These 3 ETFs Are Profitable Investments for Tactical Investors

These three ETFs not only temper market risks but are profitable investment options for tactical investors.

| More on:
exchange-traded funds

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

The popularity of exchange-traded funds (ETFs) is rising by leaps and bounds owing to the record year in 2021. According to data from the National Bank of Canada, total inflows reached $52.5 billion, a 27% increase from 2020. The bank’s financial analyst, Daniel Straus, shared an interesting observation.

Straus said retail and institutional investors’ turn to ETFs is continuing for “tactical and strategic” reasons. He adds that because of enhanced buying power due to pandemic-induced lockdowns and little discretionary outlets, Canadians invested in all types of accounts, especially funds.

More than 50% of the new money went to Bank of Montreal’s ETF division, BlackRock’s iShares (a partnership with the Royal Bank of Canada), and established fund provider Vanguard. If you want to be part of the growing ETF investors, there are three outstanding choices in February 2022.

A fund of funds

BMO Monthly Income ETF (TSX:ZMI) is primarily for investors looking for higher yielding balanced ETFs. The fund tracks the performance of an underlying basket of higher yielding BMO ETFs. According to the asset manager, ZMI is a fund of funds and management fees charged are reduced by those accrued in the underlying funds.

The holdings are weighted to emphasize yield, with a 50% investment each in equity and fixed income, while the cap for each security is 20%. BMO rebalances and reconstitutes the ETF semi-annually, in July and January of every year. Currently, there are nine ETFs in the portfolio with BMO Corporate Bond Index ETF as the top holding (23.45%). At $16.97 per share, ZMI pays a 3.91% dividend.

Top-of-mind choice

BlackRock’s iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI) is a top-of-mind choice of ETF investors for three reasons. The fund pays monthly dividends, is low cost, and is ideal for long-term foundational holding. XEI replicates the performance of the S&P/TSX Composite Index and aims to deliver long-term capital growth.

If you take a position today, the share price is $26.64 (+5% year-to-date), while the dividend yield is 3.77% (dividend frequency is monthly). As of January 31, 2022, there are 76 stock holdings. Of the top 10 holdings, four are energy stocks, followed by four bank stocks and two telco stocks. Canadian Natural Resources is the top holding (5.73%).  

Exposure to the oil & natural gas industry

Investors in Horizons Enhanced Income Energy ETF (TSX:HEE) gain exposure to the performance of an equal-weighted portfolio of Canadian companies in the crude oil and natural gas industry. Apart from the monthly dividend distributions, there’s a potential call option income.

At $10.80 per share, the trailing one-year price return is 112.6%, while the year-to-date gain is 19.1%. HEE pays a decent 3.54% dividend yield. As of year-end 2021, the top four holdings are Enerplus, MEG Energy, Vermilion Energy, and Tourmaline Oil. The asset manager, Horizons ETFs Management (Canada), is a financial services company whose ETF products include a broadly diversified range of solutions for investors of all experience levels.

Temper market risks

The best part about ETF investing is that investors gain instant diversification to temper market risks. This year could see another record inflow if Canadians have less spending choices and more investment options.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends CDN NATURAL RES and VERMILION ENERGY INC.

More on Dividend Stocks

analyze data
Dividend Stocks

2 Safe Dividend Stocks That Could Help You Fight Inflation

A dependable stream of passive income is one way to help offset rising inflation rates. Here are two top dividend…

Read more »

edit Person using calculator next to charts and graphs
Dividend Stocks

Stay Invested in a Recession: Increase Positions in 2 Value Stocks

The suggestion of market analysts is to increase positions in two value stocks if you want to stay invested amid…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

3 Dividend Stocks to Buy as Inflation Surges in Canada

If you're worried about how surging inflation may impact your portfolio, here are three of the best dividend stocks to…

Read more »

You Should Know This
Dividend Stocks

High Inflation: The Good and the Bad for Canadians

Consider tucking away some of your long-term savings in quality dividend stocks like Brookfield Infrastructure in this correction.

Read more »

STACKED COINS DEPICTING MONEY GROWTH
Dividend Stocks

TFSA Investors: Turn $1,000 Into $10,000 in 10 Years

10-fold growth within a decade is rare but not unheard of. You can capture this growth either by predicting a…

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

1 Oversold REIT Stock to Buy for Safe Dividends

If you're looking for stable dividend income from an oversold stock, this office REIT is a perfect option.

Read more »

edit Real Estate Investment Trust REIT on double exsposure business background.
Dividend Stocks

3 Cheap Canadian REITs to Buy in 2022

Are you looking for passive income? Start treasure digging in cheap Canadian REITs in this market correction!

Read more »

Dividend Stocks

TFSA Passive Income: 3 Undervalued, High-Yield TSX Dividend Stocks to Buy Now

These top TSX dividend stocks with high yields now look attractive to buy for TFSA passive income.

Read more »