ETFs Articles

Cheat Sheet / Updated 08-02-2023

An ETF, or exchange-traded fund, is a relatively new investment product. It's something of a cross between an index mutual fund and a stock. ETF investing has grown exponentially in the past few years, and it makes sense for most individual investors to take a look adding ETFs to their portfolios.

Cheat Sheet / Updated 04-13-2023

An exchange-traded fund (ETF) is something of a cross between an index mutual fund and a stock. It’s like a mutual fund but has some key differences you’ll want to be sure you understand. Here, you discover how to get some ETFs into your portfolio, how to choose smart ETFs, and how ETFs differ from mutual funds.

Article / Updated 07-19-2022

If you’re more interested in cannabis-focused exchange traded funds (ETFs), venture capitalist (VC) funds, or private equity (PE) funds, than you are in individual cannabis stocks, you can find the best tools for tracking down cannabis funds. Most websites and online brokers that feature stock screeners also include an ETF screener, but they rarely include screeners specifically for cannabis ETFs or for VC or PE funds, which makes the Daily Marijuana Observer’s investment fund databases so unique and so useful to you as a cannabis investor. Before you invest in any fund, research the fund manager as thoroughly as you would research the founders and managers of a business. Make sure the person knows the cannabis industry inside and out. A fund’s return depends directly on the people who are choosing where to invest the fund’s capital. What to screen for Screeners typically feature a variety of filters that enable you to focus on securities based on different parameters, such as region or country, market capitalization, price, sector, and industry. You set the parameters and execute your search, and the screener displays a list of only those securities that match the specified parameters. Not all screeners use the same parameters. In fact, the two screeners covered in this article that are most useful for identifying cannabis investment opportunities support very few of the parameters I describe next. However, if you use one screener to find a stock and another to dig up more details about it, having an understanding of these parameters will help. In the following section, I use the Equity Screener at Yahoo! Finance as an example. First up: The major categories When you first access a market screener, you usually enter some general parameters first to start the process of narrowing your list of candidates. For example, if you go to Yahoo! Finance, click Screeners in the menu at the top, and click Equity Screener, you’re prompted to specify the following parameters (see the following figure): Region: Here you enter data about your chosen country to refine your search. If you’re looking for U.S. stocks, the choice, of course, is “United States.” For cannabis stocks, you probably want to focus on the U.S. and Canada, and perhaps Australia, Germany, and Israel. Market Cap: In the Market Cap category, you choose the size of the company—Small Cap, Mid Cap, Large Cap, or Mega Cap. Looking for growth potential? Go for small cap or mid cap. Looking for more safety? Go to large cap or mega cap. Price: In the Price field, enter a minimum and maximum. For example, if you’re interested specifically in penny stocks, you can enter a maximum of $5. Sector and Industry: A sector is a group of interrelated industries. For example, the health care sector has varied industries, such as hospitals, medical device manufacturers, pharmaceuticals, drug retailers, and so on. After choosing a sector, you can narrow your search further by specifying an industry within that sector; for example, if you choose health care as the sector, you can then choose biotechnology or drug manufacturers as the industry. The main event: specific filters After specifying your preferences, you can click + Add Another Filter to display a pop-up menu containing many additional filters broken into several groups, including Fair Value, Share Statistics, Balance Sheet, Income, and Valuation Measures (see the following figure). Using these filters, you can further narrow the list of stocks. Every screener has a different way to access these filters, and some may not offer certain filters. Share statistics The group of filters labeled Share Statistics contains more than 40 stock-related criteria ranging from share price action (the 52-week high or low) to fundamentals, such as total assets or total liabilities. One area I like to focus on is the price-to-earnings (P/E) ratio. This ratio is one of the most widely followed ratios, and I consider it the most important valuation ratio (it can be considered a profitability ratio as well). It ties a company’s current stock price to the company’s net earnings. The net earnings are the heart and soul of the company, so always check this ratio. All things considered, I generally prefer low ratios (under 15 is good, and under 25 is acceptable). If I’m considering a growth stock, I definitely want a ratio under 40 (unless there are extenuating circumstances that I like and that aren’t reflected in the P/E ratio). Cannabis stocks tend to have much lower P/Es than those of well-established companies in well-established industries, because the cannabis industry isn’t mature yet. More private companies have earnings at this point than do publicly traded companies. Make sure your search parameters have a minimum P/E of, say, 1 and a maximum of between 15 (for large cap, stable, dividend-paying stocks) and 40 (for growth stocks) so that you have some measure of safety (and sanity!). If you want to speculate and find stocks to go short on, two approaches apply: You can put in a minimum P/E of, say, 100 and an unlimited maximum (or 9,999 if a number is needed) to get very pricey stocks that are vulnerable to a correction. You can put in a maximum P/E of 0, which would indicate that you’re searching for companies with losses (earnings under zero). Income The Income group offers some important filters tied to sales and profits. Keep in mind that income in terms of sales and profits is one of your most important screening criteria. Sales revenue (called Total Revenue in the Yahoo! Equity Screener) may be expressed in absolute numbers or percentages. In some stock screeners, ranges may be described as something like “under $1 million in sales” up to “over $1 billion in sales.” On a percentage basis, some stock screeners may have a minimum and a maximum. An example of this is if you were searching for companies that increased their sales by at least 10 percent. You’d enter 10 in the minimum percentage and either leave the maximum blank or plug in a high number, such as 999. Another twist is that you may find a stock screener that shows sales revenue with an average percentage over three or five years so that you can see more consistency over an extended period. Profit margin (called Net Income Margin % in the Yahoo! Equity Screener) is, basically, the percent of sales representing the company’s net profit. If a company has $1 million in sales and $200,000 in net profit, the profit margin is 20 percent ($200,000 divided by $1,000,000). For this metric, you’d enter a minimum of 20 percent and a maximum of 100 percent because that’s the highest possible (but improbable) profit margin you can reach. Keep in mind that the data you can sift through isn’t just for the most recent year. Some stock screeners give you a summary of three years or longer — such as what a company’s profit margin has been over a three-year period — so you can get a better view of the company’s consistent profitability. The only thing better than a solid profit in the current year is a solid profit year after year (three consecutive years or more). Valuation measures For value investors (who embrace fundamental analysis), the following parameters are important to help home in on the right values. In Yahoo! Equity Screener, all of these are in the group labeled Valuation Measures: Price-to-sales ratio: A price-to-sales ratio (PSR) close to 1 is positive. When market capitalization greatly exceeds the sales number, the stock leans to the pricey side. In the stock screener’s PSR field, consider entering a minimum of 0, or leave it blank. A good maximum value is 3. P/E/G ratio: You obtain the P/E/G (price/earnings to growth) ratio when you divide the stock’s P/E ratio by its year-over-year earnings growth rate. Typically, the lower the P/E/G, the better the value of the stock. A P/E/G ratio over 1 suggests that the stock is overvalued, and a ratio under 1 is considered undervalued. Therefore, when you use the P/E/G ratio in a stock-screening tool, leave the minimum blank (or at 0), and use a maximum of 1. Price/Book Value (P/B): This ratio compares a company’s market value (share price multiplied by number of outstanding shares) to its book value (net assets of the company). Anything under 1.0 is considered a great P/B value because it indicates a potentially undervalued stock. A P/B value of 3.0 or less is good. Financial highlights In the Financial Highlights group, Return On Equity % is a useful filter. ROE is a good measure of how wisely a company uses its equity (original investment plus any money it borrowed) to generate profits. Because this is an average (in percentage terms) over five years, do a search for a minimum of 10 percent and an unlimited maximum (or just plug in 999 percent). If you do get one that’s anywhere near 999 percent, by the way, call me and let me know!

