[best way to earn money without investment]Why ETFs may be the best way to invest in Canadian banks. Plus, a review of a blockbuster IPO week o

2021-08-06 01:48:31

  One of the big lures of exchange-traded funds is that they are a lot easier to manage than a portfolio of individual stocks.

  Even within a sector, an ETF can be an appealing alternative to owning particular stocks. Take banks, for example. “I’ve done more than okay with Toronto-Dominion Bank, but now I’m looking for an ETF basket of Canadian banks as opposed to holding single stocks,” a reader recently said.

  There are many financial sector ETFs holding banks, plus insurance companies and investment firms. There are also some income-focused funds that use a derivative-based strategy called covered call writing on a portfolio of bank or financial stocks. For investors who simply want the big banks packaged into an ETF, one possibility is the BMO Equal Weight Banks Index ETF (ZEB-T), which is the picture of simplicity in simply holding more or less equal amounts of the Big Six banks.

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  ZEB is a brilliant ETF, but more for BMO than investors. The management expense ratio on the fund is flat out expensive at 0.6 per cent, yet BMO has attracted a robust $2-billion in assets. It’s worth noting that the BMO S&P/TSX Capped Composite Index ETF (ZCN-T), with 236 stocks in the portfolio, has a laudably low MER of 0.06 per cent.

  An alternative to ZEB is the $158-million RBC Canadian Bank Yield Index ETF (RBNK-T), which also holds the Big Six banks. The difference here is that RBNK weights stocks in a way that emphasizes higher-yielding banks. Canadian Imperial Bank of Commerce, with a yield of 4 per cent, is the top holding at 27 per cent. National Bank of Canada, with a yield of around 3 per cent, is the smallest holding at 8 per cent.

  The MER for RBNK is close to half of ZEB at 0.33 per cent. Globeinvestor.com reports the yield at around 3.3 per cent for both RBNK and ZEB, while one-year total returns for both are in the range of 63 per cent. Three-year annualized returns are likewise similar at around 12 per cent.

  The comparison between ZEB and RBNK is a tough one because there’s a significant fee gap between the two, but negligible difference in recent yield and returns. The frugal ETF investor might want to go with the lower-fee option, regardless.

  – Rob Carrick

  This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

  Stocks to ponder

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  Topaz Energy Corp. On Wednesday, its share price closed at a record high. The company provides both growth and income to its shareholders. Topaz allows investors to benefit from rising energy prices and royalty production growth while receiving an attractive dividend yield. The stock has a unanimous buy recommendation from 16 analysts. Jennifer Dowty takes a look.

  The Rundown

  Halfway through 2021, the hot stocks are old-fashioned

  Zoom and Peloton are out. Oil drillers and metal miners are in. Tech companies that made remote living possible — or even bearable — were the centre of the action last year as investors sought companies that were either immune to the economic chaos of the pandemic or potential winners from the disruption caused by lockdowns, according to Matt Phillips of the New York Times.

  Krispy Kreme and Didi Chuxing part of blockbuster week for public listings

  On any normal week, the trading debuts of Krispy Kreme or Didi Chuxing, the Chinese ride-hailing giant, would be the biggest news in initial public offerings. But they were just two of 18 IPOs that hit the markets this week, making it the busiest since December 2004. Lauren Hirsch and Michael J. De La Merced review a big Wall Street week for newcomers.

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  U.S. dollar builds another head of steam

  Confounding consensus yet again, the dollar is building another head of steam – a jarring prospect for those who see that as a harbinger of financial stress as well as an aggravator of it, writes Mike Dolan of Reuters.

  Others (for subscribers)

  Friday’s analyst upgrades and downgrades

  Friday’s Insider Report: Million dollar trades reported in three stocks, including a $72-million sale

  The regulatory and legal headwinds facing Robinhood

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  Others (for everyone)

  Canadian dollar seen stronger but break of key technical level to remain elusive

  Bets ramping up for lower Treasury yields in the second half of 2021

  Delta variant worries bubble to the surface in some asset prices

  Globe Advisor

  Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation – a powerful tool to help you manage your clients’’ portfolios.

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  Ask Globe Investor

  Question: If I buy a stock a few days before the record date, and sell it a few days after the record date, can I still receive the dividend? This sounds like an easy way to make money.

  Answer: Sorry, but this is an example of an illusory “free lunch.” In this case, you will get the dividend, but the stock will have started trading ex-dividend the day before the record date. When you sell, the value of the dividend will no longer be reflected in market price. So, what you gain by receiving the dividend you will lose (all else being equal) because of a lower share price. It rarely works out exactly that way – stock prices are affected by myriad other factors – but the take-home message here is that, if something seems too good to be true, it usually is.

  – John Heinzl

  What’s up in the days ahead

  Aussie rates, Fed minutes and summer unknowns: World Market themes for the week ahead

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  Click here to see the Globe Investor earnings and economic news calendar.

  More Globe Investor coverage

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  You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

  Compiled by Globe Investor Staff


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