# ETF Recommendations



## arc (May 19, 2012)

Does anyone have any ETF recommendations (TSX traded)? I am hoping to yield ~4% annual and also looking for a 2nd safer ETF (~on par with inflation would be fine).

Thinking of http://ca.ishares.com/product_info/fund/overview/XBB.htm for the safer low yield ETF or CBH.A

http://etf.stock-encyclopedia.com/HZU-TSX.html
for the silver more yield, ETF (2x leverage, buy in Dec Sell in Late Jan)

Thanks


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## james4beach (Nov 15, 2012)

arc said:


> Thinking of http://ca.ishares.com/product_info/fund/overview/XBB.htm for the safer low yield ETF or CBH.A


At the current prices, it's very hard to go with any bond ETF for the "safer" option. The yields are just too low.

XBB is quoted at 2.25% yield to maturity. Subtract the 0.33% MER and you're left with an actual 1.92% yield. And the avg maturity is about 10 years. So you would be lending out 10 year term for 1.92% yield. CBH.A is even lower, 1.6% yield after MER (5 year maturity)

I think those are horrible deals! There are CDIC-insured 1 year GICs at 2.0% yield. My suggestion would be to go with cash or a GIC instead of those bond ETFs. The bank deposit is fully guaranteed, offers a higher yield, and no risk of capital loss like with the bond ETF. No-brainer, imo


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## andrewf (Mar 1, 2010)

Why does the yield matter (vs total return)?


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## Belguy (May 24, 2010)

IF you are young, with a long time horizon, I would go for a 70/30 split between equities and fixed income/cash. This assumes that you have a risk tolerance to experience the ups and downs of the market which shouldn't be a great concern for those with a longer time horizon. However, if you are going to need the money in the next three to five years, you would be best to probably avoid equities.

Have you had a look at the model portfolios at www.canadiancouchpotato.com or you could consider investing in a diversified portfolio of dividend paying stocks from solid companies who you feel will be in business over the long run. You will find plenty of recommendations for such stocks elsewhere on this forum but always do your own due diligence before investing or seek the advice of a fee-only financial planner if you have a large enough portfolio.


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## Xoron (Jun 22, 2010)

andrewf said:


> Why does the yield matter (vs total return)?


On bonds (or bond ETF's), the YTM (Yield to Maturity) is the approximate expected return for the duration of the bond. So if the YTM is 2%, and the payout is 4% and the bond is a 5 year bond: Expect to get the 4% coupon payout, but lose 2% in capital appreciation, with a net of 2%. (minus any MER on a bond ETF)

That's assuming rates don't go way up / down which would also affect the YTM.


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## andrewf (Mar 1, 2010)

Yabbut, OP is looking for an ETF with a payout of 4%. My question was why.


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## Xoron (Jun 22, 2010)

andrewf said:


> Yabbut, OP is looking for an ETF with a payout of 4%. My question was why.


:stupid: Sorry, I misinterpreted your post


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## james4beach (Nov 15, 2012)

If the OP is looking for something that pays out around 4%, ZDV (BMO Canadian Dividend ETF) looks like a pretty nice fund. It holds dividend stocks, has reasonable sector diversification, and pays 5.23% - 0.4% MER = *4.8% yield*

The two risks with ZDV are that (a) it's a very new ETF with an unproven track record, and (b) the high yielding stocks it holds will fall just as badly, if not worse, than the TSX if the whole market falls. So while you get a yield of 4% to 5%, you may still face a capital loss and lose money, net. Of course the same risk applies to corporate bonds too.

So my overall recommendation: cash or GIC for your low-risk, and something like ZDV for your high-risk


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## gibor365 (Apr 1, 2011)

Something wierd with XIU....it's tracking TSX and XIU is down -0.35% when TSX is +0.3%. How it's possible?


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## james4beach (Nov 15, 2012)

gibor said:


> Something wierd with XIU....it's tracking TSX and XIU is down -0.35% when TSX is +0.3%. How it's possible?