Article / Updated 06-29-2021

Online investors commonly look at the price-to-earnings ratio, or P/E ratio, of an individual stock to find out how expensive it is. The higher the P/E ratio, the more richly valued the stock is. But Exchange Traded Fund (ETF) investors can also use P/E ratios to find how cheap or expensive the stocks held by the ETF are. Several websites provide P/E ratios for ETFs. Using Yahoo! Finance, enter the ETF’s symbol into the search field in the upper-left corner of the page. Click the Get Quotes button. You see the ETF’s P/E ratio listed on the right side of the quote box, next to the label P/E (ttm), which stands for price-to-earnings ratio for the trailing (or last) 12 months. Yahoo! Finance also provides risk and performance measures for ETFs. The risk measures, such as standard deviation, help you determine how much the ETF will give you indigestion by swinging up and down in value. The performance measures tell you how well the ETF has done. After entering an ETF’s symbol, just click the Performance link on the left side with the blue background to get the ETF’s returns. Click the Risk link on the left side to get the ETF’s risk. To get the P/E ratio of an ETF from Morningstar, enter the symbol of the ETF you’re interested in and click the Quote button. In the new page that appears, click the Portfolio link at the top of the page under the ETF’s name. There you can find the ETF’s P/E ratio and see how it compares with the relevant benchmark index, such as the Standard & Poor’s 500 index. You can also find lots of other details on the Portfolio page, such as other valuation ratios and which industry sectors the ETF’s holdings fall into. Because ETFs are priced during the day just like stocks, they can be useful tools to tell you what types of stocks and industries are moving each day. NASDAQ’s ETF center provides in-depth analysis of the ETFs that went up and down the most in value each trading session. It also shows you the most popular ETFs, ranked by trading activity, or volume. The ETF Dynamic Heatmap uses a color-coded grid to show which ETFs are moving the most.

