Stock Intelligence: Three ETFs Outperforming the Markets

Financial expert Gordon Pape researched ETFs that some investors may have overlooked and came up with three interesting ideas. Photo: Andriy Onufriyenko / Getty Images

No one needs to be reminded that this is a bad year for investors. All major North American stock indices are in the red year to date. Bonds, which usually pick up a slump when stocks fall, are having their worst year since the early 1980s. Unless your portfolio is 100 percent invested in oil and gas stocks, you’re probably losing money.

But there are a few outliers – non-oil and gas securities that defied the odds and made gains throughout the year. A few winners from our list of recommended newsletters include: Intact Financial, Teck Resources, Costco, Alimentation Couche-Tard, Loblaw Companies, and BMO Equal Weight Utilities Index ETF.

I decided to research more ETFs that some investors might have overlooked and came up with 3 interesting ideas. here they are.

BMO Clean Energy Index ETF (ZCLN-T).

background: As the name implies, this fund invests in companies that are involved in the production of clean energy, such as solar, wind and hydro power. Its benchmark is the S&P 500 Global Clean Energy Index, which includes small, medium and large companies in developed and emerging markets.

performance: After a poor start last year (a loss of nearly 31 percent), the fund has made a rebound in 2022 and is advancing just over 10 percent year to date, as of the end of August.

key metrics: The fund launched in January 2021, so we have very little history to work with. To date, it has accumulated about $118 million in assets under management. The management expense ratio (MER) is 0.4 percent.

a file: The largest position (almost 11 percent of the portfolio) is in US solar company Emphase Energy, whose shares have risen steadily this year. Other major holdings are Solaredge Technologies, Vestas Wind Systems, Plug Power, Consolidated Edison and First Solar. There are 98 stocks in the portfolio, and none of them appear to be hydrocarbon companies.

In terms of sectoral distribution, it is 22.7 percent in semiconductor equipment, 16.8 percent in renewable electricity, and 15.3 percent in electrical utilities. About a third of investments are in US companies, with just over 8 percent in Canada.

Distributions: Payments are made annually and are small. The total for 2021 was $0.17 per unit.

Tax implications: As of 2021, most distributions are treated as foreign income, which is fully taxable if the units are held in an unrecorded account.

Risks: Green energy is still a relatively new field and so far we have seen a lot of ups and downs. The loss recorded by this fund in 2021 is a classic example. BMO gives it a high risk rating.

SummaryThis is a good choice for investors who want to invest their money in green energy support and who are willing to accept the risks involved.

iShares Global Agricultural Index ETF (COW-T)

background: This is a global ETF that invests in companies involved in the production of agricultural products, fertilizers, agrochemicals, agricultural machinery, canned foods and meat.

performanceThe fund is advancing by 13.4 percent so far and has a proven track record of accomplishments. The 10-year average compound annual rate of return is 14.3 percent.

key metrics: The ETF was launched in late 2007, so we have almost 15 years of history to work with. In recent years, it’s only been in the red once, down 13.7 percent in 2018. Other than that, calendar year returns since 2017 have been in double digits. The fund has $433 million in assets under management and 0.71 percent market exchange rate.

a fileThe fund holds 36 positions. The top spot with 10.6 percent is Archer Daniels Midland. Other large holdings include the agricultural company Corteva with 10 percent and the Mosaic Fertilizer Company (9.1 percent).

DistributionsThe fund makes annual distributions, and it can vary widely. Last year, investors received $6.96 per unit. But in 2020, the return was just $0.79.

Tax implications: It varies from year to year, but in 2021, most payments are classified as capital gains for tax purposes.

RisksMarket risk must be taken into account and the price of potash and other fertilizers will affect some companies in the portfolio. Fund sponsor BlackRock Canada assigns a medium risk rating to the fund.

SummaryThe world will always need food and this fund has positions in many of the industry’s leading companies. The long history of success tells us that the formula works.

BMO Global Infrastructure Index ETF (ZGI-T)

backgroundThe ETF invests in major infrastructure companies, most of which are located in the United States or Canada. To be eligible, company The minimum float-adjusted market capitalization must be $500 million and the minimum average daily trading volume for a period of three months must be $1 million. More than 70 percent of cash flow must come from development, ownership, lease, concession, or infrastructure asset management.

performanceAs of August 31, the fund was showing an annual gain of 7.15 percent. The 10-year average compound annual rate of return was 11.4 percent.

key metrics: The ETF started in January 2010 and has assets of about $570 million. The market exchange rate is 0.61 percent.

a fileReaders will be familiar with many of the companies in this fund, including Enbridge, TC Energy, and Fortis. Just over two-thirds of the portfolio is invested in US companies, with 22.6 per cent in Canada.

Distributions: Investors receive a quarterly dividend, which currently stands at $0.33. In 2021, the total payments were $1.56 per unit.

Tax implications: Last year, foreign income accounted for 44 percent of the total distribution. This amount is fully taxable in unrecorded accounts. About 33 percent were in the form of qualified dividends and 27 percent were treated as capital gains.

Risks: The fund has only lost money in two of the past 10 calendar years. The BMO classifies it as moderate risk.

Summary: As far as I can determine, this is the best performing infrastructure ETF in Canada.

Gordon Pape is the editor and newsletter publisher for the online wealth creator and income investor. For more information and details on how to sign up, go to www.buildingwealth.ca.


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