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Mutual Fund News

Canadian financial ETFs excel in first quarter

swon@globeandmail.com

WHAT ARE WE LOOKING FOR?

Exchange-traded funds (ETFs) with the most zip in the first quarter.

These low-fee funds, which can be bought and sold like stocks, can be an easy way to gain exposure to a hot sector.

TODAY'S SEARCH

We screened for the top 25 best performers for the first three months of this year among Canadian-listed ETFs. They include iShares, Claymore, BMO and Horizons AlphaPro ETFs. We excluded the leveraged Horizons BetaPro bull and bear and inverse (short) ETFs.

WHAT DID WE FIND?

Small-cap and financial ETFs were among the standouts.

The iShares CDN Russell 2000 ETF, which tracks the Russell 2000 index of U.S. small-cap stocks, posted an 8.7-per-cent gain - the highest return among those screened.

Small-cap stocks tend to outperform in the early stages of an economic recovery as the size of their companies makes them more nimble and able to act when conditions improve.

If the currency risk from a strengthening Canadian dollar had not been hedged, this ETF would have gained only 5.7 per cent, said Stephen Leong, vice-president of product development at iShares Canada.

Canadian financial ETFs also fared well. Fiscal first-quarter profit for most of the big Canadian banks beat analysts' expectations, while "strong GDP [gross domestic product] numbers coming out of Canada have also been a driver of stock market performance," Mr. Leong added.

Both BMO S&P/TSX Equal Weight Banks ETF and the Claymore Equal Weight Banc & Lifeco ETF posted an 8.3-per-cent return. The iShares CDN Financial Sector Index, which also includes mutual fund companies, rose 7.9 per cent.

Among the leaders, the Horizons AlphaPro Seasonal Rotation ETF gained 3.9 per cent. This actively managed ETF uses other ETFs to invest in different sectors during times of seasonal strength.

This ETF, which is advised by Don Vialoux who runs timingthemarket.ca, and Brooke Thackray, author of Thackray's 2010 Investor's Guide, does not have an equity benchmark. It targets a 5-per-cent annualized return.

Some of this ETF's performance came from Retail HOLDRs ETF, iShares CDN S&P/TSX Capped Energy ETF, and iShares Russell 2000 ETF, Mr. Vialoux said.

He prefers the U.S.-listed iShares Russell 2000 ETF instead of its hedged Canadian counterpart. "If you are dealing with any kind of size, the iShares ETF in Canada doesn't give you the liquidity you need to put on a sizable position so we chose to do it directly through the United States."

***

Leaders among ETFs in the first quarter
(As of Mar. 31)Latest(Mar. 31)Calendar year % rtn
NameSymbolCategory Assets ($-mil)MERYTD % rtn200920082007
iShares CDN Russell 2000 IndexXSU-TU.S. Sml/Md Cap Equity49.10.358.724.5-38.8
BMO S&P/TSX EW Banks Index ETFZEB-TFinancial Services Equity16.78.3
Claymore Japan Index ETF C$ HedgedCJP-TJapanese Equity27.50.688.31.9-46.7
Claymore Equal Wght Banc&Lifeco ETFCEW-TFinancial Services Equity0.598.346.4-36.8
Claymore US Fundamental Index ETFCLU-TU.S. Equity104.80.628.128.5-42.6-2.9
iShares CDN Financial Sector IndexXFN-TFinancial Services Equity1070.10.557.944.2-35.8-1.3
iShares CDN Value IndexXCV-TCdn. Div. & Income Equity49.50.507.543.7-34.05.8
iShares CDN Income Trust Sector IdxXTR-TCdn. Income Trust Equity239.10.556.540.4-25.96.0
iShares CDN Tech Sector IndexXIT-TScience & Tech. Equity60.40.556.052.4-49.110.7
iShares CDN Dividend IndexXDV-TCdn. Div. & Income Equity630.10.505.936.8-30.9-0.8
Claymore Cdn Fundamental Index ETFCRQ-TCanadian Equity0.605.544.3-31.67.3
iShares CDN S&P 500 IndexXSP-TU.S. Equity1410.70.245.122.9-40.33.2
iShares CDN Completion IndexXMD-TCanadian Equity170.80.555.146.4-38.85.3
Claymore US Fund Index ETFnonhedgedCLU.C-TU.S. Equity4.40.704.9
iShares CDN SmallCap IndexXCS-TCdn. Sml/Md Cap Equity108.60.554.861.1-45.4
BMO S&P/TSX EW Gbl Base Metals ETFZMT-TNatural Resources Equity18.44.7
BMO Dow Jones Industrial Avg CA ETFZDJ-TU.S. Equity4.34.4
BMO US Equity ETFZUE-TU.S. Equity11.64.2
iShares CDN MSCI EAFE IndexXIN-TInternational Equity1107.40.494.118.1-40.61.9
iShares CDN Jantzi Social IndexXEN-TCanadian Equity22.50.504.038.9-35.5
HAP Seasonal Rotation ETFHAC-TAlternative Strategies3.9
BMO International Equity Index ETFZDM-TInternational Equity11.23.7
BMO High Yield US Corp Bond ETFZHY-THigh Yield Fixed Income23.73.7
Claymore S&P/TSX Cdn Dividend ETFCDZ-TCdn. Div. & Income Equity250.80.643.638.2-30.46.3
iShares CDN REIT Sector IndexXRE-TReal Estate Equity960.00.493.653.2-38.3-6.0
S&P/TSX Total Return3.135.1-33.09.8
BMO Nesbitt Burns Cdn Small Cap Index7.475.1-46.62.0
MSCI World ($ Cdn)0.311.8-26.1-7.1
S&P 500 Composite ($ Cdn)1.85.5-23.8-12.2
S&P/TSX Small Cap Total Return4.962.4-50.00.4
Source: Globe Investor, companies

© 2007 The Globe and Mail. All rights reserved.

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