Cheat Sheet / Updated 03-27-2016

Investing using exchange-traded funds (ETFs) in Australia and New Zealand is made easier when you understand the benefits of this investment product, what to look out for, how to invest in overseas ETFs — especially U.S.-based ETFs — and which websites to access for more information.

Article / Updated 03-26-2016

If you’re a Canadian investor considering tapping into the flourishing exchange-traded fund market, then you’re certain to have questions about which provider most fits your needs. Luckily, the following list takes the guesswork out of choosing your ETF broker. Here’s a quick overview of the major Canadian bank and non-bank brokerage houses currently trading in ETFs and a short summary of the pros, cons, and price structures of each provider. TD Waterhouse TD Waterhouse is the largest online brokerage firm in Canada. Although their fees are competitive, they’re not the cheapest of the bunch. If your household assets are more than $50,000, you’ll be charged a $9.99 flat-rate trading fee. If you make more than 150 trades a quarter, that fee will drop to $7 a trade. If you don’t trade frequently, or have less than $50,000 in household assets, you’ll have to pay more than $29 for trades of up to 1,000 shares. One reason why TD Waterhouse is popular is that it has a ton of investment research information. It’s also got a nicely designed website that’s fairly easy to navigate. BMO InvestorLine There are a lot of good things to say about this popular bank brokerage firm. BMO InvestorLine’s got an attractive interface, easy-to-access research from Globe Investor, Morningstar, and MarketWatch, and two model ETF portfolios that will help newbie investors get off to a quick start. Its fees are similar to other firms, but it offers only two price points — $9.99 for the frequent trader or the person with a large account and $29 for everyone else. InvestorLine has one feature that other brokerage houses don’t have: real-life advice. The service, called adviceDirect, gives Canadians stock and ETF picks and can answer investing-related questions on the phone, via e-mail, or through special tools on the website. There is one catch, and — you can probably see where this is going — it’s fees. You have to have at least $100,000 in your account to use the service, and then you have to pay 1 percent of your assets’ worth to get access to that live advice. The percentage charged does go down with more money in your account, but be sure to keep costs in mind when using this program. Scotia iTrade Scotia iTrade has plenty of great tools and research to help you make money. The main advantage it has over its rivals is that it offers 50 free ETFs. Although that’s fantastic — American brokerages have been offering no-commission ETFs for years — it’s not quite as great as it may seem. The freebies are mostly old Claymore funds, which are now owned by iTrade. You can’t purchase stalwarts like XIC and XIU; most of the freebies are sector or country funds. You can buy the two popular iShares laddered bond funds, but most people won’t want to create a portfolio just out of these options. If you want to buy something not on the list, then you’ll have to pay between $6.99 and $24.99 in trading fees. RBC Direct Investing This site from RBC is similar to the others. Its fees range from $6.95 to $28.95, and it’s partnered with Morningstar to offer stock, mutual fund, and ETF research. It also has several useful tools, including its Community tab, which allows Direct Investing clients to share ideas with one another. CIBC Investor’s Edge Much like the others, though CIBC Investor’s Edge is arguably not as good. It doesn’t offer U.S.-dollar registered accounts, and it lacks some of the tools that other brokerages have. Fees are comparable, ranging from $6.95 to $28.95. Virtual Brokers One of the non-bank brokerage firms, Virtual Brokers is a relative newcomer on the scene, launching in 2009. It was recently ranked the top brokerage firm in Canada by the Globe and Mail. Here’s the main reason to consider this site: All ETF purchases are free. Yes, you read that right. Any ETF you buy, Canadian or American, will cost you nothing. You will pay a charge to sell, but it’s dirt cheap. You’re dinged $0.01 per share of anything that’s over $1. The minimum commission is $0.99, and the maximum is $9.99, well below what the banks charge. Qtrade It’s probably the most critically acclaimed non-bank brokerage of the bunch, and for good reason — Qtrade is user-friendly, it’s got great investment tools, and its fees are comparable, if not better than, the competitions’ (prices range from $9.95 to $19). Best of all, it has 60 commission-free ETFs. Like iTrade’s freebie funds, most of the offerings are of the bond, sector, or international variety — the main domestic equity ETFs aren’t on the list — but it also offers 20 U.S.-based funds, such as the Vanguard Consumer Discretionary ETF and the SPDR S&P International Financial Sector ETF. Questrade The only broker than can beat Questrade’s cheap fees — stock commissions are between $4.95 and $9.95 — is . . . Questrade! In February 2013, the company announced that it would waive fees on every ETF purchased. It still charges its inexpensive commission on the sale of ETFs, but, like Virtual Brokers, every North America-listed fund will cost you nothing to buy. To top it off, Questrade also offers U.S.-dollar RRSPs, and there are no annual fees on registered accounts. Other online brokers Here are some additional online brokers you might want to check out: Disnat: The online brokerage arm of Desjardins. Fees range from $9.95 to $29. HSBC InvestDirect: Not much to write home about, other than its oddly numbered fees that range from $6.88 to $28.88. National Bank Direct Brokerage: Similar to other bank brokerage firms on fees and features. Credential Direct: Only one thing to note here: Investors with $50,000 or more in assets have to pay a $19 flat rate. Everyone else offers $9.99 or less.

