A solid option for exposure to mid- and small-cap stocks

IShares S&P/TSX Completion ETF charges one of the lowest fees in the category.

Alex Bryan 23 October, 2018 | 5:00PM
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 iShares S&P/TSX Completion ETF (XMD) pairs well with funds that track the S&P/TSX 60 Index. While it isn't perfectly representative of its active peers' opportunity set, it effectively diversifies risk and is one of the cheapest options in the category, which gives it a durable edge. It earns a Morningstar Analyst Rating of Bronze.

This fund invests in most of the significant Canadian stocks not included in the large-cap-focused S&P/TSX 60 Index. That sweeps in some large-cap stocks, as well as mid- and small-cap names, though the portfolio nets out in mid-cap territory. It offers better sector diversification than rival iShares S&P/TSX Small Cap ETF, which, together with its inclusion of large-cap stocks, should help reduce volatility.

This is a market-cap-weighted portfolio, which promotes low turnover and reflects investors' collective views about the value of each holding. It also pulls the fund toward the largest stocks in its target market segment, giving it a larger market-cap orientation than most of its peers. In fact, the average market cap of the fund's holdings is about twice the category norm, so it may not keep pace when the smallest stocks outperform. Despite its broad reach, the fund leaves out some of the smallest names from the dedicated S&P/TSX Small Cap Index, many of which are among the market's riskiest and least-profitable firms.

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About Author

Alex Bryan

Alex Bryan  Alex Bryan, CFA, is director of passive strategies for North America at Morningstar. Before assuming his current role in 2016, he spent four years as an analyst covering equity strategies. He holds an MBA with high honors from the University of Chicago Booth School of Business.

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