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Time to have a look at the in-box to answer a couple of questions from readers.
Q – Is there a capped energy ETF and materials ETF that you recommend? – Ian B.
A – There are several good choices available on the energy side. The top two in my view are the iShares S&P/TSX Capped Energy Index ETF (TSX: XEG) and the Global X S&P/TSX Capped Energy Index Corporate Class ETF (TSX: HXE). Note that Global X is the new brand name for the Horizon funds.
Both these funds show similar characteristics. As the names suggest, both track the performance of the S&P/TSX Capped Energy Index, net of expenses. The iShares fund has a management expense ratio of 0.6% while the Global X fund is cheaper at 0.27%.
The lower MER is the reason for a slightly better performance record for HXE. To Sept. 30, it had a year-to-date return of 11.9%, while XEG was at 11.5%. The three-year average annual compound rate of return was 26.8% cent compared to 26.3% for XEG. Five-year numbers show a similar pattern.
Not surprisingly, the portfolios of both ETFs are very similar, with the top holdings in both cases being Canadian Natural Resources, Suncor, Cenovus Energy, Tourmaline Oil, and Imperial Oil.
XEG makes quarterly distributions, which vary considerably. Over the past year, they have ranged from a high of $0.233 per unit (September 2023) to a low of $0.093 (March 2024). HXE is structured for tax efficiency and does not make any taxable distributions.
Unless you want cash flow, I’d choose HXE for its lower MER, which translates into slightly better returns.
For materials, the iShares S&P/TSX Capped Materials Index ETF (TSX: XMA) is a possibility, but it’s very heavily weighted to gold (59% of total assets). It’s ahead 21% so far this year and has a 5-year average annual compound rate of return of just over 10%. The MER is 0.61%.
You could also consider the U.S.-listed iShares North American Natural Resources ETF (Cboe BZX: IGE), which invests in both materials and energy stocks, with a little gold as well (an all-one package).
Q – I am looking for a recommendation for the U.S. side of my TFSA. I’m in my early 50s and historically have underutilized investing via my TFSA and want to top it up to my maximum available contribution limit.
I have always had a risk taker’s profile, and still do, which has served me very well in both my RRSP and non-registered accounts, but in this context I am not looking for a “swing for the fences” recommendation. I am interested specifically in a recommendation focused on long-term growth, and I will treat it with a long investment timeline.
I am patient and have no need to withdraw the money. Generation of dividends is not a priority, although certainly welcome. I am not interested in buying the indexes but rather an individual stock pick, a very small bundle of picks, or an ETF that trades in U.S. currency.
I guess the simple version of my question is, if you could only pick one U.S. stock or a very small number of U.S. securities or an ETF, focused on long term growth, what would it be? – G. Foster
A – Several years ago someone asked me: “If you could only own one stock, what would it be?”
My answer was Microsoft Corp. (NSD: MSFT). My answer today is still Microsoft. Yes, it’s a mature company, but it’s on the leading edge of new AI technology to complement its already extensive business. The stock is up over 17% in the past year, despite the recent selloff. I own the stock myself and have no intention of selling.
As for an ETF, I like the JPMorgan U.S. Momentum Factor ETF (NYSE: JMOM). It’s up about 25% so far this year and was showing an average annual compound rate of return since inception of 14.0% as of Sept. 30. About one third of the portfolio is in technology stocks (including Microsoft), but the managers can switch course at any time based on the hot-button sectors of the day.
If you have a money question, send it to gordonpape@hotmail.com and write Fund Library Question in the subject line. Sorry, I can’t guarantee a personal response, but I’ll answer as many questions as possible here.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
Notes and Disclaimer
Content © 2024 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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