New ETFs focus on sectors

Money Digest, June, 2001 by Dr. Chuck Chakrapani

iUnits now track financials, gold, energy and technology

The Exchange Traded Funds (ETFs) in Canada such as iUnits60 let you invest in stocks that represent the entire stock market, as represented by the stock index. However, sometimes you may not want to invest in the stock market as a whole but only in a certain sector of the stock market. Four new sectoral funds let you do just that:

iUnits S&P/TSE Canadian Financials Index Fund (TSE: XFN): The Big Five banks comprise roughly 55 per cent of this fund. This fund also includes insurers, mutual fund and real estate companies.

iUnits S&P/TSE Canadian Energy Index Fund (TSE: XEG): This widely diversified fund includes energy, oil and gas producers and oil field services companies. Its top holding is Alberta Energy, which accounts for about one-eighth of the total investment.

iUnits S&P/TSE Canadian Gold Index Fund (TSE: XGD): These units let you invest in companies that are involved in gold mining. Barrick Gold, Franco Nevada Mining and Placer Dome each take up roughly one-quarter of the fund's holdings while a number of other gold mining stocks take up the remainder.

iUnits S&P/TSE Canadian Information Technology Index Fund (TSE: XIT): This fund invests in Canadian high tech stocks and has about 20% invested in Nortel Networks and another 20% in Celestica. If you believe that the worst is over for these two stocks, then you may want to consider this ETF. Be warned though this sector will continue to be volatile.

Each sectoral fund has a management expense ratio (MER) of 0.55 per cent. This fee is higher than what you would pay for broad-based ETFs such as i60s, whose MERs range between 0.08% to 0.23%. However, the MERs for these sectoral funds are much lower than similarly structured open-end mutual funds.

The company behind these funds is Barclays Global Investors, the leading ETF firm in Canada. As with other ETFs, you'll need to go through a broker to buy or sell these funds.

These four sectoral funds, along with the already available Canadian ETFs that cover large capitalization Canadian stocks (iUnits i60), midcapitalization stocks (iUnits iMidca), and bonds (iUnits iG5, iUnits iG10), provide a set of tools that will enable investors to create a solid, diversified, low-cost portfolio.