# Choosing US & Canadian ETF's



## doitnow! (May 28, 2011)

I know that there is no perfect solution but I am very new to investing and would like to make the best decision possible knowing full well that it's impossible to predict the future (and the market). 

Will be investing 200K split between US and Canadian ETF's in equities in the next few days (60% of my RRSP portfolio).

Welcome your thoughts on Canada/US percentage split and the ETF's you recommend?


----------



## Belguy (May 24, 2010)

Don't take this as a recommendation because I don't know you or your circumstances but it might be a starting point for your consideration:

Canadian Value Equity: XCV: 12%
Canadian Smallcaps: XCS: 8%

U.S. Equity: VTI: 12%

International Equity: VEA: 8%

Emerging Markets: VWO: 10%

Real Estate: XRE: 4%

Precious Metals: 6% (I use the RBC Global Precious Metals Fund)

Bonds: XSB: 40% (I use the PH&N Bond Fund D)

Buy, hold, rebalance and prosper.

Note that with such a portfolio you should expect slow and steady growth and is not suitable for active investors who like to buy and sell individual stocks and who seek shorter term potential gains.

Others may have much different ideas for you.


----------



## FrugalTrader (Oct 13, 2008)

As another member here suggested to me, consider replacing VEA and VWO with VXUS. Similar coverage but with added small caps, and all in one ETF to reduce trading/rebalancing fees.


----------



## fatcat (Nov 11, 2009)

belguy, i wonder if you have too much canadian equities ?

i have read that most canadians hold too much canadian equities and tend to overbuy their own companies

i have split mine about equally between usa and canada (and vwo, i have no "international" since i own dia which is the dow 30 and many of those companies have solid international exposure)

canadian equities are so concentrated in the finance and commodities and there is so little of the other categories that i think you need to go to the usa to get the other stuff (tech, consumer etc)

what are your thoughts ?


----------



## doitnow! (May 28, 2011)

*Canadian/US equities, how best to slice the pie.*



fatcat said:


> belguy, i wonder if you have too much canadian equities ?
> 
> i have read that most canadians hold too much canadian equities and tend to overbuy their own companies
> 
> ...


I also thought of asking this question, anyone else like to weigh in?


----------



## doitnow! (May 28, 2011)

Belguy said:


> Don't take this as a recommendation because I don't know you or your circumstances but it might be a starting point for your consideration:
> 
> Canadian Value Equity: XCV: 12%
> Canadian Smallcaps: XCS: 8%
> ...


Thank you. Wonder if 12% in VTI is low? Your thoughts on the PH&N Bond Fund D? I know absolutely nothing about Precious Metals & Real Estate, what are the advantages of including them in a RRSP portfolio. Is it to add diversification?


----------



## larry81 (Nov 22, 2010)

fatcat said:


> belguy, i wonder if you have too much canadian equities ?
> 
> i have read that most canadians hold too much canadian equities and tend to overbuy their own companies
> 
> ...


this is called 'domestic bias'

Like you, i also split my holding equally between usa/canada/international with XIC/VTI/VEA+VWO. Keeping it simple !


----------



## doitnow! (May 28, 2011)

doitnow! said:


> Thank you. Wonder if 12% in VTI is low? Your thoughts on the PH&N Bond Fund D? I know absolutely nothing about Precious Metals & Real Estate, what are the advantages of including them in a RRSP portfolio. Is it to add diversification?


Other opinions on 40% of (total in fixed assets) portfolio 120K in PH&N Bond Fund D?

What about the following as an alternative to PH&N Fund D:

20% Claymore 1-5 Yr Laddered Corp Bond (CBO)
20% Claymore 1-5 Yr Laddered Gov’t Bond (CLF)


----------



## Belguy (May 24, 2010)

I'm sticking with the PH&N Bond Fund D because I like the excellent track record of the professional management at a low fee but I do not know how it will perform compared to XSB when interest rates begin to rise--whenever that may be. 

I take the suggestion of a lower Canadian equity allocation as a valid comment.

Keep in mind that smallcaps will potentially add volatility to a portfolio with potential for better long term returns.

You could also split your U.S. equity between XSP and XSU.

Real estate and precious metals do add diversification but may result in increased volatility.


----------



## larry81 (Nov 22, 2010)

you are ask for apple to orange comparison, PHN110 'only' have ~20% of his bond holding in 1-5 years maturity.

Would better to compare XBB and PHN110.


----------



## doitnow! (May 28, 2011)

Belguy said:


> I'm sticking with the PH&N Bond Fund D because I like the excellent track record of the professional management at a low fee but I do not know how it will perform compared to XSB when interest rates begin to rise--whenever that may be.
> 
> I take the suggestion of a lower Canadian equity allocation as a valid comment.
> 
> ...


I have included a performance comparison between the PH&N Bond Fund D and the XSB. The PH&N wins. I hear that it is preferable to buy short term bonds if the interest rates are slated to rise? Is PH&N short or long term?

Is the XSB likely to be outperform the PH&N when interest rate rise as they are likely to do this fall? 

