Most promising market sectors?

7649 Views 6 Replies 4 Participants Last post by JDWood, Apr 5, 2009

fifi

Discussion Starter · Apr 3, 2009

Hi all,
Great to see the forum up and running; it will be crowded soon, no doubt!

I am very interested in ETF's right now, and am searching for some sectors that have been really hit hard, for over-reaction's sake. I realize that "you never know, it could get worse", and recovery time could be slow and long, but there seem to be some areas that were really hit hard, that are undervalued.

Invested a week ago in canadian financials (XFN) and canadian energy (XEG), split 50/50, with some cash I was waiting to invest. I was also looking at corporate bonds and pharmaceuticals; any thoughts on these or other sectors that you feel are significantly undervalued relative to other sectors? (yes, I know that all/most stocks are undervalued...).

I'd even like to hear about individual stocks if you'd prefer....

fifi

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ethos1

· #2 · Apr 4, 2009

ETF's for me are probably the best choice given all of those individual companies that have had troubles during the past year

Right now if I were to go back into the market it would probably be Financials, XFN & XLF being the choices.

Any turn in the upswing would likely be in that sector first, correspondingly any economic downturn I would suspect that the financials (again I think) would lag the individual stocks

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mfd

· #3 · Apr 4, 2009

Are sector specific ETFs in Canada really worth it?

There aren't a whole lot of options for these ETFs so you could easily replicate them by buying the individual stocks.

Take XFN for example. Management fee is 0.55% but 4 companies make up over 60% of the etf and if you go a bit further 7 companies make up over 80%. I don't think you'll find its worthwhile to pay the yearly management fee.

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JDWood

· #4 · Apr 4, 2009

I bought 70 XFN on 2/24/09, seeing this post got me to thinking what if
I used the 833 to buy the top 6 of XFN using 2/24/09 close....

Code:

				Close	Apr 03	
Stock	#	Price	Total	Apr 03	Amount	"+/-"
XFN	70.00	$11.90	$833.00	$15.72	$1,100.40	$267.40
						
ry	4.9	$28.48	$139.55	$38.47	$188.50	$48.95
td	3.93	$35.25	$138.53	$46.18	$181.49	$42.95
bns	5.3	$26.24	$139.07	$32.13	$170.29	$31.22
mfc	10.3	$13.50	$139.05	$16.40	$168.92	$29.87
bmo	5.33	$26.00	$138.58	$34.92	$186.12	$47.54
cm	3.33	$41.56	$138.39	$48.87	$162.74	$24.34
			$833.18		$1,058.06	$224.88

no commissions here or the 224 would have been about $60 less.

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fifi

Discussion Starter · #5 · Apr 4, 2009

I think the commissions certainly takes a bit out of the profits to be made--diversification/spreading out of risk and reward is worth the small management fee to me--I never have to worry about timing a particular bank's earnings reporting or dividends, etc. It's simple, but I am content with simple as well. I have been burned on individual stocks, so I'm also a bit hesitant to trust any one company, even perceived strong ones, too much.

fifi

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mfd

· #6 · Apr 5, 2009

JDWood said:
I bought 70 XFN on 2/24/09, seeing this post got me to thinking what if
I used the 833 to buy the top 6 of XFN using 2/24/09 close....

Code:

Close Apr 03 Stock # Price Total Apr 03 Amount "+/-" XFN 70.00 $11.90 $833.00 $15.72 $1,100.40 $267.40 ry 4.9 $28.48 $139.55 $38.47 $188.50 $48.95 td 3.93 $35.25 $138.53 $46.18 $181.49 $42.95 bns 5.3 $26.24 $139.07 $32.13 $170.29 $31.22 mfc 10.3 $13.50 $139.05 $16.40 $168.92 $29.87 bmo 5.33 $26.00 $138.58 $34.92 $186.12 $47.54 cm 3.33 $41.56 $138.39 $48.87 $162.74 $24.34 $833.18 $1,058.06 $224.88

no commissions here or the 224 would have been about $60 less.

Try your calculations using $10k and a 10 year horizon. Your management fees come out to $550 for the etf over 10 years. Your stocks will still be 60 dollars.

Lets say banks rally and in 10 years your $10k is now worth a $100k in the etf....your management fees are now $550 dollars a year not including all of the additional fees over the last 9 years. Your stock only cost you the original $60.

Better yet maybe iShares decides to shutdown the etf at a low point in the market. They'll cash you out at a loss even though the etf represents perfectly strong companies that will eventually rebound.

I'm not against etf's. I own a bunch myself. People just need to be aware of of some of the issues with sector specific/ exotic etfs. When 7 stocks make up 81% of the etf then you need to wonder if its worth it.

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JDWood

· #7 · Apr 5, 2009

Great points mfd, thanks, I did use bigger numbers when I first ran the compare, and than thought I should use the same numbers, and yes I did
overlook the MER.

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