Wants the lowdown on ETFs

Q – Would you please be so kind as to give me your opinion regarding ETFs. What’s out there for Canadians and would they best be suited for inside my RRSP? – G.R.

A – Exchange-traded funds are becoming increasingly popular with Canadian investors. They are similar in some ways to index mutual funds, except that they trade on stock exchanges in Toronto and New York.

There is a wide range of these available, with more appearing all the time. In Canada, they’re known as iUnits, developed by Barclays Global Investors. They trade on the TSX and offer such advantages as good liquidity (since they trade like stocks) and a low MER.

You can buy units that track broad indexes, such as the S&P/TSE 60, and units that provide exposure to specific sectors, such as gold and energy, and fixed-income units that track benchmark bonds.

The sector units are best suited for highly aggressive investors. For example, if you had been smart enough to buy the Canadian Gold iUnits a year ago, you would have reaped a profit of 58% (to April 30). On the other hand, if you had picked the Canadian Information Technology Uns (IT Fund), you’d be looking at a 47% loss. Because of this volatility, I do not recommend sector units for registered plans.

In New York, the variety of ETFs is stunning. You can buy units that track the Dow, the S&P 500, Nasdaq, and numerous other indexes and sub-indexes. If you want to invest in foreign markets, you can purchase iShares, which track more than 20 international exchanges.

When considering ETFs, keep one basic rule in mind: the narrower the focus, the higher the risk.

There is one Canadian mutual fund that specializes in ETFs, if you prefer to have the experts make the selections for you. It is the Spectrum Tactonics Fund, and there is a detailed review of it in the June issue of our Mutual Funds Update newsletter. For subscription details: – G.P.