PH&N Bond Fund D

YTD 1 Mo 1 Yr 3 Yr * 5 Yr * 10 Yr * 

Fund 2.07 1.32 6.31 6.28 5.66 6.33

XSB - DEX Short Term Bond Index Fund 
YTD 1.41 1.56 
1 Month 0.67 0.71 
3 Months 1.38 1.44 
6 Months 1.53 1.67 
1 Year 4.10 4.42 
3 Year 4.66 5.00 
5 Year 4.78 5.10 
10 Year -- 5.18 
Since Inception 5.49 5.36


----------



## doitnow! (May 28, 2011)

larry81 said:


> you are ask for apple to orange comparison, PHN110 'only' have ~20% of his bond holding in 1-5 years maturity.
> 
> Would better to compare XBB and PHN110.


Sorry, I don't understand what your are saying? Please explain?


----------



## Belguy (May 24, 2010)

It would be nice to be able to compare past results and draw a conclusion about comparative future performance but, alas, for a variety of reasons, one just never knows. That said, especially for fixed income investments, one can only expect relatively small differences in returns over the long term and who can predict which fund will come out on top in the near let alone the longer term?

I don't drive myself crazy about it. I have cast my lot with the PH&N Bond Fund D for the long term and, as often stated, I am a buy-and-hold for the long term investor preferring not to jump around and buy in and out of investments in an effort to time the markets. Many others are looking at the current landscape, anticipating rising interest rates, and therefore have moved to short term bond funds such as XSB. Who knows???? 

It's a good thing that everyone is not alike and we all have our ways of doing things and I no longer try to suggest that my way is the best way. It is just A way. 

Buy, hold, rebalance, and prosper.


----------



## doitnow! (May 28, 2011)

FrugalTrader said:


> As another member here suggested to me, consider replacing VEA and VWO with VXUS. Similar coverage but with added small caps, and all in one ETF to reduce trading/rebalancing fees.


Thank you, good suggestion. 

Your thoughts on the other concerns in this thread would be appreciated. I am about to make a big switch - MF to ETF's.


----------



## fatcat (Nov 11, 2009)

duration is the measure of the funds sensitivity to interest rate rises

xsb has a duration of 2.64 years
phn110 has a duration of 5.5 years
xsb has a duration of 6.15 years
phn340 has a duration of 5.6 years

you want to buy a fund that reflects how long you can comfortably leave the money in the fund to compensate for interest rate rises ...

i.e don't buy xbb if you might need the money in 3 years since you could lose principal in the event of interest rate rises

assuming you reinvest the interest, duration is how long you need to hold the fund in order to recoup principal in the event of interest rate rise

have i got that right harold ?


----------



## andrewf (Mar 1, 2010)

Duration is also the average length of time before you receive each dollar of cashflow from a bond. It's a nifty metric.

PH&N Bond Fund D seems fine, I suppose, but the fees are a bit higher than I'd like. Partly that is a result of the MF structure. Paying 0.6 vs. 0.25 or 0.15% can add up over time. It's definitely better than the should-be-criminal bond funds with MERs north of 1.5%.


----------



## fatcat (Nov 11, 2009)

> Duration is also the average length of time before you receive each dollar of cashflow from a bond. It's a nifty metric.
> 
> PH&N Bond Fund D seems fine, I suppose, but the fees are a bit higher than I'd like. Partly that is a result of the MF structure. Paying 0.6 vs. 0.25 or 0.15% can add up over time. It's definitely better than the should-be-criminal bond funds with MERs north of 1.5%.


 agree that low mer for equal or better returns is always a worthy goal ... in the case of phn340 though, i think the active management is absolutely worth the small extra cost .. returns (so far ) seem to bear this out ..


----------



## FrugalTrader (Oct 13, 2008)

We have our RESPs 100% indexed with TD which is divided:
25% Canadian Equity
25% US Equity
25% International Equity
25% Bonds

For ETFs, it would be:
25% XIU (or XIC)
25% VTI
25% VXUS
25% XSB or CLF or CBO (for short term bonds), or XBB for the whole Canadian bond market.

You may want to throw some real estate exposure in there as well via REI.UN or XRE.


----------



## doitnow! (May 28, 2011)

FrugalTrader:
Thank you.
This is a very simple approach, divide in 4, sounds good.
Wondering if you would share your views on the following:
1. I just sold all my RRSP MF (300K approx), what are your thoughts on buying ETF's all in one shot as opposed to staggering the purchases over time.
2. I am 57, your thoughts on 25% in bonds?
3. Difference between XIC and XIC, which would you choose.
4. Which bond of the options you indicate did you choose & why?
5. What do you think of the PH&N Bond Fund D?
5. I like the idea of adding REIT, which one(‘s) have you chosen?


----------



## webber22 (Mar 6, 2011)

The difference between XIC and XIC is very minimal  The differences between XIU (60 holdings) and XIC(247 holdings) are also minimal. The XIU is more widely traded and has a lower fee


----------



## Belguy (May 24, 2010)

Canadian real estate prices are pretty high right now while U.S. real estate has taken a hit. Might it be a better time to invest for the long term in U.S. real estate and find a U.S. ETF to do this instead of investing at this time in XRE?? U.S. real estate prices might drop a little more but surely they have already made the biggest decline.

