1. finance
2. investing
3. stocks

T H E G LO B E A N D M A I L
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S AT U R D AY , D E C E M B E R 1 1 , 2 0 1 0
GLOBE INVESTOR WEEKEND
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B15
INVESTING
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STARS AND DOGS BY JOHN HEINZL
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HMV GROUP
COSTCO WHOLESALE
BCE
FORTUNE BRANDS
LULULEMON ATHLETICA
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Doomed business ideas:
1) Opening an adult video store in Kandahar; 2)
Selling “Bite Me, Dear
Leader” T-shirts in North Korea;
3) Selling CDs and DVDs when
everyone is downloading from
iTunes. Shares of HMV plunged
after the music and video retailer
suffered a 15-per-cent drop in
sales for the first six months and
cut its dividend in half. The
stock’s on a Highway to Hell.
Costco is the only store
where you go in for a
few groceries and
emerge with a treadmill, piano and five-piece dining
room set. And that’s just fine
with shareholders of the warehouse club retailer. With fiscal
first-quarter sales rising 11 per
cent and profit topping Wall
Street’s expectations, the shares
are rising faster than the credit
card bills of Costco’s customers.
What do Jim Beam
bourbon, Moen faucets
and Titleist golf balls
have in common? Nothing, which is why Fortune Brands
– maker of these and other fine
items – plans to spin off its golf
and home products divisions under pressure from corporate agitator William Ackman. With its
lucrative booze business ripe for
a takeover, it’s no wonder investors are so giddy.
Reasons not to take up
yoga: 1) Interferes with
drinking and smoking;
2) Might miss finale of
Biggest Loser; 3) Nothing to wear.
Judging by Lululemon’s results,
fewer people are using excuse
#3. The athletic wear retailer
blew past earnings expectations
for a third consecutive quarter as
same-store sales leaped 29 per
cent. But with a P/E of 57, the
stock’s pricier than Lululemon’s
trendy clothes.
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HMV (LSE), 36.25 pence,
down 9.5 pence over week
COST (Nasdaq), $71.25,
up $2.86 over week
BCE (TSX), $36.09,
up 95 cents over week
FO (NYSE), $63.01,
up $1.51 over week
LLL (TSX), $69.44,
up $15.82 over week
120
US$ 80
$ 40
US$ 70
$ 80
90
70
35
60
60
60
60
30
50
40
30
50
25
40
20
40 I I I I I I I I I I I I
D J F M A M J J A S O N D
’10
20 I I I I I I I I I I I I
D J F M A M J J A S O N D
’10
30 I I I I I I I I I I I I
D J F M A M J J A S O N D
’10
0 I I I I I I I I I I I I
D J F M A M J J A S O N D
’10
There once was a company
called BCE
Whose dividend went up quite
reliably
Why, just Friday morning
Without any warning
It went up again, yes it did, look
and see.
How to profit from loonie’s rise to parity
0 I I I I I I I I I I I I
D J F M A M J J A S O N D
’10
ME AND MY MONEY
BY LARRY MacDONALD
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ROB CARRICK
PORTFOLIO STRATEGY
[email protected]
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SWAPNIL REGE, 28
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Occupation
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P
arity is a rarity for the Canadian and U.S. dollars, so be
sure you take advantage as an investor.
A Buy American strategy is
what’s called for here. If you
want exposure to the U.S. stock
market, buy exchange-traded
funds and individual stocks listed
on the New York Stock Exchange
and Nasdaq.
Most times, buying U.S.-listed
stocks puts you at risk of a rising
Canadian dollar killing your returns. As our dollar moves higher, it shrinks the value of assets
priced in U.S. dollars. It’s this
phenomenon that explains the
proliferation in recent years of
ETFs and mutual funds that use
hedging to keep currency fluctua-
Physiotherapist
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Portfolio
Includes shares in Agrium Inc.,
Empire Co. Ltd., Royal Bank of
Canada, plus exchange-traded
funds (ETFs) such as Claymore
BRIC ETF and Claymore S&P/TSX
Canadian Dividend ETF
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The Investor
Most times, buying U.S.-listed stocks puts you at risk of a rising Canadian dollar killing your returns. REUTERS
tions at bay.
Avoid these hedged products
today. With our dollar near parity, long-term trends suggest
there’s more downside for the
currency than upside. Just as a
rising dollar hurt your returns, so
will a falling currency add to your
gains.
