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Growing Your Wealth Your Way

We are able to provide a wide variety of investment choices including mutual funds, ETFs, stocks, and bonds.

We are an independent investment service. The investment decisions we develop with you are not tied to any directive or incentive to promote specific products. We assist you to design a portfolio that aligns with your objectives.

There’s an ETF for that!

Our way of life is changing because of the pandemic. Investing is also evolving. As we win the battle against Covid-19, are there specific investment trends that interest you? Perhaps you want to capture the trends in travel or healthcare? Or robotics, clean energy, infrastructure? If you want to do so without the risk of owning individual stocks, it may be time for you to join the many investors who are moving money into exchange-traded funds (ETFs).

As of September 30, 2020, according to the Canadian ETF Association (CETFA) there were 833 ETFs available for purchase through 38 Sponsors. In October an additional 8 were launched to bring that total to 841. During the first 10 months of 2020 investors deposited a whopping $34 billion into Canadian-issued ETFs (source). If you include all of the US-issued ETFs also available to you, whatever trend you’re following, it is quite likely you’ll find an ETF for that.

What Is an Index? 

An index is a method to track the performance of some group of assets in a standardized way. An index typically measures the performance of a basket of securities intended to replicate a certain area of the market. An index may be broad-based to capture an entire market such as the S&P/TSX Composite Index, the Standard & Poor’s 500 (S&P 500) or the Dow Jones Industrial Average (DJIA), or it may be more specialized, sector-specific, such as an index that tracks a particular industry or segment (source).

Because you cannot invest directly in an index, the investment industry created the exchange-traded fund structure to capture index-like returns. Investors earn the performance of the index minus the small cost of operating the ETF.

What is an Exchange Traded Fund (ETF)?

An ETF is a basket of securities that is traded on a stock exchange. The securities may include stocks, bonds, commodities, precious metals, currencies, or other asset classes. ETFs are designed to replicate the performance of an index such as the S&P/TSX Composite or S&P 500. Most ETFs are traditional Index ETFs, created as either Passive or Smart Beta. Arriving on the scene more recently are ETFs that are not based on the performance of an index but rather on the performance of an actively managed basket of securities.

Index ETFs

  • A Passive ETF tracks a broad-based market index – it is simple and inexpensive; your investment will deliver the performance of the index minus a small cost for operating the ETF; volatility is similar to that of the index.
  • An ETF described as Smart Beta is created using rules (mathematical algorithms) to create a subset of a passive index, rules designed to include only securities that meet specific criteria. There is no portfolio manager picking individual stocks or bonds.

Actively Managed ETFs

  • ETFs described as Actively Managed mirror the performance of an actively managed basket of securities. Instead of replicating a passive index, some of these ETFs will replicate the behaviour of an existing mutual fund.

An ETF is more like a stock than a mutual fund. When you purchase an ETF you buy a specific number of units (shares). You can’t buy a piece of an ETF unit/share, so the total cost of the investment depends upon the price at which the ETF units were trading when the order was placed. This is in contrast with a mutual fund where you can specify the exact dollar amount to be invested. The mutual fund company handles the calculations and issues partial units as required.

As investors embrace ETFs the expectation is better long-term performance than mutual funds due to lower fees. Lower cost is one reason to select an ETF, but there are other considerations as well. The following chart explains the differences in further detail.

ETFs vs Mutual Funds chart

Click chart to enlarge.

Here are just a few of the ETFs available to Canadians

This list is not to be construed as our recommended picklist but rather a sampling to give you an idea of the range of ETFs available. Some are examples of ETFs that passively track a broad index whereas others apply specific rules to achieve a more focused basket of securities.


XCS – iShares S&P/TSX SmallCap Index ETF

“Small” and nimble (a smallcap company is valued between $300 million to $2 billion), Blackrock’s XCS ETF replicates the S&P/TSX Small Cap Index.

  • top holdings: Great Canadian Gaming Corp – Hudbay Minerals Inc – Whitecap Resources Inc – North West Company Inc – Trillium Therapeutics Inc (as of Nov 24, 2020)
  • medium to high-risk
  • management expense ratio (MER): 0.60%
  • considered a “passive” ETF


ESG – Invesco SP 500 ESG Index ETF

ESG (Environmental, Social, and Governance) investing has been an emerging trend for several years but under the current circumstances may be more relevant than ever before. The acronym ESG is defined as a measuring stick for evaluating companies on their sustainability and ethical impact. The ESG ETF integrates the core principles of ESG and seeks to replicate the S&P 500 ESG Index.

