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ETF Buyer's Guide goes global

rcarrick@globeandmail.com

Canadian investors have long and justifiably been criticized for not having enough exposure to global stock markets.

It turns out the exchange-traded fund companies are guilty of exactly the same thing. The third instalment of The Globe and Mail ETF Buyer's Guide was initially meant to cover international funds, or those covering developed stock markets outside North America. But the small number of funds in this category left room for more.

As a result, you'll find emerging markets covered here, as well as global dividend funds. Country-specific funds were left out on the basis that they're more for speculation and not a core investment.

And now for a quick word about currency hedging, which cuts the distortion in returns caused by our dollar's ups and downs versus global currencies. Hedging adds to your investing costs in some cases, and it can undermine returns a bit by causing what's known as tracking error. It's useful to have hedging when the Canadian dollar is rising, but you'll find it a drag on returns when our currency is falling.

The ETF Buyer's Guide has already covered Canadian equity ETFs (tgam.ca/DwYF) and U.S. equity ETFs (tgam.ca/Dy01). To come in the weeks ahead are bond ETFs and Canadian dividend and diversified income ETFs. Here are explanations of some of the terms you'll find in the guide below.

Management expense ratio (MER): The main cost of owning an ETF on an ongoing basis; as with virtually all funds, published returns are shown on an after-fee basis.

Trading expense ratio (TER): The cost of trading commission racked up by the managers of an ETF as they shuffle the portfolio to keep it in line with a target index; add the TER to the MER for a fuller picture of a fund's cost.

Average 30-day daily trading volume: Trading of less than 10,000 shares per day on average tells you an ETF isn't generating much interest from investors.

Top-three country and sector weightings: International ETFs vary a fair bit in terms of which countries and sectors they emphasize.

