Archive | Under the Hood

Under the Hood: Vanguard FTSE All-World ex Canada (VXC)

This post is part of a series that takes a detailed look at specific Canadian ETFs or index funds.

The fund: Vanguard FTSE All-World ex Canada Index ETF (VXC)

The index: The fund tracks the FTSE All-World ex Canada Index, which includes “primarily large- and mid-capitalization stocks of companies located in developed and emerging markets, excluding Canada.” The index includes approximately 2,900 stocks in 46 countries.

The cost: The management fee is 0.25%. Since the fund is brand new we don’t know the full MER, but it should be less than 0.30% after adding taxes and incidentals.

The details: VXC started trading on July 7 and was one of five new Vanguard ETFs launched that day. The fund is a one-stop solution for those looking to diversify outside of Canada. Not so long ago, investors needed two or three ETFs to get exposure to the US, international developed markets and emerging countries (unless they were willing to buy US-listed ETFs). Now they can get it with a single fund.

VXC weights each country according to the size of its capital markets,

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Under the Hood: Vanguard FTSE Canadian Capped REIT (VRE)

This post is part of a series called Under the Hood, where l take a detailed look at specific Canadian ETFs or index funds.

The fund: Vanguard FTSE Canadian Capped REIT (VRE)

The index: The fund tracks the FTSE Canada All Cap Real Estate Capped 25% Index, which includes large, mid and small-cap companies in the Canadian real estate industry as defined by FTSE. The index is weighted by market cap with a limit of 25% on any single company. It currently has 19 holdings.

The cost: The management fee is 0.35%. Because the fund is less than a year old it has not published its full MER, but expect it to be about 0.40% after adding taxes and incidentals.

The details: Vanguard launched VRE last November and continued its tradition of being a cost leader: its management fee is about 20 basis points lower than its competitors.

VRE is not limited to REITs: some of its holdings are developers and real estate services companies that are not set up as income trusts. But even with this expanded definition,

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Under the Hood: First Asset Morningstar US Dividend Target 50 (UXM)

This post is part of a series called Under the Hood, where l take a detailed look at specific Canadian ETFs or index funds.

The fund: First Asset Morningstar US Dividend Target 50 Index ETF (UXM)

The index: The fund tracks the Morningstar US Dividend Target 50 Index, which was created specifically for this ETF. The methodology screens US companies based on five criteria: expected dividend yield, cash flow/debt ratio, five-year normal EPS growth, return on equity (latest quarter), and three-month EPS estimate revision. To ensure liquidity, all stocks in the index must also be among the top third in average daily trading volume. The top 50 stocks in this screen are then equally weighted in the portfolio (2% each) and rebalanced quarterly.

The cost: The fund’s management fee is 0.60%. Because the fund is less than a year old it has not published its full MER, but expect it to be at least 0.68% after factoring in the Ontario Harmonized Sales Tax.

The details: UXM is designed to give dividend-focused Canadians a one-stop solution for diversifying into the US market. The index is based on the US Income model portfolio that is part of Morningstar’s Computerized Portfolio Management Services (CPMS),

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Under the Hood: iShares S&P/TSX Completion (XMD)

This post is part of a series called Under the Hood, where l take a detailed look at specific Canadian ETFs or index funds.

The fund: iShares S&P/TSX Completion Index Fund (XMD)

The index: This ETF tracks the S&P/TSX Completion Index of midcap and small-cap Canadian stocks. It includes all of the stocks in the S&P/TSX Composite Index except for those in the large-cap S&P/TSX 60.

The cost: The fund’s MER is 0.59%.

The details: There are currently 251 stocks in the iShares S&P/TSX Composite (XIC), which is a core holding in my most popular model portfolios. About 73% of XIC (by market capitalization) is concentrated in the largest 60 companies, which can be bought separately with the iShares S&P/TSX 60 (XIU). XMD holds the other 27% of the market, comprising 191 companies. Justin Bender has written a good overview of how these two funds complement each other.

Canada’s large-cap market is absolutely dominated by a small number of companies—mostly banks and energy giants. Just 10 companies make up a third of this country’s market (and half of the S&P/TSX 60).

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Under the Hood: Vanguard Total International Stock (VXUS)

This post is part of a series called Under the Hood, where l take a detailed look at specific Canadian ETFs or index funds.

The fund: Vanguard Total International Stock ETF (Nasdaq: VXUS)

The index: The ETF tracks the MSCI All Country World ex-USA Investable Market Index, which includes virtually every country with a significant stock market, except the United States. This covers 44 developed and emerging markets in Europe, Asia, South America and Africa, as well as Canada.

What sets this index apart from other all-world benchmarks is that it includes small-cap stocks as well as large and mid-cap stocks. As a result, it’s made up of an astounding 6,435 companies. If there is a larger equity index in the world, I’m not aware of it.

