There was an outbreak of common sense investing last month. Keep up the good work, everyone.
The six most popular exchange-traded funds in July were all core products that track widely followed stock indexes. These ETFs are cheap to own, easy to understand, totally liquid and, on the whole, ideal for portfolio-building. Mixed intelligently into a diversified portfolio, any one of these six funds is a sturdy foundation for successful investing.
What's notable about these six basic ETFs is that they were the most popular products in a field that is continually being expanded through the addition of new products. The theme of many of these new products is that they're not traditional index funds, like the six top sellers of July. Instead of weighting stocks according to their market capitalization, or size, they apply a screening process that results in a different portfolio than the index. Some stocks may be weighted higher or lower than the index, and there may be different sector weightings.
These new ETFs go by a lot of different names, one of the most recent being "smart beta." What they all have in common is the idea that there's a smarter way to invest than simply buying the major benchmark stock and bond indexes as they are. Some of these ETFs have done well, notably the fundamental funds in the iShares family. But a lot of the new ones are as yet unproven through a full stock market cycle of bull and bear markets.
The promise of index investing through ETFs is not that you'll own the smartest investments. Rather, it's that you'll make what the market makes, minus a tiny fee. Each of the six best sellers of July exemplifies this approach:
The BMO S&P 500 Index ETF (ZSP): Tracks the S&P 500 index.
The BMO S&P/TSX Capped Composite Index ETF (ZCN): Tracks the S&P/TSX composite index.
The iShares Core S&P 500 Index ETF CAD-Hedged (XSP): S&P 500 exposure.
The BMO S&P 500 Hedged to CAD Index ETF (ZUE): Another S&P 500 choice, this one with currency hedging.
The iShares Core S&P/TSX Capped Composite Index ETF (XIC): Another option for buying the Canadian market.
The Horizons S&P/TSX 60 ETF (HXT): Offers exposure to the 60 biggest, most liquid Canadian stocks.
There are nuances to these ETFs that you should investigate before buying. What they have in common is that they allow you to cheaply invest in a major stock index, straight up. That may not be the trendiest way to invest, but it is common sense.
Rob Carrick