Stock Smarts: Three ETFs That Are Beating the Markets

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Financial expert Gordon Pape looked into ETFs that some investors might have missed 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 to date. Bonds, which normally take over when stocks decline, are experiencing 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 some outliers: non-oil and gas stocks that have defied the odds and posted gains so far this year. Some of the winners on my newsletter’s recommended list include Intact Financial, Teck Resources, Costco, Alimentation Couche-Tard, Loblaw Companies, and the BMO Equal Weight Utilities Index ETF.

I decided to do a search for more ETFs that some investors may have missed, and I came up with three interesting ideas. Are here.

BMO Clean Energy Index ETF (ZCLN-T).

Background: As the name suggests, this fund invests in companies that are involved in clean energy production, such as solar, wind, and hydropower. Its benchmark is the S&P 500 Global Clean Energy Index, which includes small-, mid-, and large-cap companies in developed and emerging markets.

Performance: After getting off to a poor start last year (nearly 31% loss), the fund has staged a comeback in 2022 and is just over 10% ahead year-to-date as of end-August.

metric wrenches: The fund launched in January 2021, so we have little history to work with. So far, it has amassed about $118 million in assets under management. The management expense ratio (MER) is 0.4 percent.

briefcase: The largest position (nearly 11 percent of the portfolio) is in US solar company Emphase Energy, whose shares have risen steadily this year. Other major 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.

Regarding the breakdowns by sector, 22.7% corresponds to semiconductor equipment, 16.8% to renewable electricity and 15.3% to electrical services. 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: Based on 2021, most of the distribution is treated as foreign income, which is fully taxable if the units 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 recorded by this fund in 2021 is a classic example. BMO gives it a High risk rating.

Summary: This is a good option for investors who want to put their money to work in support of green energy and who are willing to accept the risks involved.

iShares ETF Global Agricultural Index (COW-T)

Background: This is a global ETF that invests in companies involved in the production of agricultural products, fertilizers, agricultural chemicals, agricultural machinery, and packaged foods and meats.

Performance: The fund is 13.4% ahead YTD and has an impressive track record. The 10-year average annual compounding rate of return is 14.3 percent.

metric wrenches: The ETF launched in late 2007, so we have almost 15 years of history to work with. In recent years, it has only been in the red once, a 13.7 percent decline in 2018. Otherwise, calendar year returns since 2017 have been in the double digits. The fund has $433 million in assets under management and a MER of 0.71 percent.

briefcase: The fund has 36 positions. Leading the pack with 10.6 percent is Archer-Daniels-Midland. Other big holdings include agricultural science company Corteva with 10 percent and fertilizer producer Mosaic (9.1 percent).

Distributions: The fund makes annual distributions, and they can vary significantly. Last year, investors received $6.96 per unit. But in 2020, the payment was only $0.79.

tax implications: Varies from year to year, but in 2021 most of the payment was classified as capital gains for tax purposes.

risks: It is necessary to consider market risks and the price of potash and other fertilizers will affect some companies in the portfolio. The fund sponsor BlackRock Canada assigns a medium risk rating to the fund.

Summary: The world will always need food and this fund has positions in many of the leading companies in the industry. The long history of success tells us that the formula is working.

BMO Global Infrastructure Index ETF (ZGI-T)

Background: This ETF invests in major infrastructure companies, most of which are located in the US or Canada. To be eligible, a business must have a minimum float-adjusted market capitalization of $500 million, as well as a minimum three-month average daily trading volume of $1 million. More than 70 percent of cash flows must be derived from the development, ownership, lease, concession or management of infrastructure assets.

Performance: As of August 31, the fund showed a 7.15% year-to-date gain. The 10-year average annual compounding rate of return was 11.4 percent.

metric wrenches: The ETF was started in January 2010 and has assets of about $570 million. The MER is 0.61 percent.

briefcase: 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, with 22.6 percent in Canada.

Distributions: Investors receive quarterly distributions, currently costing $0.33. In 2021, the total payment was $1.56 per unit.

tax implications: Last year, foreign receipts accounted for 44 percent of total distribution. That 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 rates it as medium risk.

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

Gordon Pape is editor and publisher of Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca.


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