Stock Smarts: Three ETFs That Are Beating the Markets

Nobody needs a reminder that this is a bad year for investors. All major North American stock indices are down year-to-date. Bonds, which normally make up for the doldrums when stocks fall, are having their worst year since the early 1980s. If your portfolio isn’t 100 percent invested in oil and gas stocks, you’re probably losing money.

But there are a few outliers — non-oil and gas stocks that have defied the odds to post year-to-date gains. Some of the winners from my recommended newsletter list are Intact Financial, Teck Resources, Costco, Alimentation Couche-Tard, Loblaw Companies, and the BMO Equal Weight Utilities Index ETF.

I decided to look for other ETFs that some investors might be overlooking and came up with three interesting ideas. Here you are.

BMO Clean Energy Index ETF (ZCLN-T).

background: As the name suggests, this fund invests in companies involved in the generation of clean energy such as solar, wind and hydroelectric power. Its benchmark is the S&P 500 Global Clean Energy Index, which includes small, mid and large-cap companies in both developed and emerging markets.

perfomance: After a poor start last year (loss of almost 31 percent), the fund recovered in 2022 and is up just over 10 percent year-to-date as of the end of August.

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

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

Broken down by industry, semiconductor equipment accounted for 22.7 percent, renewable energy for 16.8 percent and utilities for 15.3 percent. About a third of the investments are in US companies, just over 8 percent in Canada.

distributions: Payments are annual and small. The total for 2021 was $0.17 per unit.

Tax Implications: Based on 2021 most of the distribution will be treated as foreign income fully taxable if the shares are held in an unregistered account.

risks: Green energy is still a relatively new field and so far we have seen a lot of volatility. The loss of this fund in 2021 is a classic example. BMO gives it a risk rating of High.

summary: This is a good choice for investors who want to invest their money in green energy and 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 manufacture of agricultural products, fertilizers, agricultural chemicals, farm machinery, and packaged foods and meats.

perfomance: The fund is up 13.4 percent year-to-date and has an impressive track record. The 10-year average annual return is 14.3 percent.

Important metrics: The ETF was launched in late 2007, so we can look back on almost 15 years of history. It has only been down once in recent years, down 13.7 percent in 2018. Otherwise, calendar year returns have been in double digits since 2017. The fund has $433 million in assets under management and an MER of 0.71 percent.

portfolio: The fund holds 36 positions. Archer-Daniels-Midland is the leader with 10.6 percent. Other major holdings include agribusiness Corteva with 10 percent and fertilizer maker Mosaic (9.1 percent).

distributions: The fund makes annual distributions, which can fluctuate widely. Last year, investors received $6.96 per share. But in 2020, the payout was only $0.79.

Tax Implications: They vary from year to year, but in 2021 most of the payment was treated as a capital gain for tax purposes.

risks: Market risks need to be considered and the price of potash and other fertilizers will impact some companies in the portfolio. The fund sponsor BlackRock Canada assigns the fund a medium risk rating.

summary: The world will always need food and this fund has positions in many of the industry’s leading companies. The long track record shows us that the formula works.

BMO Global Infrastructure Index ETF (ZGI-T)

background: This ETF invests in large infrastructure companies, most of which are based in the US or Canada. A company is eligible Must have a free float-adjusted market capitalization of at least $500 million and a three month average daily trading volume of at least $1 million. More than 70 percent of cash flows must come from the development, ownership, leasing, concession, or management of infrastructure assets.

perfomance: As of August 31, the fund was up 7.15 percent year-to-date. The 10-year compound annual average return was 11.4 percent.

Important metrics: The ETF was founded in January 2010 and has approximately US$570 million in assets. The MER is 0.61 percent.

portfolio: Many of the companies in this fund will be familiar to readers, including Enbridge, TC Energy and Fortis. Just over two-thirds of the portfolio is invested in US companies, 22.6 percent in Canada.

distributions: Investors receive quarterly distributions currently at $0.33. In 2021, the total payout was $1.56 per unit.

Tax Implications: Last year, foreign earnings accounted for 44 percent of the total distribution. This amount is fully taxable on unregistered accounts. About 33 percent was in the form of eligible dividends and 27 percent was treated as capital gains.

risks: The fund has only lost money in two of the last 10 calendar years. BMO classifies it as medium risk.

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

Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and subscription details, visit www.buildingwealth.ca.

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