|
Canadian Exchange Traded Funds (Updated January 5, 2006) Exchange Traded Funds ("ETFs") are essentially baskets of stocks designed to very closely track an underlying stock market index. Advantages include a very low management fee, little possibility of under-performing the underlying index by an amount that is much larger than the management fee. ETFs trade like stocks throughout the day (unlike mutual funds). ETFs offer a quick an convenient way to invest a sizeable amount of money into a given sector of the market or the overall market. Disadvantages include giving up the ability to beat the index by picking stocks on your own, with an advisor or through a mutual fund manager. Not suitable for small monthly investments since each trade attracts a commission cost of at least (approximately) $29 even through a discount broker. Many Canadian investors are aware that ETFs are a good idea but they may not know exactly how to buy ETFs. There are only a few ETFs available that are based on Canadian stock market indexes. The following table provides a list of ETFs that are managed by Barclay's Global Investors Canada but which trade like stocks on the TSX and which can be purchased just like any other stock through any broker including discount on-line brokers.
More updated information is available in our article on TSX segments, many of which have an associated ETF. More information on each of the above ETFS can be found at http://www.iunits.com/english/index.cfm under the "iunits funds" button. The particular stocks included in the ETF and the percentage of each stock are listed. At any time, the current P/E ratio and yield of the underlying index of each of these funds can be found at http://www.tsx.ca/HttpController?GetPage=MDFIndicesView &SelectedTab=QuoteResults&Exchange=T&IndexID=TX60&OpenIndex=&Market=T&Language=en click on the appropriate index and check the lower right of your screen for the P/E and yield data. Note that the earnings yield is merely the reciprocal of the P/E. The P/E ratios could be affected by unusual gains or losses, although these should average out to a large degree. Also note that there are a lot of indexes shown for which, unfortunately, no ETF has been developed. Conclusion: If you wish to invest in these indexes then the above ETFs provide a convenient way to do so and the ticker symbols are shown for your convenience. I have not rated any of these ETFs as Buy, Sell or hold. I note that none of the segments has an earnings yield that could be considered particularly attractive. The actual returns on these indexes in the next year is very unpredictable and may bear no relationship to the earnings yield. In regards to dividends yields, the REITand Income Trust segments may seem attractive. I note that the earnings yields on the Gold Index and the IT index are extremely low. Possibly the market is expecting the earnings of these two groups to rise sharply. I would view these low earnings yields (high P/E) as being indicative of much higher risk. September 27, 2004 Last updated Jan 5, 2006 Shawn Allen President, InvestorsFriend Inc. |
|