In this edition of the Portfolio
Strategy column, we look at
NYSE-listed ETFs that provide
broad exposure to the U.S. stock
market. Next week, we’ll cover
U.S. stocks.
EMERSON BLACKMAN’S U.S. ETF PICKS
Mr. Blackman is an adviser with Dundee Securities in Mississauga, Ont.,
who uses ETFs in client portfolios:
TICKER
MER %
$
PRICE
iShares S&P 500 Index Fund
IVV
iShares Dow Jones Dividend Select Index Fund
DVY
PowerShares FTSE RAFI US 1000 Portfolio
PRF
PowerShares Dividend Achievers Portfolio
PFM
PowerShares QQQ
QQQQ
0.09
0.40
0.39
0.50
0.20
124.23
49.33
54.72
13.90
54.14
ETF
YTD %
PRICE CHG
DIVIDEND
YIELD %
11.1
12.3
15.3
11.5
18.3
2.0
3.4
1.5
2.2
0.8
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“We’re saying to clients that the Canadian dollar is strong right now, so buying U.S. assets is cheaper than it would be if the dollar were weak,” Mr.
Blackman said. He likes the idea of getting exposure to the U.S. market
through dividend-focused ETFs, but he cautions that the dividend tax credit
won’t apply in non-registered portfolios. Mr. Blackman notes that IVV is a traditional index ETF in that it weights stocks by size, whereas PRF uses a different approach that gives a higher weighting to undervalued stocks. Mr.
Blackman said he will combine IVV and PRF in some cases. As for QQQQ, it
was wildly popular a decade ago as a way to play the U.S. tech sector. Mr.
Blackman said he has a few clients who have asked about it lately. “It’s been
beaten to death, but when you check out the returns of late they’re starting
to look OK.”
VIKASH JAIN’S U.S. ETF PICKS
Mr. Jain is a portfolio manager with archerETF Portfolio Management:
ETF
TICKER
MER %
$
PRICE
YTD %
PRICE CHG
DIVIDEND
YIELD %
OEF
IVV
VB
IWM
0.20
0.09
0.14
0.20
55.67
124.23
71.75
76.79
8.2
11.1
25.1
23.0
2.3
2.0
0.9
0.9
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
iShares S&P 100 Index Fund
iShares S&P 500 Index Fund
Vanguard Small-Cap ETF
iShares Russell 2000 Index Fund
You’re no doubt familiar with the S&P 500, which is a widely followed benchmark for the U.S. stock market even though it includes only large companies.
The S&P 100 index, tracked by OEF, is even more skewed to big companies,
and that’s why Mr. Jain likes it. “These are companies that derive a large proportion of their earnings internationally,” he notes. As such, they’ll benefit
from the weak U.S, dollar in a couple of ways. One, their goods will be
cheaper and thus more competitive in the global marketplace and, second,
they will gain when their foreign earnings are converted back into U.S. dollars. For exposure to small-size companies, Mr. Jain likes the low fees and
low portfolio turnover of VB. Low portfolio turnover means fewer realized
capital gains, which in turn means lower taxable distributions to shareholders.
ADRIAN MASTRACCI’S U.S. ETF PICKS
Mr. Mastracci is a portfolio manager with KCM Wealth Management Inc. in
Vancouver:
ETF
TICKER
MER %
$
PRICE
YTD %
PRICE CHG
DIVIDEND
YIELD %
SPY
VTI
IVV
0.10
0.07
0.09
123.76
63.80
124.23
11.1
13.2
11.1
2.0
1.9
2.0
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SPDR S&P 500 ETF
Vanguard Total Stock Market ETF
iShares S&P 500 Index Fund
Mr. Mastracci chose these ETFs on the basis of low fees and good liquidity,
which means strong trading volumes that ensure investors get competitive
prices when buying and selling. SPY and IVV are competitors in tracking the
S&P 500, which is made up of big U.S. companies. VTI provides exposure to
3,000 stocks that represent the entire U.S. market. Its fee of 0.07 per cent is a
screaming bargain, but it’s not the cheapest U.S. market ETF. The new
Schwab U.S. Broad Market ETF (SCHB) has a fee of 0.06 per cent. There’s the
parity-related argument for buying U.S.-listed ETFs, but Mr. Mastracci believes
they’re also right for people who are investing for the long term. “If you’ve
got a 10 to 20-year view and you don’t need to touch your money, you’re
just as well to go that route.” Note: U.S.-listed ETFs are often cheaper than
TSX-listed funds.
