The exchange-traded fund business has jumped on a trend that has long kept mutual fund companies well-fed and happy.
ETF companies have been introducing more and more balanced and monthly income funds, which are consistently among the most popular mutual funds. Add these new ETF products to the many dividend funds already available and you end up with a massive selection of products for income-seeking investors.
In fact, there are so many funds of this type that this fifth instalment of the ETF Buyer's Guide had to set some ground rules in deciding what to include.
Funds must be core dividend and income investments, not niche products that use a covered-call strategy (they use financial tools called derivatives to generate investment income) or focus on particular sectors such as financials or real estate investment trusts (REITs). Also, the funds covered here are primarily or entirely invested in Canada.
We'll look at U.S. and global dividend and income funds on April 25.
The Guide has already covered Canadian (tgam.ca/EHeH), U.S. (tgam.ca/ETF-guide-2015) and international (tgam.ca/guide-globaletfs) equity funds, as well as bond ETFs (tgam.ca/guide-bondETFs).
ETFs are a low-fee version of mutual funds that trade like a stock. Traditionally, ETFs tracked major stock and bond indexes; today, many funds follow more obscure indexes or have a manager who picks stocks.
To invest in ETFs, you need a brokerage account. For help on that, consult my latest ranking of online brokers (read it here online: tgam.ca/online-broker-survey).
Here are explanations of some of the terms you'll find in the Guide:
Assets
Shown to give you a sense of how interested other investors are in a fund; unless they're new, the smallest funds may be candidates for delisting.
Management expense ratio (MER)
The MER is the main cost of owning an ETF on an ongoing basis; published returns are shown on an after-fee basis.
Trading expense ratio (TER)
The TER is 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.
Yield
Supplied by Globeinvestor.com and based on monthly or quarterly payouts and the latest share price.
Average 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 sector weightings
Financial stocks dominate dividend and income ETFs, so be cautious if you already have a lot of exposure to the sector.
Returns
ETF companies typically disclose total returns, or share price change plus dividends or distributions.
Click here for printable spreadsheet
Notes: *management fee only; shown for newer funds that do not yet posted a full MER (management fees are a component of MER). Source: ETF company websites, globeinvestor.com; **asset allocation is shown for balanced and monthly income funds instead of top-weighted sectors
Click here to download an excel version of the table.