Wednesday, February 15, 2012
Experts weigh in with ETF picks for RRSP season

SHIRLEY WON

INVESTMENT FUNDS REPORTER

The proliferation of exchange-traded funds offers investors alternatives for building a nest egg.

Investors can buy Canadian or U.S.-listed ETFs for a registered retirement savings plan, but the transaction must be done through a discount or full-service broker. The big attraction of ETFs is lower fees.

With the deadline looming on Feb. 29 for RRSP contributions, we asked four ETF experts to give their top picks for conservative and aggressive investors.

John Gabriel, ETF strategist, Morningstar Inc.

Vanguard MSCI U.S. Broad

Market ETF (CAD-Hedged) (VUS-TSX) (conservative)

This ETF tracks more than 3,000 U.S. large- and smaller-company stocks for a very low fee of 0.15 per cent, Mr. Gabriel said. "This fund provides diversification beyond that of most broad-market ETFs, which should help long-term returns even if it slightly raises the volatility." Over the decade to Jan. 31, the U.S.-listed version of this ETF has outperformed the popular iShares S&P 500 ETF, he said.

WisdomTree Emerging Markets Small Cap Dividend (DGS-NYSE) (aggressive)

This ETF gives exposure to more than 500 smaller companies impacted by a growing middle class of consumers in emerging markets. "The fund's dividend mandate also helps screen out the riskiest and most financially unsound firms," he said. This ETF has returned an annualized 22 per cent for three years ended Jan. 31, versus 19 per cent for the large-cap iShares MSCI Emerging Markets ETF, he added.

Vikash Jain, portfolio manager, archerETF Portfolio Mgmt.

Claymore S&P/TSX Canadian Dividend ETF (CDZ-TSX) (conservative)

This ETF, which has an annual yield of 3.4 per cent, invests in companies that have raised dividends for at least five consecutive years. It has consistently outperformed the highly popular financial- and energy-heavy iShares S&P/TSX 60 ETF, but with lower volatility, Mr. Jain said. Because the more diversified Claymore ETF doesn't own banks and insurers, which are facing tighter regulations, "we expected it will continue to outperform."

BMO Dow Jones Industrial Average Hedged to CAD ETF (ZDJ-TSX) (aggressive)

This ETF, which tracks the 30 largest U.S. companies, will benefit from renewed economic growth in the U.S. economy, Mr. Jain said. Jobs and industrial growth have improved, while corporate profits are at record highs, he added. "We expect economic growth to continue, nurtured by loose monetary policy and a weakened U.S. dollar."

Deborah Frame, vice-president of investments, Cougar Global

iShares Dex All Corporate Bond ETF (XCB-TSX) (conservative)

This ETF has a yield of 4.2 per cent - better than what investors can get in GICs or government bonds, Ms. Frame said. While the corporate bond market has recovered from the 2008 financial crisis, "people still feel there is a premium deserved for something that is not a government bond." But there is risk in provincial government bonds, such as those issued by Ontario "which has one of the worst balance sheets."

iShares MSCI Pacific ex-Japan ETF (EPP-NYSE) (aggressive)

This ETF, which invests in stocks in Pacific Rim countries, will benefit from China's fast-growing economy, but ignores the moribund Japanese market. The ETF is invested 65 per cent invested in Australia and 20 per cent in Hong Kong. Top holdings include resource companies, such as BHP Billiton Ltd. and Rio Tinto Ltd., and financial services firms.

Tyler Mordy, research director, Hahn Investment Stewards

Vanguard Dividend Appreciation ETF (VIG-NYSE) (conservative)

This ETF focuses on U.S. large-cap companies with at least 10 years of dividend growth. "U.S. large-cap multinational stocks have been neglected for years, yet are world-beating enterprises that stand the best chance of weathering the current slow growth economic climate," Mr. Mordy said. Multinationals can shift production and tap into higher growth markets, he added.

iShares S&P/TSX Global Gold ETF (XGD-TSX) (aggressive)

This ETF, which tracks stocks of gold miners, will eventually benefit from rising bullion prices, which have pushed corporate profits and margins higher, he said. Even though bullion is $1,700 (U.S.) an ounce, the mining stocks still trade at levels when bullion was at $1,000.

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ETFS FOR CONSERVATIVE AND AGGRESSIVE INVESTING

ETFSymbol52-wk.high52-wk.lowYTD pricechge (%)1-year price chg. (%)3-year price chg. (%)5-year pricechg. (%)
CONSERVATIVE
Vanguard MSCI U.S. B. Mkt. ETFVUS-T27.1624.138.18
Claym S&P/TSX Cdn Div ETFCDZ-T22.0417.932.863.8464.322.62
iShares DEX All Corporate BondXCB-T21.3520.150.334.8312.555.25
Vanguard Dividend Appr. ETF*VIG-N57.7946.544.744.4555.973.51
AGGRESSIVE
WisdomTree Emerg SmCap Div ETF*DGS-N56.7737.3715.63-6.99102.11
BMO DJ Industrial Avg. ETFZDJ-T22.35185.483.99
iShares MSCI Pacf ex-Japan ETF*EPP-N51.0634.612.15-7.2688.35-0.47
iShares S&P/TSX Global GoldXGD-T28.421.593.43-2.613.4413.11

* In U.S. dollars; all prices as of Feb. 13. Source: Globe Investor