Skip to main content

The Globe and Mail

It’s a dog’s life for Canadian index investors

Carrie Bottomley/Thinkstock

As I was reviewing my portfolio the other day, it hit me: Canada is a lousy place to be an index investor.

Now don't get me wrong: Although I'm a dividend investor first, I also believe in the core principles of indexing – keeping costs low, staying diversified and letting the markets do their thing. That's why, in addition to owning individual dividend stocks, I have a chunk of my portfolio in Canada's biggest exchange-traded fund, the S&P/TSX 60 Index Fund (XIU).

Problem is, XIU has been a total mutt.

Story continues below advertisement

For the five years ended Sept. 30, this ETF – which has a hefty $12.4-billion in assets – posted an annualized return of negative 2.95 per cent. If you include dividends, the total annual return was negative 0.39 per cent. Ouch. I would have done better putting my money into ING.

Meanwhile, most of my dividend stocks have posted double-digit gains.

Yes, XIU has a management expense ratio of just 0.18 per cent. But who cares? It's still a dog, and here's why: It provides lousy diversification. It's got way too much exposure to volatile energy, materials and financials stocks, and not nearly enough in the way of more stable companies such as utilities, pipelines, telecoms and consumer names.

You can try to get around the problem by buying ETFs that specialize in certain sectors, stock types or investment styles. But then you're looking at much higher MERs, which sort of defeats the purpose of indexing. The iShares S&P/TSX Dividend Aristocrats Fund, for instance, has an MER of 0.67 per cent. No thanks.

Or you could invest outside Canada, but then you're taking on currency risk. What about hedging? It doesn't always work as advertised.

At this point I'm thinking I may be better off selling my XIU and going with an all-stock portfolio instead.

So, if anyone knows of a Canadian ETF that's cheap, provides excellent diversification and (let's get out our crystal balls here) won't spend the next five years losing money, tell us about it (use the comments section).

Story continues below advertisement

Report an error Licensing Options
About the Author
Investment Reporter and Columnist

John Heinzl has been writing about business and investing since 1990. A native of Hamilton, he earned a master's degree from the University of Western Ontario's Graduate School of Journalism and completed the Canadian Securities Course with honours. More

Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.