one would you guys recommend?
I have no particular opinion about the composition of the Canadian market; it is what it is. Here are some solid total-market index ETFs to invest into it (in alphabetical order): VCN, XIC, ZCN
Bogleheads investment philosophy | Simple index portfolios | Lifelong Portfolio: 25% each of (domestic/international)stocks/(nominal/inflation-indexed)bonds | VCN/VXC/VAB/ZRR

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