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ETF performance, under the microscope

rcarrick@globeandmail.com

What we're looking at

The performance over the past two years of exchange-traded funds that track the Canadian, U.S. and international stock markets. We'll focus on established ETFs, which means some of the newest offerings from companies such as PowerShares and Vanguard aren't included here.

Our chart

The ETF analysis team at National Bank Financial compiled numbers not only on returns, but also on how well each ETF functioned as an index-tracker. The traditional ETF is an investing vehicle that ideally delivers the returns of a target stock or bond index minus fees. Here are some definitions of key terms to help you understand this chart:

Excess return: The difference between an ETF's return and the return of the underlying index. Excess returns are usually negative and, ideally, they will be equal to the cost of owning an ETF, as measured here by the management fee.

Premium/discount to NAV: Shows the extent to which the share price of an ETF deviates from the net asset value per share. Zero premium or discount is preferable, but trading patterns for an ETF and its underlying holdings can cause the net asset value and share price to wander apart.

For premium/discount to NAV, a mean and a volatility level have been provided. The mean takes daily premium/discount numbers and uses them to produce an average number, while the volatility level shows you how much the premium or discount tends to bounce around. Lower volatility is better.

What we found

Investment returns last year were poor, but the Canadian market equity ETFs shown here did a good job of index tracking.

Noteworthy in this group is the Horizons S&P/TSX 60 Index ETF, which involves a higher level of complexity than its peers in that it uses derivatives to match the index return instead of holding the individual stocks.

There is also an incremental amount of extra risk in this arrangement.

Note how the U.S. market ETFs track their indexes less cleanly. The use of currency hedging by these ETFs may be a cause, and that suggests using unhedged U.S.-listed ETFs for exposure to the American stock market is worth a thought as long as you're okay with the currency risk.

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EQUITY ETF PERFORMANCE REVIEW

20112010
ReturnsPrem./Disc. to NAVReturnsPrem./Disc. to NAV
Period Period
Mgt Fee Total Excess Total Excess
ETFTicker(%)ReturnReturnMeanVolatilityReturnReturnMeanVolatility
Horizon S&P/TSX 60HXT-T0.07 -9.12%-0.05% -0.02%0.12% n/an/a -0.02%0.10%
iShares S&P/TSX 60XIU-T0.15-9.22%-0.15%-0.01%0.13%13.60%-0.24%-0.02%0.10%
BMO Dow Jones Canada Titans 60ZCN-T0.15-9.96%-0.08%0.01%0.30%13.62%-0.24%0.02%0.25%
iShares S&P/TSX Capped CompositeXIC-T0.25-8.93%-0.22%0.00%0.17%17.26%-0.34%-0.02%0.23%
Horizons S&P/TSX 60 Equal WeightHEW-T0.50-9.59%-0.47%0.13%0.66%n/a.n/a0.07%0.35%
Claymore Cdn. FundamentalCRQ-T0.65-8.31%-0.43%0.03%0.19%13.69%-0.90%0.07%0.16%
S&P/TSX 60 Index-9.08%13.84%
S&P/TSX Capped Composite Total Return Index-8.71%17.61%
iShares S&P 500 CAD-HedgedXSP-T0.241.07%-0.64%0.01%0.12%13.47%-0.08%0.04%0.23%
BMO US Equity Hedged to CADZUE-T0.221.01%-0.76%0.06%0.48%11.14%-0.68%0.10%0.42%
Horizons S&P 500 CAD-HedgedHXS-T0.150.89%-0.82%0.02%0.48%n/an/a0.08%0.22%
Claymore US FundamentalCLU-T0.65-1.51%-1.58%0.10%0.36%16.70%-3.29%0.16%0.31%
S&P 500 Index CAD-Hedged1.71%13.55%
Claymore International FundamentalCIE-T0.65-13.12%-0.89%0.26%0.77%-0.18%-2.10%0.54%0.93%
BMO International Equity Hedged to CADZDM-T0.46-12.56%0.05%0.39%0.56%1.11%-4.56%0.58%0.70%
iShares MSCI EAFE CAD-HedgedXIN-T0.50-12.71%-0.60%0.02%0.30%4.59%0.03%0.01%0.29%
MSCI EAFE Index-12.12%4.56%
Source: National Bank Financial

© 2007 The Globe and Mail. All rights reserved.

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