The iShares S&P/TSX 60 ETF (TSX:XIU) is the largest ETF in Canada with a market cap exceeding $12.3 billion. It’s not even close, either.
While the ETF has become popular with traders, there are still thousands of different investors who buy the ETF -- or other virtually identical TSX 60 ETFs -- as a long-term buy-and-hold investment. It represents a cheap way to get exposure to Canada’s largest companies. Remember, the iShares TSX 60 ETF has a management fee of just 0.18%.
There’s just one problem. TSX 60 ETFs don’t really offer a diverse portfolio. Too many assets are clustered in just a few sectors.
Financials dominate the list, taking up 41.7% of assets. That’s followed by energy at 20% of assets and materials at 11.3% of assets. The top three asset categories make up 73% of assets. Include industrials (at 7.3% of assets), and the top four sectors make up 80% of the ETF.
Other important sectors are basically nonexistent. Consumer discretionary and consumer staple stocks combine to be less than 10% of assets invested. Technology is only 2.2% of the fund. Utilities are 1.7% and health care consists of just 0.4% of assets, respectively.
Some sectors, like real estate, aren’t represented in the TSX 60 index at all.
Growth is also under represented. TSX 60 members are largely mature Canadian companies known more for their dividends than revenue growth.
This isn’t to argue that investors shouldn’t own a TSX 60 ETF. It’s been a good place to park money for the last year. Just keep in mind the shortcomings of the index. It’s not truly diverse.