For more visit tgam.ca/carrick-etf3

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INTERNATIONAL/EMERGING MARKETS/GLOBAL DIVIDEND FUNDS

RecentDivAvg dlyDivTop threeTop threeTop threeto Dec. 30
AssetsMERTERPriceYldtrd volDistrcountrysectorstock1-yr3-yr5-yrLaunch
FundSym($-mil)(%)(%)($)(%) 30 dysFreqWghtngsWghtngsHldngs% rtn% rtn% rtnDate
BMO MSCI EAFE Hedged toZDM747.20.520.1817.982.318,713QTRLYJapanFinancialsiShrs MSCI EAFE ETF279n/a20/10/2009
CAD Index ETFU.K.IndustrialsNestlé
Switz.Cons. Discr.HSBC Holdings
Comments: Tracks the MSCI Europe Australasia Far East Index, the most widely followed benchmark for international investing. Fees a little higher than the iShares competition, but seems to hug the index better.
BMO MSCI Emerging MarketsZEM81.50.650.1115.382.28,936ANN.ChinaFinancialsiShrs MSCI Taiwan ETF4.6-0.9n/a20/10/2009
Index ETFS. KoreaInfo techiShares MSCI Brazil ETF
BrazilEnergyiShrs MSCI Emer Mrk Idx ETF
A reasonable choice, but investors seem to be gravitating these days to Vanguards lower-cost VEE.
First Trust AlphaDEX EmergingFDE5.90.65*n/a19.573.28MTHLYChinaTelecomSouFun Holdingsn/an/an/a15/05/2013
Market Dividend ETF (CAD-Hedged)BrazilInfo techE-House China
IndiaFinancialsTal Education
People just aren't buying this recently introduced ETF, which tracks an index of dividend-paying emerging market stocks that meet various criteria for liquidity, size and growth. Days and days go by without a single share changing hands.
Horizons Active EmergingHAJ5.00.890.1811.222.8406MTHLYChinaTelecomSouFun Holdings8.6n/an/a10/10/2012
Markets Dividend ETFBrazilInfo techFomento Economico
MexicoCons. StaplesSiliconwear Precision
This largely ignored ETF is actively managed and thus uses a stock-picking team rather than following an index. Costs are higher as a result, but the very limited track record shows well against index-tracking emerging market ETFs.
Horizons Active GlobalHAZ95.90.940.0614.882.65,351MTHLYU.S.FinancialsSK Telecom25.511.7n/a21/07/2010
Dividend ETFU.K.Cons. StaplesReynolds American
CanadaEnergyJPMorgan Chase
An actively managed ETF with almost two-thirds of the portfolio in the U.S. market, and another 6 per cent is in Canada. So not ideal for those who want international exposure.
iShares MSCI EAFE Index FundXIN1,099.00.50.0122.122.1111,838SEMI-U.K.FinancialsNestlé25.18.89.706/09/2001
(CAD-Hedged)ANN.JapanCons. Disc.HSBC Holdings
FranceIndustrialsRoche Holdings
Canada's oldest, biggest and most heavily traded ETF choice for investing outside North America. There's a cheaper, unhedged iShares alternative to this fund (XEF) and a low-volatility version (XMI) that smooths the ups and downs of the world index.
iShares MSCI Emerging MarketsXEM272.60.790.0224.791.813,243SEMI-ChinaFinancialsSamsung2.3-0.6n/a18/06/2009
Index FundANN.S. KoreaInfo techTaiwan Semicond.
TaiwanEnergyTencent Holdings
There's heavy duty fee competition in the ETF world these days, but the MER for this expensive fund doesn't reflect it. For a less wild ride in emerging markets, consider the low volatility version of this fund (XMM).
iShares Emerging MarketsCWO55.20.690.0928.962.66,233QTRLYChinaFinancialsiShrs MSCI Taiwan ETF-0.6-4.1n/a07/04/2009
Fundamental Index ETFBrazilOil & gasiShrs India Nifty 50 ETF
TaiwanTelecomGazprom
Uses an indexing process where stocks are weighted using factors like revenues, dividends, book value and cash flow instead of market capitalization. This approach has worked well in the Canadian and U.S. markets, but not so much here.
iShares MSCI WorldXWD176.40.47033.311.615,665SEMI-U.S.FinancialsiShrs Core S&P 500 ETF33.913.6n/a18/06/2009
Index FundANN.JapanInfo techiShrs MSCI Core EAFE ETF
U.K.Cons. Discr.iShrs MSCI Canada ETF
Add a Canadian equity and bond ETF to XWD and you've got a nicely diversified portfolio with just three funds. Note: There's a low-volatility version of this ETF that trades under the ticker XMW.
iShares InternationalCIE218.40.720.0417.171.815,921QTRLYJapanFinancialsToyota32.58.98.314/02/2007
Fundamental Index FundCanadaIndustrialsNestlé
FranceCons. goodsMitsubishi
Another fundamental index fund, which means costs on the high side. Returns have been above and below the EAFE index in recent years.
iShares Global MonthlyCYH118.30.68016.973.411,547MTHLYU.S.UtilitiesLockheed Martin13.85.61415/01/2008
Dividend Index ETFAustraliaFinancialsChevron
TaiwanIndustrialsPhilip Morris
Tracks the Dow Jones Global Select Dividend Composite Index CAD-Hedged, which seeks out better quality dividend stocks from the both developed and emerging markets. Canadian and U.S. stocks account for close to half the holdings.
RBC Quant EAFE DividendRID3.00.49n/a20.28n/an/aMTHLYU.K.FinancialsHSBC Holdingsn/an/an/a15/01/2014
Leaders ETF (CAD-unhedged)AustraliaIndustrialsRoyal Dutch Shell
SwedenEnergyBASF
A new international dividend ETF that uses a "rules-based" screening approach emphasizing strong balance sheets and sustainable, growable dividends. After underwhelming the ETF market with its previous offerings, RBC will want a good showing from this and other funds in the new Quant series.
Vanguard FTSE Devel. ex N. Amer.VEF227.20.43034.12215,005QTRLYJapanFinancialsNestlé26.4n/an/a30/11/2011
Index ETF (CAD-hedged)U.K.Cons. goodsRoyal Dutch Shell
FranceIndustrialsHSBC Holdings
Vanguard has chosen to go with a FTSE index instead of the standard MSCI EAFE index, resulting in lower costs that in the future may be passed on to investors. A relatively new, unhedged version (VDU) is also available.
Vanguard FTSE EmergingVEE163.80.54026.23219,627QTRLYChinaFinancialsTaiwan Semicond.0.9n/an/a30/11/2011
Markets Index ETFTaiwanOil & gasTencent Holdings
BrazilCons. goodsPetroleo Brasileiro
The low-cost leader in TSX-listed emerging markets ETFs has been a hit with investors.
Note: *management fee only; shown for newer funds that do not yet post a full MER (management fees are a component of MER). Source: ETF company websites, globeinvestor.com

© 2007 The Globe and Mail. All rights reserved.

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