Most U.S. markets have risen lately, while Canada’s resource-heavy Toronto Stock Exchange has lagged. But as always, both remain subject to unexpected downturns.

One way to profit from rising markets is to add exchange traded funds (ETFs) that track major stock indexes to your portfolio. ETFs trade on stock exchanges, just like stocks. Prices are quoted in newspaper stock tables and online. You must pay brokerage commissions to buy and sell ETFs, but their low management fees still give them a cost advantage over most mutual funds.

As well, shares are only added or removed when the underlying index changes. As a result of this low turnover, you won’t incur the regular capital gains bills generated by the yearly distributions most conventional mutual funds pay out to unitholders. Below we update our advice on two leading ETFs.

ISHARES S&P/TSX 60 INDEX FUND (Toronto symbol XIU; buy or sell through brokers; ca.ishares.com) is a 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.

The index mostly consists of high-quality companies. However, it must ensure that all sectors are represented, so it holds a few we wouldn’t include.

The index’s top holdings are Royal Bank, 7.8%; TD Bank, 6.7%; Bank of Nova Scotia, 6.0%; Suncor Energy, 4.6%; Bank of Montreal, 3.6%; CN Railway, 3.6%; Potash Corp., 3.3%; Enbridge, 3.1%; Trans-Canada Corp., 3.0%; BCE, 3.0%; CIBC, 2.9%; Canadian Natural Resources, 2.9%; Barrick Gold, 2.9%; Goldcorp, 2.6%; Manulife Financial, 2.3%; Cenovus Energy, 2.2%; and Telus, 1.9%.

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ISHARES DOW JONES CANADA SELECT DIVIDEND INDEX FUND (Toronto symbol
XDV; buy or sell through brokers; ca.ishares.com) 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 0.50%. It yields 4.3%.

The fund’s top holdings are CIBC, 6.5%; Bonterra Energy, 6.4%; National Bank, 5.8%; TD Bank, 5.5%; Bank of Montreal, 5.3%; Telus Corp., 4.9%; BCE Inc., 4.4%; Royal Bank, 4.4%; Bank of Nova Scotia, 4.1%; and IGM Financial, 4.1%.

The fund holds 51.4% of its assets in financial stocks. 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.

In the latest issue of Canadian Wealth Advisor, we look at the long-term outlook for Canadian stock prices and in particular at the prospects for Canada’s finance stocks. We conclude with our clear buy-hold-sell advice on both of these exchange-traded funds.

COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members

With the growing popularity of ETFs a new crop of heavily marketed funds have sprung up that don’t really reflect a real exchange or index at all; many even use derivatives. If you invest in ETFs how do you sort through the marketing hype and select the funds you think will do the job for you? Let us know what you think.