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ETF Selection (2 of 4).


The goal for any investor is to select ‘the’ best possible manager, method or product to invest and manage their money.

The challenge, at one time, was to sort through the thousands of mutual fund companies, managers and products to find fidelity to the investors investment strategy. With the massive proliferation of Exchange Traded Fund (ETF) providers and product choices, Individual Investors today face a similar challenge.

See Economist.com Too much of a good thing and A good idea in danger of going bad for more ETF industry background.

Not so long ago the ETF choices were easier and clear … because there were no real choices. If you wanted to use an ETF to invest in Canada, you chose iShares (formerly iUnits).

To a Canadian core portfolio you might have added a Vanguard ETF, maybe two, which trade on U.S. exchanges.

Today a multitude of ETF providers each have their own twist on their own stable of ETFs.

Investors can choose from asset class, region, currency, stock, bond, real estate or commodity, domestic or international, broad-based or sector specific, value or growth, large, mid or small cap and eco or religion sensitive ETFs. Some ETFs now have an embedded trailer payable to the Advisor. This is herecy.  Jonathan Chevreau points out the introduction of ‘triple-leveraged or reverse triple bets via shorting’ and ‘double-leveraged inverse international ETFs’. What?

With 142 ETF providers offering over 2,700 ETFs and ~6,000 listings on 42 exchanges and 163 new ETFs launched in Q1/11, the Individual Investors choices are daunting.

ETFs were supposed to simplify investing for the Individual Investor.

How does the Individual Investor sort through and select the ‘best‘ ETF for the job?

Keep it simple. Remember lessons learned from Mutual Fund Marketing 101: Differentiation often means Complexity which usually means Risk and always means Cost.

Start here … then see parts 3 & 4.

Favoured ETF providers: iShares.ca  Vanguard.com  Bank of Montreal  ClaymoreInvestments.ca

Why iShares? iShares has the longest track record(s) by far. They have 43% of global market share and 74% of $ assets under administration (at Q1/11). 10 of the top 10 ETFs ranked by $ assets under administration are iShares. 3 of the top 10 ETFs ranked by averaged daily trading volume are iShares. (7 of 10 are Horizons beta pro bull/bear trading ETFs).

Vanguard ETFs are the most simple, the most diversified (they offer the broadest coverage) and among the least expensive. These can  provide inexpensive ETF exposure to the U.S., Euro and Emerging markets.

Bank of Montreal ETFs are interesting. Equal weight or fundamental ETFs offer an offset to the sometimes over concentrated iShares Canadian ETFs.

Claymore has an interesting Dividend ETF (CDZ) and interesting Global Real Estate and Infrastructure ETFs.

Also included in the 42 ETF providers are Spdrs.com WisdomTree.com RussellInvestments.com PowerShares.com Horizons Betapro.com and Horizons Alphapro.com ProShares Van Eck Bank of New York First Trust RBC

Next time?
ETF Selection (3 of 4).
Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan
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5 Comments Post a comment
  1. And here’s to hoping that Vanguard Canada will add some good ETFs to what we have to choose from.
    +1

    Like

    July 10, 2011
  2. FTW,
    All Vanguard ETFs are available to Canadian investors today.

    https://personal.vanguard.com/us/funds/etf/all?reset=true&sort=name&sortorder=asc

    I personally use BND, VNQ, VV, VEA and VWO
    and would like to own VGT, VHT.

    See https://dougcronk.wordpress.com/2010/10/09/20-stocks-not-enough/

    Like

    July 7, 2011
  3. JTN #

    And here’s to hoping that Vanguard Canada will add some good ETFs to what we have to choose from.

    Like

    July 6, 2011

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  1. 286 ETFs for 258 Stocks? « Institutional Investing for Individual Investors

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