Pass on this ETF

Article Excerpt

ISHARES CANADIAN FINANCIAL MONTHLY ETF $8.06 (Toronto symbol FIE) invests in the common shares, preferred shares, corporate bonds and income trusts of firms in the Canadian finance sector. The fund has an MER of 0.82%, which is high by ETF standards. Its 6.1% yield is also high. This ETF’s portfolio does not generate enough dividend income to cover both its distributions to unitholders as well as its management expenses and fees. To make up the difference, the fund must make capital gains by trading the stock holdings of its portfolio. If those gains don’t materialize, then the fund will be forced to either cut its distributions or—what’s more likely in the short term—sell some of its stockholdings to raise cash to maintain its exceptionally high distributions. Those monthly payments will then include a combination of dividends, interest, capital gains and also a “return of capital.” That return of capital is any portion of the distribution that doesn’t come from dividends, interest or capital gains. One benefit of…