Exchange Traded Funds (ETF)

Investment update July 2013


ETFs – Exchange Traded Funds


Last month I talked about mutual funds.  You likely detected a negative tone in my commentary.  I am not a big fan of mutual funds, even though I have used them myself in the past.  They have lots of costs associated with them and they tend to be not very flexible.

This month I will talk about ETFs (Exchange Traded Funds).  An ETF operates similar to a mutual fund, but trades like an individual stock.  The ETF is a fund that invests in many publicly traded companies, just like a mutual fund does.  There are no sales commissions to get in or get out, but you will have to pay a trading fee with whatever brokerage firm you use – that could range from as low as $7 per trade to as high as $50 or more per trade, depending on the arrangement you have with your broker.

ETFs have an MER (Management Expense Ratio), just like mutual funds, but they tend to be considerably lower – often well below 0.5%.  As with a mutual fund, you don’t pay this fee, it is deducted from the fund before calculating the value of the ETF units.  There are no other fees.

ETFs are superior to mutual funds in both cost and flexibility. Most ETFs use a buy and hold strategy, and have very little turnover of stock in their portfolio.


Most investment websites have a good education centre on ETFs.  Here is the Yahoo site.


If you have limited funds, ETFs can provide a good way to diversify.  However once you have enough money invested, say $100,000 or more, I would suggest direct stock purchasing using the strategy I have outlined in the past.  As you will see below, they often just purchase the same stocks as you would from my strategy, so why not hold them directly, instead of through a third party.


Here are a couple of examples of ETFs:


Stock ticker DVY uses a similar investment strategy to mine, focusing on dividend stocks.  The fund has almost 100 stock holdings, here are the top 10 of which you will notice some familiar names.


Top 10 Holdings (21.24% of   Total Assets)



Company Symbol

%     Assets

Lorillard, Inc     Common Stock LO


Lockheed Martin     Corporation Com LMT


Chevron     Corporation Common Stoc CVX


Philip Morris     International Inc PM


Entergy     Corporation Common Stoc ETR


McDonald’s     Corporation Common S MCD


Kimberly-Clark     Corporation Comm KMB


Integrys Energy     Group, Inc. Com TEG


Watsco, Inc. Common     Stock WSO


Clorox Company     (The) Common Sto CLX





Here is another one, DTN, which also looks at high dividend yield, but will accept stocks of a lower quality than the ones I recommend.  Again, you will see some familiar names among the top 10 of its 100 stocks.


Top 10 Holdings (17.45% of   Total Assets)



Company Symbol

%     Assets

Exelon Corporation     Common Stock EXC


Hewlett-Packard     Company Common HPQ


CenturyLink, Inc.     Common Stock CTL


Ameren Corporation     Common Stock AEE


AT&T Inc. T


Reynolds American     Inc Common St RAI


Altria Group, Inc. MO


Duke Energy     Corporation (Holdin DUK


PP&L     Corporation Common Stock PPL


Public Service     Enterprise Group PEG




There are similar ETFs for Canadian stocks such as VDY from Vanguard, which invests in Canadian high dividend companies. Among its top 10 holdings are many familiar names from my stock list.



Royal Bank of Canada


Toronto-Dominion Bank


Bank of Nova Scotia


Bank of Montreal


Enbridge Inc.


TransCanada Corp.


Manulife Financial Corp.


Canadian Imperial Bank of Commerce/Canada


Cenovus Energy Inc.


Sun Life Financial Inc.

Top 10 approximately   equals 62.3% of net assets







About borgford

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