Own Canada’s top 60 stocks with this ETF

If you’d rather not pick a fund manager, then maybe you should just simply pick the market. Exchange-traded index funds (ETFs) make ideal core holdings if you neither want to outperform or underperform a market.

The risks inherent in stock-market investing aside, index funds remove the risk of picking a fund or portfolio manager, who, in the future, will underperform the market. You get the benefits of stock ownership but not the benefits of potentially astute—or lucky—portfolio management.

The reduced cost of investing in index funds, however, helps tilt the scale in your favour.

As stock markets go through cycles, the debate over the merits of indexing will continue. But when you consider exchange-traded funds for your own portfolio, make an honest assessment of what you expect from them.

One good exchange-traded fund to consider for broad, conservative exposure to the Canadian stock market is iShares S&P/TSX 60 Index ETF (TSX—XIU). It tries to match the return of the S&P/TSX 60 Index, which is comprised of 60 of the largest (by market capitalization) and most liquid stocks of the larger S&P/TSX Composite Index.

The fund’s top holdings include Royal Bank, 8.5 per cent; TD Bank, 7.7 per cent; Scotiabank, 5.9 per cent; Canadian National Railway, 4.7 per cent; Suncor Energy, 4.5 per cent; Bank of Montreal, 3.8 per cent; Enbridge Inc., 3.7 per cent; BCE Inc., 3.7 per cent; TransCanada Corp., 3.4 per cent; and Canadian Natural Resources, 3.3 per cent.

The fund’s industry breakdown is as follows: financials, 38.9 per cent; energy, 21.5 per cent; materials, 10.9 per cent; industrials, 7.4 per cent; telecommunications, 6.7 per cent; consumer discretionary, 5.0 per cent; consumer staples, 4.6 per cent; technology, 2.3 per cent; utilities, 1.8 per cent; health care, 0.6 per cent; and cash, 0.3 per cent.

Over the past one-, three-, and 10-year periods, the ETF’s returns have been higher than that of the average Canadian equity fund. Over the past five years, however, the average equity fund has done better.

This serves to illustrate a drawback of this ETF. Its heavy exposure to the resource sector caused it to underperform over the five-year time frame, as these stocks were out of favour. Many managed funds, on the other hand, sidestepped this problem by under-weighting resource stocks in their portfolios.

The ETF’s expense ratio is 0.18 per cent.

iShares S&P/TSX 60 is a buy if you want growth and some income from a conservative ETF that offers you broad exposure to Canadian large-cap stocks.


Money Reporter, MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846

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