Article / Updated 03-26-2016

Buying and selling an exchange-traded fund (ETF) is just like buying and selling a stock; there really is no difference. Although you can trade in all sorts of ways, the vast majority of trades fall into these categories: Market order: This is as simple as it gets. You place an order with your broker or online to buy, say, 100 shares of a certain ETF. Your order goes to the stock exchange, and you get the best available price. Limit order: More exact than a market order, you place an order to buy, say, 100 shares of an ETF at $23 a share. That is the maximum price you will pay. If no sellers are willing to sell at $23 a share, your order will not go through. If you place a limit order to sell at $23, you'll get your sale if someone is willing to pay that price. If not, there will be no sale. You can specify whether an order is good for the day or until canceled (if you don't mind waiting to see if the market moves in your favor). Stop-loss (or stop) order: Designed to protect you should the price of your ETF or stock take a tumble, a stop-loss order automatically becomes a market order if and when the price falls below a certain point (say, 10 percent below the current price). Stop-loss orders are used to limit investors' exposure to a falling market, but they can (and often do) backfire, especially in very turbulent markets. Proceed with caution. Short sale: You sell shares of an ETF that you have borrowed from the broker. If the price of the ETF then falls, you can buy replacement shares at a lower price and pocket the difference. If, however, the price rises, you are stuck holding a security that is worth less than its market price, so you pay the difference, which can sometimes be huge.

Article / Updated 03-26-2016

Investing in ETFs differs from investing in mutual funds and individual stocks in some important ways, as the following table shows. As a smart investor, you can't ignore the advantages that ETFs offer. ETFs Versus Mutual Funds Versus Individual Stocks ETFs Mutual Funds Individual Stocks Priced, bought, and sold throughout the day? Yes No Yes Offer some investment diversification? Yes Yes No Is there a minimum investment? No Yes No Purchased through a broker or online brokerage? Yes Yes Yes Do you pay a fee or commission to make a trade? Typically Sometimes Yes Can that fee or commission be more than a few dollars? No Yes No Can you buy/sell options? Sometimes No Sometimes Indexed (passively managed)? Typically Atypically No Can you make money or lose money? Yes Yes You bet

Article / Updated 03-26-2016

Of late, a number of exchange-traded funds (ETFs) have cropped up to allow you to invest in so-called frontier markets, including the PowerShares MENA Frontier Countries Portfolio (PMNA), the Guggenheim Frontier Markets ETF (FRN), and the Market Vectors Gulf States ETF (MES). These markets feature economies even smaller, stock markets even newer and potentially less regulated, and governments perhaps even shakier than in emerging market nations. Do you really want to invest in Bangladesh, Oman, Kuwait, Sri Lanka, and Trinidad and Tobago? Well, maybe. The payoff could be big. And the lack of correlation to other markets could be quite sweet. But before you invest, realize how volatile these holdings are. Please do not invest too much, and diversify. The PMNA and FRN options are probably your best bets for now, but other frontier market ETFs will appear on the market soon. If you do want to throw a few dollars into a frontier market ETF (stand advised that they tend to be costly), go for it. Use money that you otherwise would have allocated to emerging market stocks. Don't consider frontier markets a necessary part of a diversified portfolio.

Article / Updated 03-26-2016

There's no point to having dozens of exchange-traded funds (ETFs) in your portfolio if they are only going to duplicate each other's holdings. So if you already own the entire market through diversified ETFs in all corner quadrants of the style grid — large, small, value, and growth — why add any industry sectors that are obviously already represented? It would make sense to add a peppering of semiconductor stocks or utility stocks if you knew that semiconductors or utilities were going to blast off. (Of course, a rational investor would never say he or she knew anything about the future, other than that the sun will probably rise tomorrow.) And yet, taking on an added dose of semiconductors or utilities may still make sense if that added dose of either industry sector somehow were to raise your performance potential without raising risk. That could happen only if you chose an industry sector that is not closely correlated to the broader market.