Choosing Between Canadian Emerging Market ETFs

With the added risk, though, comes added (potential) reward.  25 years ago the emerging markets barely constituted more than “zero” in terms of a percentage of the world economy. Today, they stand at about 17%.  In another 25 years, this number may be more than double again.  Expect some air pockets along the way, of course.

So until then, park your money in a broad-based emerging markets ETF to start. You can always specialize later on.

In Canada, you have three to choose from (to US readers: this doesn’t, of course, mean that Canadians have to line up behind one of only three ETFs – we’re talking about Canadian-dollar-hedged ETFs here – we’re all able to shop on the NYSE quite easily and pick up all those Vanguard offerings if we want, too).

Claymore – TSX: CBQ

Claymore was the first leader in innovating ETFs in Canada and the CBQ is the oldest emerging markets ETF in Canada. The CBQ tracks the Bank of New York Mellon BRIC Select ADR Index.  This means that the ETF focuses only on the BRIC countries (Brazil, China, India, Russia) and their stocks in ADR form on the NYSE.  Current market price is $31.43 (the NAV is $31.50). The management expense ratio (MER) is 0.66%.  Distributions vary considerably and have been paid so far on a somewhat inconsistent schedule, but appear to be attempts at quarterly distributions.

iShares – TSX: XEM

This is from the Canadian edition of iShares, of course.  The XEM tracks the MCSI Emerging Markets Index.  Current price and NAV are $26.47.  The management expense ratio (MER) is 0.79%.  Distribution amounts vary and are paid at least once a year.  They were paid twice in 2010 (June and December).  In terms of holdings, this ETF is clearly the most diversified of the three, with Samsung Electronics currently the largest holding at just 2.1%.

Bank of Montreal (BMO) – TSX: ZEM

The newest provider of ETFs in Canada, BMO has been surprisingly innovative at filling in market niches where there were no ETFs before.  A case in point is the recent, popular covered calls ETF.  In terms of emerging markets, though, you can buy the ZEM.  The current market price is $16.60 (NAV is $16.59); the MER is a maximum of 0.54%, and distributions will be paid at least once a year (the only apparent distribution so far is scheduled to be paid in January 2012.  Top-weighted holdings (between 11-14% each)  include the Brazil, Taiwan, and India indexes.

Each of these is slightly different, so do some further reading.  Think about diversification and which countries you want to be in.  Consider the MERs.

But you don’t have to worry about “track records” with ETFs.  You should be able to trust that the ETF will follow its benchmark (manager strategy or talent is not an issue as it is with mutual funds).  So you don’t need to think about who is managing it or what their “past performance” is (not that you should ever look to past performance anyway – don’t.).