The cost: The fund’s MER is 0.20%.

The details: This ETF was designed as one-stop shopping for US investors who want to hold international equities in their portfolio. The rough country breakdown is 43% developed markets in Europe, 25% developed Pacific markets (mostly Japan and Australia), 25% emerging markets, and 7% Canada. The fund includes 54% large-cap stocks,

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Under the Hood: Claymore Global Monthly Advantaged Dividend ETF

This post is part of a series called Under the Hood, where l take a detailed look at specific Canadian ETFs or index funds.

The fund: Claymore Global Monthly Advantaged Dividend ETF (CYH)

The index: Zacks Global Multi-Asset Income Index, which was created specifically for Claymore. It combines the Zacks Multi-Asset Income Index (made up of U.S. securities) and the Zacks International Multi-Asset Income Index, which includes developed and emerging countries outside the U.S.

This is a “strategy index,” which means it is not designed to passively track the whole universe of dividend-paying stocks. Rather, the securities are hand-picked “using a proprietary model based on dividend growth, the capacity to increase the current dividend, liquidity, and dividend yield.” The methodology is not made public.

The most important thing to understand about the Zacks index is that it is not limited to common shares of dividend-paying companies. Almost half the index is made up of preferred stocks, American depositary receipts (ADRs), real estate investment trusts (REITs), master limited partnerships, and closed-end funds.

The cost: The fund’s MER is 0.67%,

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Under the Hood: TD Balanced Index Fund

This post is part of a series called Under the Hood, where l take a detailed look at specific Canadian ETFs or index funds. The fund: TD Balanced Index (TDB965) The index: This index mutual fund tracks a blended benchmark made up of 48% DEX Universe Bond Index (Canadian bonds), 32% S&P/TSX Composite (Canadian equities), 9% S&P 500 (US equities), 9% MSCI EAFE (European/Pacific stocks), 2% DEX 91 Day T-Bill Index. The cost: The fund’s MER is 0.83%; as of July 2010, the HST makes the total cost of the fund 0.94%. The details: The TD Balanced Index fund is an all-in-one portfolio that holds several other TD index funds. It holds half of its assets in fixed income and half in equities. Here’s the breakdown as of August 31:

TD Canadian Bond Index
48.6%

TD Canadian Index
32.2%

TD International Index
8.8%

TD U.S. Index
8.7%

TD Canadian Money Market
2.0%

Both the US and international funds are hedged to Canadian dollars to remove currency risk. The fund has a minimum investment of just $100, and subsequent contributions must also be at least $100.

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Under the Hood: Claymore CorePortfolios

This post is part of a series called Under the Hood, where l take a detailed look at specific Canadian ETFs or index funds.

The funds: The Claymore Balanced Growth CorePortfolio ETF (CBN) and Claymore Balanced Income CorePortfolio ETF (CBD), a pair of ETF wraps made up of equity, fixed-income and commodity ETFs and designed to serve as complete portfolios.

The indexes: Both ETFs track versions of the Sabrient Global Balanced Index, a custom benchmark created for Claymore. The index “comprises a mixture of approximately 10-20 (or more) existing ETFs selected, based on investment and other criteria, from a defined set of exchange-traded funds trading on the Toronto Stock Exchange.”

There are Growth and Income versions of the index, each specifying a range for each asset class. For example, in the Growth index, Canadian, US and international equity must all make up 15% to 20% of the portfolio. The Income index must include 20% to 25% government bonds and 17.5% to 22.5% Canadian dividend stocks.

According to the funds’ literature, “weightings are adjusted and rebalanced quarterly to the optimal asset class mix depending on economic conditions and relative value of income and equity securities.” Translation: the fund uses tactical asset allocation,

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Under the Hood: BMO Real Return Bond

This post is part of a series called Under the Hood, where l take a detailed look at specific Canadian ETFs or index funds.

The fund: BMO Real Return Bond Index ETF (ZRR)

The index: The fund tracks the DEX RRB Non Agency Bond Index, which consists of inflation-linked bonds issued by the Government of Canada. It seems to have been created specifically for this ETF.

The cost: The ETF’s management fee is 0.25%. As with other BMO funds, the actual MER will be higher because it includes GST/HST and some other expenses.

The details: This brand-new ETF (it started trading on Wednesday, May 26) holds five real-return bonds issued by the federal government, each making up about 16% to 23% of the fund’s assets.

Real-return bonds — or Treasury Inflation-Protected Securities (TIPS), as they’re called in the US — are an important asset class, and some financial experts recommend them as a core holding.

Both the principal and the interest payments of real-return bonds are tied to the Consumer Price Index, so they go up with inflation.

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