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I did a comparsion on morningstar.ca of CDZ vs. 3 of it's top 4 holdings starting from Jan 2007 to Sept 2010. Started with $40,000 in each example. The dividends were re-invested.

results:

1) CDZ - 40,000 in Jan 2007 --> 47,431 - gain of 18.58%

2) AGF.B - 13,000 in Jan 2007 --> 10,561 - loss of 18.76%
BA.UN - 15,000 in Jan 2007 --> 21,734 - gain of 44.9%
DHF - 12,000 in Jan 2007 --> 22,161 - gain of 84.68%
- gain of 3 holdings from Jan 2007 to Sept 2010 --> 54,457 - 36.14%


As far as costs go, CDZ I believe has a DRIP plan and the MER is around 0.5 so est. total cost for CDZ would be $834(MER + inital commission).

Costs for the three holdings were calculated with the dividends re-invested once per year(end of year), so est. total cost would be $150(inital commissions and yearly div re-invest).
 

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The $150 costs is 6 trades * $25? Presumably many brokerage clients investing $40,000 in one area would qualify for cheaper trades, which would reduce the costs quite a bit ($60 at $10/trade). Also, if you are investing the dividends anyway, you could look into DRIP programs to do it automatically. It looks like two of the three you mention have their own DRIP plans, and you could swap JE-U for the DHF and have all three. Some brokers may also have these on the list of stocks they'll DRIP themselves, although in that case you'd only get whole shares.

For index ETF folks, this might not be a good fit as it only seems to be about 12% of the holdings of CDZ. But Canadian Capitalist pointed out that you can cover around half of the iShares XRE ETF with three REITs. I've been considering this myself as I've been doing my research lately.
 

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What's your point? A big feature of index investing is the element of diversification. Holding the top three is not much in the way of diversification. If one of those three had been, say, MFC, maybe your comparison would look different.
 

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If you pick just a few stocks from an ETF you are likely going to have large tracking errors. Sometimes these tracking errors will be positive (underperform the ETF) and sometimes it will be negative (outperform the ETF). I wouldn't personally sample stocks from an ETF for a core holding that makes a big chunk of the portfolio. But I'm perfectly willing to save a tiny bit on the MER for a small portion of the portfolio (REITs make up 5% of my allocation). YMMV.
 

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Discussion Starter #5
The $150 costs is 6 trades * $25? Presumably many brokerage clients investing $40,000 in one area would qualify for cheaper trades, which would reduce the costs quite a bit ($60 at $10/trade). Also, if you are investing the dividends anyway, you could look into DRIP programs to do it automatically. It looks like two of the three you mention have their own DRIP plans, and you could swap JE-U for the DHF and have all three. Some brokers may also have these on the list of stocks they'll DRIP themselves, although in that case you'd only get whole shares.
based on $10 commissions, didn't realize they had DRIPS so even better reason to go this route
 

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Discussion Starter #6
What's your point? A big feature of index investing is the element of diversification. Holding the top three is not much in the way of diversification. If one of those three had been, say, MFC, maybe your comparison would look different.
point was if one can handle the risk and with proper research can outperfrom ETF when unbundled, obviously if one holding is not performing(eg. MFC) then dump it and buy another
 

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point was if one can handle the risk and with proper research can outperfrom ETF when unbundled, obviously if one holding is not performing(eg. MFC) then dump it and buy another
So why hold all 3 top holdings? Why not only buy DHF?

gain of 84.68% vs. gain of 36.14% from top three holdings.

A lot of research has been done on diversification and risk/return analysis. 3 holdings never comes out on top over any reasonable time frame.
 
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