When is an Index Still an Index?

Byadmin

I am thinking about my mix of investments. There are probably 10 different ways to look at the data. Among them:

  • Currency risk
  • Market/regulatory risk
  • Industry
  • Moat
  • Expected returns long-term
  • Reliability of future returns (risk)

With that in mind, I’m looking to increase my exposure the the US broad market, and particularly the S&P 500.

Let’s say I would aim to have half of my money invested in the US broad market. The other half can be in other investments like international stocks, and fixed income investments.

But what qualifies as a broad US stock investment?

Most certainly, a pure S&P 500 index like VFV (Vanguard S&P 500 Index ETF) would. As well as any Nasdaq or Russell 2000 funds. Or VUN (Vanguard US Total Market Index ETF). These ETFs contain hundreds of stocks across a wide range of industries.

Does HYLD (Hamilton Enhanced U.S. Covered Call ETF) count as an index? This ETF does not actually hold that many unique stocks. Although it tries to track the returns of the S&P 500, it’s not an index. It’s a high-yield fund.

Similarly, EIT (Canoe EIT Income Fund) also doesn’t hold that many unique stocks. I can’t find the exact number on its website, but it bills itself as an actively managed fund. It’s not an index. It’s a high-yield fund.

More difficult to classify are the funds based on an index. USCL (Global X Enhanced S&P 500 Covered Call ETF) and EQCL (Global X Enhanced All-Equity Asset Allocation Covered Call ETF) invest directly in an index like the S&P 500 using leverage (25%) and write covered calls on that for extra income. Is THAT an index? It certainly holds those stocks.

I guess covered call ETFs are indexes.

Lastly, there are ETFs that cover “all world” stocks. EQCL, as I previously mentioned. There is also VWCE (FTSE All-World UCITS ETF USD Accumulating) and VT (Vanguard Total World Stock ETF). These ETFs contain thousands of world stocks. Ironically, they all contain between 47% and 70% US stocks since the American market is so dominant. In fact, over the years, the percentage of American stocks has increased. These are also indexes.

Based on the new categories, my current stock holdings (not including cash) are:

  • US index funds – 29.1%
  • World index funds (but mostly US) – 12.2%
  • EU index fund – 3.8%
  • High dividend funds (average 12.6% distribution) – 9.5%
  • Actively managed stock funds – 21.1%
  • Bond funds (including preferred shares) (average 9.4% distribution) – 24.1%

Or viewed another way:

  • Stocks: 75.9%
  • Bonds: 24.1%

Or viewed another way:

  • American dollars: 49.7%
  • Canadian dollars: 18.6%
  • Other currencies: 31.8%

All in all, that’s not bad.

I don’t foresee any changes to that mix.

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