2 ETFs That Cover Canada's Best

02/08/2012 8:45 am EST

Focus: GLOBAL

Patrick McKeough

Editor, Successful Investor

If you are interested in stepping beyond US borders into the relatively stable Canadian market, but are more interested in spreading your exposure than targeting it, these two funds may be just what you are looking for, writes Pat McKeough of TSI Network.

You may find that exchange traded funds have a place in your portfolio. Unlike many other financial innovations, they don’t load you up with heavy management fees or tie you down with high redemption charges if you decide to withdraw. Instead, they give you a low-cost, flexible, convenient alternative to mutual funds.

They have another advantage: since shares are only added or removed when the underlying index changes, there’s a low turnover. That means you aren’t faced with the capital-gains bills generated by the yearly distributions most mutual funds pay out to their unitholders.

Today, we look at two Canadian ETFs that we cover regularly in our newsletter for conservative investments, Canadian Wealth Advisor. One represents the largest stocks on the TSX, the other includes some of Canada’s leading dividend-paying stocks.

iShares S&P/TSX 60 Index Fund (Toronto: XIU)
This is a good, low-fee way to buy the top stocks on the TSX. The units are made up of stocks that represent the S&P/TSX 60 Index, which consists of the 60 largest, most heavily traded stocks on the exchange. Expenses are just 0.17% of assets.

Most of the stocks in the index are high-quality companies. However, as it must ensure that all sectors are represented, the fund holds a few we wouldn’t include.

The index’s top holdings are Royal Bank, 6.9%; TD Bank, 6.4%; Bank of Nova Scotia, 5.2%; Suncor Energy, 5%; Barrick Gold, 4.5%; Canadian Natural Resources, 4%; Potash Corp., 3.7%; Goldcorp, 3.6%; Bank of Montreal, 3.4%; CN Railway, 3.1%; BCE Inc., 2.9%; CIBC, 2.8%; Enbridge, 2.7%; TransCanada Corp., 2.7%; Cenovus Energy, 2.5%; and Manulife Financial, 1.9%.

iShares Dow Jones Canada Select Dividend Index Fund (Toronto: XDV) holds 30 of the highest-yielding Canadian stocks. Its selections are based on dividend growth, yield, and payout ratio. The weight of any one stock is limited to 10% of its assets. The fund’s MER is 0.5%. It yields 3.9%.

The fund’s top holdings are CIBC, 6.6%; National Bank, 5.9%; Bonterra Energy, 5.8%; Bank of Montreal, 5.3%; TD Bank, 5.3%; AG Growth International, 4.7%; Royal Bank of Canada, 4.3%; Telus, 4.1%; and Bank of Nova Scotia, 4.1%.

The fund holds 54.3% of its assets in financial stocks. Utilities are next, at 20.5%. The top Canadian finance stocks have sound prospects. However, if you invest in this ETF, be sure to adjust the rest of your portfolio so it won’t be overly concentrated in the financial sector.

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