These two blue chip ETFs hold mostly large-capitalization, widely traded stocks on the Canadian exchange. Both funds mirror, or track, the performance of major stock market indexes as opposed to narrower ones focused on resources or themes, such as solar power or biotech.
Blue chip ETFs stand in contrast to many trendy funds. Promoters of many of those newer ETFs are in the business to make money from the products they provide. This is a legitimate objective, but sometimes promoters aim to capitalize on short-term fads to appeal to investors. These products can deliver poor results in the long term.
Of course, even with these blue chip ETFs you pay brokerage commissions to buy and sell, but their low management fees give them a cost advantage over most mutual funds.
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ISHARES S&P/TSX 60 INDEX ETF is a buy. The ETF (Toronto symbol XIU; buy or sell through brokers; ca.ishares.com) is a good low-fee way for you to buy the top companies listed on the TSX. Specifically, the fund’s holdings represent the S&P/TSX 60 Index. It focuses on the 60 largest, most heavily traded stocks on the exchange.
The ETF began trading on September 28, 1999. Investors pay an MER of just 0.18%. The units give you a 3.1% yield.
The S&P/TSX 60 Index mostly consists of high-quality companies. However, it must ensure that all sectors are represented, so it holds a few companies we would not include.
The quality of the ETF’s holdings should drive your future gains: its top stocks are Royal Bank, 7.7%; TD Bank, 6.4%; Shopify, 5.0%; Enbridge, 4.2%; CPKC, 4.0%; CN Rail, 4.0%; Bank of Montreal, 3.9%; Canadian Natural, 3.9%; and Bank of Nova Scotia, 3.1%.
Recommendation in Canadian Wealth Advisor: iShares S&P/TSX 60 Index ETF is a buy.
ISHARES CANADIAN SELECT DIVIDEND INDEX ETFis a buy.The fund(Toronto symbol XDV; buy or sell through brokers; ca.ishares.com) holds 30 of the highest-yield Canadian stocks. The ETF also considers dividend growth and payout ratios to make its selections.
The weight of any one stock is limited to 10% of the fund’s assets. Its MER is 0.55%. The ETF, which began trading on September 28, 1999, yields a high 4.1%.
Most market indexes are set up for investors so that the stocks in the index are those with the highest market capitalization and are also the most widely traded. However, the iShares Canadian Select Dividend Index ETF focuses on the 30 stocks that it sees as having the highest dividend yields; it also considers their prospects for dividend growth and the sustainability of their dividend payouts.
That means this ETF is more actively managed than, say, the iShares S&P/TSX 60 Index ETF. As a result, you pay a higher MER.
The fund’s top holdings are Bank of Montreal at 7.9%; Canadian Tire, 7.6%; Royal Bank, 6.9%; Bank of Nova Scotia, 5.1%; National Bank, 5.0%; TD Bank, 5.0%; CIBC, 4.8%; TC Energy, 4.7%; and BCE, 4.4%.
Recommendation in Canadian Wealth Advisor: iShares Canadian Select Dividend is a buy.
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In the Canadian context, what constitutes a blue chip stock? Applying American market cap criteria here would be an apples-to-oranges affair, no?