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ETF Buyer's Guide: Diversifying your portfolio with U.S. and global dividends
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These funds, with bigger holdings in sectors such as health care and technology, can help break the dominance of financial stocks
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By ROB CARRICK
  
  

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Saturday, April 13, 2019 – Page B8

The Canadian stock market's problem with diversification is a particular challenge for dividend investors.

The S&P/TSX Composite Index is close to one-third weighted to financial stocks. Because so many financials are good dividend-payers, investors seeking dividend income can end up with much higher levels of exposure to banks, insurers and investment firms. In the most recent instalment of The Globe and Mail 2019 ETF Buyer's Guide, covering Canadian dividend ETFs, there were funds with as much as 65 per cent of their portfolios in financial stocks.

Adding some U.S. or global dividend ETFs to your portfolio is a way to break the dominance of financial stocks in a dividend portfolio. In this final instalment of the Buyer's Guide, you'll find funds with much lower exposure to financials than their Canadian counterparts and much bigger holdings in sectors such as health care and technology, where the Canadian stock market is weak.

Dividends from these funds aren't eligible for the dividend tax credit in non-registered accounts, unlike cash payouts from Canadian companies, which generally are. But dividends from foreign companies can still provide a steady flow of monthly or quarterly income (for more tax details on this category of ETF, consult our ETF Tax Primer, online at tgam.ca/ETFtaxguide).

Many U.S. and global dividend ETFs come in versions with and without currency hedging, which prevents changes in the value of the Canadian dollar from distorting returns generated by investments outside the country.

A falling Canadian dollar means unhedged U.S. and international ETFs will outperform those with hedging. With a rising dollar, hedged funds will outperform. If you're investing for 10plus years, both hedged and unhedged funds should perform similarly.

Here are explanations of some of the terms you'll find in the ETF Buyer's Guide: Assets: Shown to give you a sense of how interested other investors are in a fund.

Management expense ratio: The MER is the main cost of owning an ETF on a continuing basis; published returns are shown on an after-fee basis.

Trading expense ratio: The TER is the cost of trading commissions racked up by the managers of an ETF as they make adjustments to the portfolio of investments; add the TER to the MER for a full picture of a fund's cost.

Yield: Supplied by Globeinvestor.com or ETF company websites and based on the recent pattern of monthly payouts and the latest share price; may reflect payments of dividends, bond interest and return of capital.

Returns: ETF companies show total returns, or share-price change plus dividends or distributions.

Three-year beta: Beta is a measure of volatility that compares funds with a benchmark stock index, which always has a beta of 1.0. A lower beta means less volatility on both the up and down side. Beta offers a chance to see how well low-volatility ETFs deliver.

One final note - international refers to markets outside North America, while global means a focus on the United States and the rest of the world.

Associated Graphic

JOHN SOPINSKI/THE GLOBE AND MAIL; RESEARCH: ROB CARRICK; SOURCE: ETF COMPANY WEBSITES, GLOBEINVESTOR.COM


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