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For now, I'll focus on Canadian ETFs. There are thousands of ETFs listed on U.S. exchanges as well, but the focus of this website is Canadians with RRSPs. We will occasionally discuss U.S. ETFs when I think there's a strong reason for Canadians to invest in them. iShares is the largest ETF provider in Canada and the world. The Company has over 350 funds and $300 billion assets under management globally. iShares offers a range of ETFs that cover various regions, industries and asset classes globally. For example, you can purchase the new China Index Fund ETF that seeks to replicate the overall performance of the Chinese equity markets. It's does this by mimicking (i.e. holding the same stocks) as the FTSE/Xinhua China 25 Index. There is also a Canadian SmallCap Index Fund that mimicks the performance of the S&P/TSX SmallCap Index, and a Canadian Value Index Fund that mimicks the Dow Jones Canada Select Value Index, which itself picks stocks with 'value' characteristics such as low price to earnings ratios and low risk revenues and profit margins.
Another ETF provider, Horizons, offers ETFs with more creative features. Horizons offers both actively-managed and passively-managed ETFs. Actively-managed ETFs add a twist to traditional or passively-managed ETFs by following a mostly predefined investment strategy in a narrow band of discretion. For example, Horizon Alphapro`s Managed S&P/TSX 60 ETF applies active management to the stocks contained in the S&P/TSX 60 Index in an attempt to earn higher returns. For example, it can decide to hold a lower or higher weighting of a stock held in the index, or not hold one or more of the stocks in the index at all. However, I don't recommend actively-managed ETFs because they completely fly in the face of why I like ETFs in the first place - the simplicity and passive management. So, let's focus on Horizons passively-managed ETFs. Horizons was the first company to offer a new class of ETF in Canada that enables investors to experience the effects of leverage (i.e. borrowing money to purchase an investment) and shorting (i.e. selling a stock when you don't own it so that you experience the inverse of the stock's returns). For example, Horizon's S&P/TSX 60 Bull Plus ETF seeks to produce daily investment results equal to 200% the daily performance of the S&P/TSX 60 Index, before fees and expenses (the S&P/TSX 60 Index represents the 60 largest publicly-traded companies in Canada). This is similar to the effect produced if one were to borrow money on a line of credit and invest the proceeds in a fund that mimicks the S&P/TSX 60 Index. Similarly, Horizons offers another ETF that does exactly the opposite: seeks to produce daily investment results equal to 200% of the inverse daily performance of the S&P/TSX 60 Index (see Horizons' website here). The third major provider of Canadian-listed ETFs is Claymore Investments. Claymore also offers an interesting selection of ETFs to help us gain exposure to various components of the stock and bond markets. For example, the Claymore International Fundamental Index ETF is designed to replicate the performance of the FTSE RAFI Developed ex US 1000 Index, which comprises the top 1,000 non US-listed companies with the largest fundamental value. The index weights constituents using four accounting factors, rather than market capitalization. These four factors include: total cash dividends (five-year average of all regular and special distributions); free cash flow (five-year average cash flow); total sales (five-year average total sales); book equity value (current period book equity value). This is just another unique approach to selecting stocks and determining the relative weighting of each stock in the fund. Again, this ETF, like the vast majority of other ETFs, is passively managed because it just replicates a publicly-published index rather than employing a manager to make her own stock picks. This means lower fees for us and more convenient buying and selling of the fund. |
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Exchange Traded Funds |