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Something has puzzled me for quite a while. I've invested heavily in BMO's dividend ETF (ZDV). It went from $18.57 pre-COVID (Feb 20th) to $14.34 as of last Friday. This ETF still suffer quite a sustained loss (22%) despite most other stocks are returning to similar to pre-COVID levels.

For instance, a similar dividend ETF, XIU, it went from $27 (Feb 20th) to $24.25 this past Friday, only a 10% loss when compared to pre-COVID level.

When I look at their holdings, both ETF have similar exposures to financials (around 35%), and Energy (around 19%). ZDV is higher in Utilities (12% vs XIU's 3%) and communications (10% vs 7%). XIU is higher slightly in Technology (6% vs 1% ZDV). I would have thought Utilities and Communications would help ZDV to retain its value better in this kind of situation?

I'd like to hear your thoughts on:
  1. What may be the causes that ZDV isn't picking up to pre-COVID levels while the other funds seems to have picked up significantly?
  2. Should I cut my loss at 20% and switch to some other dividend products? or should I hold (maybe with DRIP) thinking that it'd pick up?
 

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Comparing XIU to ZDV is a good idea. I think you are correct that it's not due to financials or energy, since those have similar weights in both.

The answer is Tech and Materials (miners) sectors.

XIU has 11% tech and 13% materials weights. These two sectors have been incredibly strong in 2020. ZDV, like many other dividend portfolios, hardly has any tech or materials, less than 4% weight in the above.

Should you cut your losses and swap portfolios? I would say NO, not because of just a bit of recent underperformance. Once committed to a strategy, you have to stick with it, especially during bad times. But yes, it could get painful, especially if tech and commodities keep rallying.

This is the same problem faced by ZLB, my 5-pack, and many other X-packs on this site. Many Canadian investors decided to shun tech and commodities, because they had performed so poorly for so long. Now these sectors are the best performers.

It's interesting to watch these "best strategies" suddenly look like they might become the worst strategies. The stock market is a funny place.
 

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One might consider switching from XIU to something like ZDV currently, to take advantage of the large run-up in tech and gold that XIU benefited from, and collect the nice juicy bank dividends instead. I could see a retiree perhaps performing this transaction.

I would not want to go the other way and get out of ZDV type stocks to chase superior total market returns induced by tech and gold, at this point. That ship might have sailed already.

Whether this is the best long term decision, who knows, but if one were wanting to get out of tech and gold to focus on higher dividend, more "stable" segments, this would be a good time.

On the other hand, OPs desire to hold dividends up to now has cost dearly in total returns for 2020 so far.. but perhaps that is acceptable to some for the increased cashflow and perceived stability.
 

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One might consider switching from XIU to something like ZDV currently, to take advantage of the large run-up in tech and gold that XIU benefited from, and collect the nice juicy bank dividends instead.
What if it turns out that tech is a huge part of our economic future? Or that we are at the start of a new commodities bull market?

There have been past periods where the Canadian index (thanks to the commodities and resources) was one of the best performing stock market in the world. For the first 12 years of this century, 2000 - 2012, Canada dramatically outperformed the US and Europe.

One should consider the possibility that we are now getting into another strong period for commodities / metals. We could start seeing Canada outperforming the US and world, again.
 

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Chasing performance is almost always a very bad idea. It is a perfect way to 'underperform' the market like many/most retail investors do. Peterk has said it well. Dividend value stocks have done poorly in the post-covid period but that is temporary.
 

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Chasing performance is almost always a very bad idea. It is a perfect way to 'underperform' the market like many/most retail investors do. Peterk has said it well. Dividend value stocks have done poorly in the post-covid period but that is temporary.
I agree, don't chase performance. If you're in a strategy, you must stick with it. Using a dividend ETF is a specific strategy, and one must be committed to the plan.

We don't know if the current situation is temporary or not. The problem whenever you don't index to the main benchmark is that you will always have doubts when you underperform the index. You might keep underperforming for many years... but you have to learn to be comfortable with that.

Another way to look at this is that an investor has two choices:

(1) Commit to indexing with the main benchmarks (TSX, S&P 500, etc) and then know you will always get the big index performance, couch potato investing

or

(2) Use some other strategy, whether it's dividend investing / ZDV / CDZ, or some other unconventional strategy like Permanent Portfolio / All Weather as I do, and stop caring about the primary index performance, and stop caring if you underperform. If you go this route, you must commit to it long term and learn to ignore the main benchmarks.
 

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The problem whenever you don't index to the main benchmark is that you will always have doubts when you underperform the index.
I think this is key. If you had good reasons before 2020 to hold ZDV, then the past few months should only be a bump in the road. But it seems to me that you are trying to jump on the faster bandwagon. The danger is that you could miss both wagons, one after the other.

If you decide to switch to a broad-based index fund (which is generally a good idea), then you should be committed to hold it through thick and thin. ZDV could outperform at some point in the future, but you have to commit to holding the index. Otherwise you will miss the gains on both.
 

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I think this is key. If you had good reasons before 2020 to hold ZDV, then the past few months should only be a bump in the road. But it seems to me that you are trying to jump on the faster bandwagon. The danger is that you could miss both wagons, one after the other.

If you decide to switch to a broad-based index fund (which is generally a good idea), then you should be committed to hold it through thick and thin. ZDV could outperform at some point in the future, but you have to commit to holding the index. Otherwise you will miss the gains on both.
Yes exactly. Here's a great article which touches on the philosophy of this:

Why Isn’t Everyone Beating the Market? | Canadian Couch Potato
 

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If you decide to switch to a broad-based index fund (which is generally a good idea), then you should be committed to hold it through thick and thin. ZDV could outperform at some point in the future, but you have to commit to holding the index. Otherwise you will miss the gains on both.
Right, the commitment (in either case) is the important part. That's the way to counteract the human tendency to chase performance. The desire to chase recent performance and hop from one thing to the next is such a powerful instinct.

One thing we don't talk about much in investing is the need to have confidence in one's chosen approach and the need for self confidence.

I say 'self confidence' because investors often suffer from jealousy, regret, keeping-up-with-the-Jones' etc. There is a huge amount of peer pressure in the investing field, something that even the top professionals are vulnerable to.

There will always be some other investment that outperforms yours. Guaranteed.
 

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Some people write up an IPS (Investment Policy Statement), which describes goals and strategies for the portfolio. The IPS serves as an anchor for the investor, so as not to swing like a boat caught in a storm.
 

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Some people write up an IPS (Investment Policy Statement), which describes goals and strategies for the portfolio. The IPS serves as an anchor for the investor, so as not to swing like a boat caught in a storm.
It's a good idea. My own asset allocation is printed on a sheet and taped to my wall.
 
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