MORNINGSTAR’S U.S. ETF PICKS
Chicago-based Morningstar is an independent investment research firm:
ETF
TICKER
MER %
$
PRICE
VTI
IVV
VIG
MGC
IJH
IJR
0.07
0.09
0.23
0.13
0.20
0.20
63.80
124.23
51.96
42.18
88.94
67.21
YTD %
PRICE CHG
DIVIDEND
YIELD %
13.2
11.1
10.9
9.6
22.8
22.8
1.9
2.0
2.1
2.1
1.1
0.9
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vanguard Total Stock Market ETF
iShares S&P 500 Index Fund
Vanguard Dividend Appreciation
Vanguard Mega Cap 300
iShares S&P MidCap 400 Index Fund
iShares S&P SmallCap 600 Index Fund
These ETFs are on a list of favourite long-term portfolio buillders assembled
by Morningstar analysts. The funds on the list are chosen on the basis of
fees, index construction, tax efficiency and diversification. Morningstar calls
VTI the quintessential core U.S. stock market holding; IVV is said to be the
best S&P 500 ETF, VIG is described as holding the highest quality U.S. stock
portfolio around, while MGC offers a cheap portfolio of large companies. The
iShares mid- and small-cap ETFs have slightly higher fees than their Vanguard
counterparts, but offer more precise exposure to mid- and small-size companies. If you’re looking for something in health care, a sector where the Canadian market is a desert, then check out this other Morningstar pick, the
iShares S&P Global Healthcare Index Fund (IXJ).
Swapnil Rege picked a good time
to open an investment account –
in March of 2009, just as the
stock market began to recover
from the recession and financial
crisis. Prior to taking the plunge,
he practised his stock-picking
skills in a “mock investing account” with Investopedia.com.
“I am fortunate that I was able
to start investing with guidance
from my brother,” Mr. Rege says.
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The Approach
“My main investment strategy is
to look for stocks that are trading below their intrinsic value,
and those that also pay a dividend,” he reports. “I have combined Benjamin Graham’s
strategy with Joel Greenblatt’s to
pick my top stocks.” In their investment books, Mr. Graham and
Mr. Greenblatt recommend looking for companies with high returns on equity, low
price-to-book ratios, modest debt
compared to equity, ample cash
flow and other qualities. “What I
love is that you can almost always find a value stock irrespective of market conditions,” Mr.
Rege says.
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Asset Allocation
“My core holdings are in Canadian stocks and exchange-traded
funds, making up about 70 per
cent of my portfolio,” he says,
with another 20 per cent is in
emerging markets, especially India and China. The rest is in Europe and the U.S. “I will continue
to add U.S. equities as their economy recovers.
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Best Move
“I purchased Agrium in early
2009 and it has almost doubled
since then. I continue to hold
this stock as I believe the price of
grain will keep on moving higher
in the fourth quarter.”
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Worst Move
His worst move was not selling
RIM when it hit $95 just prior to
releasing earnings back in September, 2009. As a rookie investor, he made the classic “panic
sell” mistake when the stock
dropped below $60.
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Advice
THE MOST ACTIVELY TRADED U.S. MARKET ETFS
These ETFs commonly top daily lists of ETFs generating the highest trading
volumes.:
ETF
TICKER
MER %
$
PRICE
YTD %
PRICE CHG
DIVIDEND
YIELD %
SPY
XLF
SLV
GLD
IWM
0.10
0.21
0.50
0.40
0.20
123.76
15.62
28.03
135.37
76.79
11.1
8.4
69.5
26.1
23.0
2.0
0.9
n/a
n/a
0.9
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SPDR S&P 500 ETF
Financial Select Sector SPDR Fund
iShares Silver Trust
SPDR Gold Shares
iShares Russell 2000 Index Fund
Most ETF trading in both the Canadian and U.S. markets is carried out by
hedge funds, pension funds and other institutional investors. So the ETFs on
this list say more about trading opportunities in today’s market they they do
about sensible long-term investing. One exception is SPY, which is perennially listed among the most actively traded U.S. market ETFs on a daily basis.
Another is IWM, a standby for investors who want to buy into riskier but potentially strong-performing small stocks.
Mr. Rege believes it is important
for new investors to try investing
in a practice account before
opening a real account. It will
give you a good idea if you have
the time “to read, research, learn
and invest accordingly.”
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Special to The Globe and Mail
Want to share your strategies?
E-mail [email protected]