Last updated: Nov-12-2018

11/13/2018 5:26:51 PM
Show Printable Version Download Plain Text
By Dave Paterson  | Wednesday, February 15, 2017

The problem I see with many of the low-volatility mandates in the investment fund universe is that investors have bid up the valuation levels of many of the stocks held in these products to very high levels. But not all ETFs suffer from this phenomenon. For example, consider the FundGrade A+ Award-winning PowerShares S&P/TSX Composite Low Volatility ETF (TSX: TLV), which manages to keep its price-earnings ratio in line with the broader market.

In contrast, consider that the price-earnings ratio of the comparable BMO Low Volatility Canadian Equity ETF (TSX: ZLB) was recently 20 times forward earnings. That compares with 17 times for the S&P/TSX 60 Index and 16 times for the PowerShares S&P/TSX Composite Low Volatility ETF, which is more in line with the broader market. Further, if you consider the forward-looking growth rates, TLV looks to have a more positive outlook than ZLB, making the valuation levels that much more compelling.

There are a couple of other reasons to favor TLV over ZLB. One is that TLV is rebalanced on a quarterly basis, making it potentially more responsive to the market than other low volatility ETFs. Another reason to like the PowerShares offering is its lower cost, with an MER of 0.33% compared with 0.39% for the BMO ETF.

A drawback to TLV lies in the sector constraints, or lack thereof. There are no maximum limits on the sector exposure. With no constraints, it has the potential to get pretty concentrated in one or two sectors. A higher concentration portfolio can be a double-edged sword, and can either help or hurt depending on which way the market moves.

The bottom line is I believe that TLV is better positioned to outpace its peers. Historically, valuations typically regress back to the mean, making it highly likely the other, more richly valued low volatility Canadian equity ETFs will experience a sustained period of underperformance in time. Considering all factors, I believe that TLV is better positioned than other low volatility ETFs currently.

Fund company: PowerShares Canada
ETF trading symbol: TSX: TLV
Fund type:
Canadian Equity
FundGrade™ Rating: A (January)
FundGrade A+™ Award: 2016
Style: Mid Cap Value
Risk level: Medium
RRSP/RRIF suitability: Good
Manager: PowerShares Management Team
MER: 0.33%

See the Fundata Fund SnapShot for more details.

Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.

Notes and Disclaimer

© 2017 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.


Find a Stock

(Leave blank for all)
Symbol   Name
Forgot your password?
Register now
Tech Support
For general inquiries, please email the Librarian.
Home |  Features |  Member Services |  Tools |  Funds |  About Us
For any questions or problems with this site, please contact the Librarian.
Page ID: 21:26:1070:00016112:9/12/2017:3:10:55 PM Duration of this visit: 0 sec.