Buy low.


----------



## Cal (Jun 17, 2009)

XRE doesn't hold residential real estate. It holds various REIT's that deal with retail, commercial, and other income producing properties.

http://ca.ishares.com/product_info/fund/overview/XRE.htm


----------



## doitnow! (May 28, 2011)

Thanks.


----------



## doitnow! (May 28, 2011)

FrugalTrader said:


> We have our RESPs 100% indexed with TD which is divided:
> 25% Canadian Equity
> 25% US Equity
> 25% International Equity
> ...


Hey Frugal Trader

Simple but maybe a bit agressive on equities...you must be optimistic, young, risk tolerant or all the above?


----------



## Financial Cents (Jul 22, 2010)

I like what FT has done, although I'd personally go higher with CDN equity and lower for US equity; closer to a 35%/15% split. Not a fan of the U.S. overall, I prefer U.S. blue-chip stocks.

Both my wife and I own XBB in our RRSPs, about 30% of XBB in each portfolio although we are going to slowly enter into a position in CLF, and increase our position in CLF as we get older for short-bonds. 

I wouldn't buy XRE, why not buy REI.UN, HR.UN and REF.UN outright and save the fees forever? Those three are almost half of this ETF.


----------



## FrugalTrader (Oct 13, 2008)

doitnow! said:


> FrugalTrader:
> Thank you.
> This is a very simple approach, divide in 4, sounds good.
> Wondering if you would share your views on the following:
> ...


Sorry, I must have missed this thread.

1. I think there are arguments for both methods, but what is your timeline? Personally, I like to purchase over time.

2. You should go with the percentage of bonds that you are comfortable which also depends on your age and your plan for your portfolio when you retire. Some literature suggests to go with your percentage of bonds equal to your age.

3. I use XIU due to liquidity, but XIC makes a lot of sense as well.

4. I'm all over the map with bond holdings. Within my rrsp, I have only short term bonds. In our RESP, we hold TD e-series bonds which is similar to XBB (longer duration).

5. I don't know anything about the Ph&n product, but they are well known to provide a low cost solution.

6. If you want broad exposure, you can simply go with XRE. However, the REIT index is heavily weighted to its top holdings, so I simply hold REI.UN as a proxy.

As for your other question, yes, all of the above.


----------



## metta2006 (May 1, 2011)

Belguy said:


> Don't take this as a recommendation because I don't know you or your circumstances but it might be a starting point for your consideration:
> 
> Canadian Value Equity: XCV: 12%
> Canadian Smallcaps: XCS: 8%
> ...


Don't you think you need to have some cash in your portfolio? What do you think of having 5% in cash and reduce the bond portion to 35%? I'm 37.


----------



## Belguy (May 24, 2010)

Having a cash component to your portfolio seems to be recommended but I never have as I remain fully invested through all market conditions and am satisfied with the result.


----------



## metta2006 (May 1, 2011)

You must have some emergency fund, Belguy? How much is it appropriate to have for emergency fund?



Belguy said:


> Having a cash component to your portfolio seems to be recommended but I never have as I remain fully invested through all market conditions and am satisfied with the result.


----------



## Belguy (May 24, 2010)

My investment (non registered) fund is my emergency fund but I have not had to tap into it for a few years now.

When I hired my original financial services salesperson, he claimed that I should be able to withdraw 10 percent a year from the original value of that fund and not eat into the principal. At the time, my banker told me that I should have insisted on getting that in writing!!

Anyway, a few years later, I had lost three quarters of the value of that fund and have never recouped the losses despite having ceased the systematic withdrawals.

I consider it another one of life's harsh lessons.


----------



## andrewf (Mar 1, 2010)

There are always lines of credit available if you run into liquidity issues. I'm not entirely sold on the logic of keeping big piles of cash earning 1% 'just in case'. There is a sensible cash buffer to keep, and beyond that keep your options open with lines of credit, which you can use for 30, 60, 90+ days--whatever you need to allow you to liquidate some less liquid investments at an opportune time.


----------



## metta2006 (May 1, 2011)

good points Andrew. I also don't think we need to keep emergency funds too much as my husband has a solid job and we save at least 1000 every month. I could use my credit card and pay off next month.


----------



## metta2006 (May 1, 2011)

Belguy said:


> Don't take this as a recommendation because I don't know you or your circumstances but it might be a starting point for your consideration:
> 
> Canadian Value Equity: XCV: 12%
> Canadian Smallcaps: XCS: 8%
> ...


Belguy,
For Vanguard ETFs, do you use US dollar accounts? May I ask which brokerage account do you use? How do you DRIP with Vanguard ETFs? The dividend will pay out in US and then converted to CDN thus incurring conversion fees. I was wondering if the lower fee of Vanguard ETFs will make up exchange rate.
How about tax issues? Do you keep most of Vanguard ETFs in registered accounts to avoid foreign withholding tax?


----------