  • top 5 holdings: Apple Inc – Microsoft Corp – Amazon.com Inc – Facebook Inc – Alphabet Inc (as of Nov 24, 2020)
  • provides primarily US exposure
  • low to medium risk
  • management expense ratio (MER): 0.15%.
  • considered a “passive” ETF


JETS – US Global JETS ETF

Did we catch you thinking “he shoots, he scores!”? Oh, how we miss our Winnipeg Jets! This global ETF however isn’t concerned with hockey – it provides exposure to the hard-hit airline industry. Maybe you want to be in a position to “take off’ when the airlines are back in full force. Did we mention that we have access to purchase US ETFs in US dollars? We can, and JETS is one of those ETFs.

  • top holdings: Delta Air Lines Inc Del – Southwest Airlines Co – Air Canada – Air France-KLM – Singapore Airlines (as of Nov 24, 2020)
  • high-risk
  • management expense ratio (MER): 0.60%.
  • uses a smart beta strategy to track the global airline industry


CARS – Evolve Automobile Innovation Index Fund

If you want to “ride” emerging trends in the automotive sector, CARS will provide exposure to companies in the business of electric drivetrains, autonomous driving, or network connected services for automobiles. CARS seeks to replicate the Solactive Future Cars Index.

  • top 5 holdings: FuelCell Energy Inc – NIO Inc – Kandi Technologies Group Inc – Visteon Corp – Plug Power Inc (as of Nov 24, 2020)
  • global equity exposure
  • high-risk
  • management fee: 0.40% (plus applicable taxes)
  • considered a “passive” ETF


COW – iShares Global Agriculture Index ETF

Are you a little bit Country or are you a little bit Rock n’ Roll? This ETF provides exposure to agricultural companies that produce things like fertilizer, farm machinery, and packaged meats.

COW replicates the Manulife Investment Management Global Agriculture Index.

  • top holdings: Corteva Inc – Deere – Tractor Supply Ltd – Bunge Ltd – Scotts Miracle Gro (as of November 24, 2020)
  • 85% exposure to the US
  • medium risk
  • management expense ratio (MER): 0.71%.
  • considered a “passive” ETF


RBOT – Horizons Robotics and Automation Index ETF

Remember the Jetsons robotic housekeeper Rosie? They knew back in 1962 that robotics was the way of the future. This ETF provides exposure to robotics and artificial intelligence. RBOT seeks to replicate Indxx Global Robotics & Artificial Intelligence Thematic Index.

  • top holdings: Nvidia Corp – Fanuc Corp – Intuitive Surgical Inc – Abb Ltd – Keyence Corp (as of November 24, 2020)
  • medium to high risk
  • management expense ratio (MER): 0.60%.
  • passive strategy

Other ETF examples include:

CWW – iShares Global Water Index ETF

EDGE – Evolve Innovation Index Fund

CYBR – Evolve Cyber Security Index Fund

HBLK – Blockchain Technologies ETF

DISC – BMO Global Consumer Discretionary Hedged to CAD Index ETF

XEM – iShares MSCI Emerging Markets Index ETF

CHNA.B – CI ICBCCS S&P China 500 Index ETF

XGD – iShares S&P/TSX Global Gold Index ETF

XFIN – iShares S&P/TSX Capped Financials Index ETF

XRE – iShares S&P/TSX Capped REIT Index ETF

XIT – iShares S&P/TSX Capped Information Technology Index ETF

What kind of ETF is right for you?

ETFs need to be selected on the basis of your investment objectives and time horizon. If you have not yet explored the addition of ETFs to your portfolio, please schedule a review of your investment strategy.

 

The information in this commentary is for informational purposes only and not meant to be personalized investment advice. The content has been prepared by Jan Fraser, Fraser & Partners Investment Services of Aligned Capital Partners Inc. (ACPI) from sources believed to be accurate. The opinions expressed are those of the author and do not necessarily represent those of ACPI.

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