Last week I presented a list of five Canadian ETFs I feel are underused compared with their billion-dollar competitors. Here’s are three more ETFs and a couple of index mutual funds I’d put in the same category.
The iShares Canadian Fundamental (CRQ) has been a high-profile ETF since it was launched in 2006, and it has outperformed the S&P/TSX Composite Index by more than 1% a year for the last five, despite a relatively high fee of 0.72%. This new PowerShares ETF, launched with little fanfare in January 2012, is tied to the exact same index as CRQ, but with a significantly lower management fee (0.51% including HST). Assuming it will track the index well and overcome the problems associated with low trading volume—and it’s too early to tell—it may be a compelling alternative for investors interested in fundamental indexing.
I’ll start by saying I’m agnostic about low-volatility ETFs, as I’m still looking deeper into the research. But there is some evidence suggesting stocks with low beta—that is, low volatility relative to the broad market—have actually outperformed over long periods. What’s more interesting about ZLB is it avoids the overconcentration in banks, energy and materials that plagues most broad Canadian equity funds. Its 40 holdings include a much greater share of consumer retailers, telecoms and utilities, offering not only lower volatility but better diversification, too. (Interestingly, the sector breakdown of the newer iShares MSCI Canada Minimum Volatility is very different from ZLB’s.)
Now this is a stealth ETF if there ever was one: it doesn’t even have a web page I can link to. That’s because IGT is a cross-listing of the iShares Gold Trust (IAU), a US product. Most investors looking for a TSX-listed gold ETF will gravitate to the iShares Gold Bullion Fund (CGL), which has grown to over $600 million in assets. The problem with CGL, however, is not only its relatively high fee (0.55%), but its bizarre use of currency hedging pegged to the US dollar. A non-hedged version (CGL.C) was launched in 2011, but IGT offers the same exposure to gold for less than half the fee (0.25%) and still allows you to trade in Canadian dollars.
With an MER of 1.07%, the Streetwise Funds are expensive by index fund standards, especially if you choose a version that holds a lot of low-yield bonds. But this newest flavour, launched late last year, is an all-stock fund that may appeal to budding Couch Potatoes who aren’t ready for ETFs and aren’t willing to jump through flaming hoops to get the TD e-Series funds. It’s half Canadian, 25% US, and 25% international, rebalanced every quarter—and there’s no currency hedging on the foreign stocks. Investors can combine the fund with a GIC ladder from ING Direct to build a globally diversified balanced portfolio with no minimums, no account fees, and no need to open a brokerage account. Of course, that’s assuming ING’s new owner Scotiabank doesn’t change the rules.
Another one-stop solution, the TD Balanced Index Fund has a fee of 0.89%, a 14-year track record, and has outperformed its peer average for a decade, earning four stars from Morningstar. Yet along the way it has gathered a mere $68 million in assets. The TD Balanced Index is really only appropriate for conservative investors, since it holds 50% in bonds and cash: the rest is Canadian (about 32%), US (9%) and international (9%) stocks. Because it’s not part of TD’s e-Series, it’s available through any discount brokerage.