That does seem strange. Well XIU tracks TSX 60 so you have to check the index source. The best source I know is at tmxmoney.com
http://preview.tinyurl.com/caskjv5

For November 30, this shows TSX 60 is up 0.22% but as you point out, XIU is down -0.34%. There was no ex-dividend, what's going on?


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## lonewolf (Jun 12, 2012)

Hi, Arc

Leveraged ETFs are best suited for day trading.

You might want to google leveraged etfs & beta slippage to gain understanding.

Iam not sure if you should be using leverage but if I was to use leverage I would strongly consider using options & I would not touch them unless I understood how I was using them.


I would consider using a deep in the money call on slv that has very little or no premium but consists mostly of intrinsic value that expires beyond my exit date. Reason being if the market moves in your direction I would make more money tick for tick then I would lose if the market moves against me tick for tick. If the market does not move more will be lost in slipage due to a larger bid/ask spread & the time premium decay then just buying the underlying but it would not surprise me that it would be less then the loss from beta slippage in the 2x etf.

This method is not always practical i.e., after a market crash there might be to much premium in the option


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## GoldStone (Mar 6, 2011)

james4beach said:


> That does seem strange. Well XIU tracks TSX 60 so you have to check the index source. The best source I know is at tmxmoney.com
> http://preview.tinyurl.com/caskjv5
> 
> For November 30, this shows TSX 60 is up 0.22% but as you point out, XIU is down -0.34%. There was no ex-dividend, what's going on?


You are looking at XIU market price. Like any other ETF, XIU can trade below or above its NAV. Daily price fluctuations vis-a-vis NAV are not that important. Market price cannot deviate too far from the NAV, due to magic of arbitrage. Institutional players can exchange ETF creation units for the underlying shares, or the underlying shares for creation units.

I don't know what exactly happened with XIU today, but here's one possible explanation:

XIU closed above NAV on Thursday
XIU closed below NAV on Friday

NAV could have gone up in sync with the index, but the market price dropped.

Note that long-term tracking error of an ETF is calculated based on NAV, not market price.


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## gibor365 (Apr 1, 2011)

btw, XIC has much bigger difference from NAV and was unchanged today....
Those ETF are pretty confusing to me, TDB900 channges exactly like TSX...
P.S. I frequently check SPY vs S&P and never seen such big difference


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## GoldStone (Mar 6, 2011)

XIU plunged in the last 3 minutes of trading.

Friday day volume: 6.2M

1.2M of them traded in the last 3 minutes.

Must be end of month effect. Institutional investor(s) dumped XIU so it doesn't show on the end of month reports. Or some such reason...

Nothing to worry about, me thinks. It will be business as usual on Monday.


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## james4beach (Nov 15, 2012)

GoldStone said:


> XIU plunged in the last 3 minutes of trading . . . Must be end of month effect.


Thanks, I suspect month end is part of it. This is getting us off the topic of the thread through, can we move the discussion? I started (under individual stocks)
http://canadianmoneyforum.com/showthread.php/14149-XIU-discount-to-NAV-not-tracking


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## cardhu (May 26, 2009)

xoron said:


> On bonds (or bond ETF's), the YTM (Yield to Maturity) is the approximate expected return for the duration of the bond.


For individual bonds, this is true … but it doesn’t apply in the same way to bond funds, which have no duration and never mature.

Arc … what is the significance of these 4% and 2% targets? … do you need the income in order to buy food?


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## arc (May 19, 2012)

Thanks for all the replies.

The 2% and 4% targets were recommended to me by a cfp. The low risk ETF is for the RRSP while the higher risk silver trades are meant for my active portfolio. I've been holding significant quantities of SLW (~30k) and wanted to increase my position in silver while the prices are low and to move in for the seasonality trade. 

PS: From what I understand that one can exploit the difference that occurs with leveraged ETFs vs. the actual silver bullion during signification drop


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