Small investors should buy funds

To be adequately diversified, you need to invest in a variety of income securities.


2 Canadian funds for small investors to buy

In general, we recommend that you limit income trusts to about 20 per cent of your portfolio. In the income trust portfolio itself, you should own at least four income trusts to achieve adequate diversification.

These income trusts should be selected from various sectors such as power generation, business trusts and real estate investment trusts, or REITs.

If you can, you should diversify on your own. This way, you pay no management fees. For small investors, though, this could be a problem. If you have only $2,500 to invest in income trusts, it’s not practical to buy four different trusts for $635 each. Commissions alone could put a fair dent in your investments.

If your portfolio is small or if you’re uneasy about choosing your income trusts, then here are two funds that give you some exposure to individual Canadian industry stocks. This specific ETF gives you exposure to REITs.

Vanguard FTSE Canadian Capped REIT Index (TSX—VRE)

This ETF tracks the performance of a broad Canadian real estate equity index that measures the investment return of publicly-traded securities in the Canadian real estate sector. As a capped exchange-traded fund, or ETF, any one security in the portfolio is not allowed to exceed 25 per cent of the fund’s assets.

The ETF currently has 19 securities in its portfolio. CAP REIT, Granite and RioCan REITs are among the fund’s top four holdings. And the ETF is well diversified by industry subsectors, with exposure to retail, real estate services, industrial REITs, residential REITs, office REITs, real estate holding and development, and healthcare.

The ETF’s management expense ratio, or MER, is currently 0.38 per cent, and its monthly distribution of $0.094340 yields 3.9 per cent. Buy for growth and income.

Aside from REITs, income trusts are a lot less common than they were just over a decade ago before the federal government changed the tax treatment of these investment vehicles. Consequently, funds that used to invest exclusively in these trusts have become extinct.

Blue Ribbon Income Fund (TSX—RBN.UN)

This fund includes a number of individual securities we recommend as well. They include Boralex, Chemtrade Logistics Income Fund, Keyera and Northland Power. The fund also has an investment in Allied Properties REIT.

Blue Ribbon is a closed-end fund that seeks to provide high monthly income and the potential for capital appreciation by finding undervalued opportunities in Canadian high-income equities.

The fund’s MER is 1.47 per cent, and it pays a monthly distribution of $0.04 a share that yields 6.6 per cent. Buy for growth and income.

This is an edited version of an article that was originally published for subscribers in the December 2, 2022 issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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