Mastering investment research for your self-directed portfolio

Being successful in investing requires more than just luck. It's about taking control of your financial future. As a self-directed investor, knowing how to research investments for your portfolio is not just important; it's crucial. From understanding the importance of thorough research to knowing where to find reliable information, this article will equip you with the tools to make informed investment decisions and take charge of your investments.

Why research matters in investing

Investing without research is like navigating a ship without a compass. For self-directed investors, research is vital to uncovering opportunities and avoiding pitfalls. By taking the time to analyze potential investments, you can potentially:

• Reduce Risk: Thorough research helps mitigate the risk of making poor investment choices.
• Maximize Returns: Identifying high-potential investments can lead to greater financial gains.
• Stay Informed: Continuous research keeps you updated on market trends and new opportunities.

Let's explore the various aspects of researching different types of securities:

• Stocks
• Exchange Traded Funds (ETFs)
• Mutual Funds
• GICs and Bonds

Stocks

When it comes to stocks, there's a lot to consider. With thousands of companies listing their shares on North American stock exchanges, how can you narrow the playing field to identify the ones best suited to your objectives? Here are key elements to focus on:

Company Fundamentals

Understanding a company's financial health is paramount. Look into:

• Revenue and Earnings: Regularly review quarterly and annual reports.
• Debt Levels: Assess the company's debt-to-equity ratio.
• Profit Margins: Determine how efficiently a company is running its operations.

You can find this information by logging in to your Qtrade Direct Investing® account and going to Quotes & Market Info > Quotes & Charts (type in company name or symbol) > click Fundamentals tab.

Industry Position

A company's position within its industry can provide insight into its competitive advantage. Consider:

• Market Share: How does the company stack up against competitors?
• Growth Potential: Is the industry expanding, and is the company poised to benefit?
• Innovation: Is the company investing in new technologies or products?

Analyst Ratings

Analyst ratings can offer a snapshot of stock performance. Look at:

• Consensus Ratings: These aggregate ratings from multiple analysts.
• Price Targets: Compare the current price to analysts' projections.
• Sentiment Trends: Check if analysts' opinions are becoming more positive or negative.

Learn more about our Analyst Ratings tools

ETFs

Exchange Traded Funds (ETFs) are popular among self-directed investors. There are now hundreds of ETFs listed on Canadian exchanges and substantially more listed on U.S. exchanges. How can you choose the one(s) that are right for you? Here's what to consider:

Fund Composition

Understanding what an ETF holds is crucial:

• Underlying Assets: Whether it's stocks, bonds, or commodities, know what you're investing in.
• Top Holdings: What specific stocks or other assets make up the majority of the fund
• Sector Exposure: Identify which sectors the ETF is heavily invested in.
• Geographic Diversification: Check if the ETF has global exposure or is focused on specific regions.

Performance Metrics

Evaluate an ETF's past performance:

• Historical Returns: Review the ETF's performance over different time periods.
• Expense Ratios: Lower expense ratios can significantly boost returns over time.
• Tracking Error: Ensure the ETF closely follows its benchmark index.

Liquidity

Liquidity impacts your ability to buy or sell ETF units without affecting their price. Assess:

• Trading Volume: High trading volumes typically result in better liquidity.
• Bid-Ask Spread: Narrow spreads indicate higher liquidity and lower transaction costs.

Qtrade’s comprehensive ETF centre

Qtrade provides many useful tools and resources to help you find and evaluate ETFs, starting with the comprehensive ETF Centre, which allows you to see summaries of top- and bottom-performing ETFs, as well as most active ETFs, listed on both Canadian and U.S. exchanges. The Centre also lets you click on ETF codes to drill down to details at the individual level.

The ETF Centre includes an “ETF Quick Screen” where you can filter your ETF search by sponsor (issuer), asset class, type, fees, returns, dividends and market capitalization. 

To get more details on an individual ETF, you can type its name or symbol into the search bar at the top of the ETF Centre page. You’ll be able to view a full “Profile” of that ETF, its description, quote, returns, top holdings, etc., and a link to Buy or Sell that ETF. Other tabs display interactive performance “Charts,” “News,” and, importantly, link to “Research,” where you can explore the ETF’s detailed report.

To get started in the ETF Centre, log in to your Qtrade account and go to Quotes & Market Info > ETFs.

Mutual Funds

Mutual funds offer professional management but require some additional scrutiny. There are currently over a hundred companies offering mutual funds in Canada, and more than 3,400 mutual funds are available for sale. How do you choose the right one(s) for you? Key factors include:

Fund Management

The management team's expertise can make or break a mutual fund:

• Manager Track Record: Review the historical performance of the managers.
• Investment Strategy: Understand the fund's investment approach and philosophy.
• Manager Tenure: Longer tenure often correlates with better fund stability.

Performance Analysis

Evaluate the fund's performance metrics:

• Total Returns: Look at annualized returns over one, three, five, and 10-year periods.
• Risk-Adjusted Returns: Consider metrics like Sharpe Ratio to balance risk and return.
• Benchmark Comparison: Compare the fund's performance against relevant benchmarks.

Fees and Expenses

Mutual funds, like ETFs, charge a management expense ratio (MER) to cover ongoing operating expenses, advisory services, administration and recordkeeping – and they will differ by fund based on complexity and structure.

In most cases, mutual funds are available in a series (or class), each having a different fee structure to suit different types of investors. For Qtrade Direct Investing clients, F-series (or F-class) mutual funds are available for purchase. This class generally has the lowest MERs available. Also, keep in mind that money market mutual funds or high-interest savings account (HISA) funds on the Qtrade platform can be traded commission-free. 

Mutual Fund research tools from Qtrade

Qtrade can help you find and evaluate mutual funds, starting with the comprehensive Mutual Fund Research page. This information hub provides a number of articles on personal finance, fund manager insights and mutual fund insights, as well as listings for the top- and bottom-performing funds, and the largest mutual funds in Canada.

From the Mutual Fund Research page, you can also find quick links to Qtrade’s mutual fund tools, including:

• Fund Screener
• Fund QuickRank
• Top 10 funds ranked by 3-month returns
• Fund indexes
• Biggest gainers and losers chart

These tools allow you to click on the names of individual mutual funds to find detailed information, from net asset value (NAV) and performance returns data to risk measures, holdings and market capitalization. You can also explore the fund’s sector and regional exposures, as well as its sustainability score and analyst ratings.

To start exploring mutual funds, log in to your Qtrade account and go to Research >Mutual Funds Research.

GICs and Bonds

Guaranteed Investment Certificates (GICs) and bonds have gained popularity due in part to volatile markets and higher interest rates. They can sometimes be seen as a safer investment option, but they also require research:

Interest Rates and Yields

Understanding the income potential is key:

• Coupon Rate: This is the interest rate paid by the bond issuer.
• Yield to Maturity: Calculate the total return anticipated if the bond is held until maturity.
• Interest Rate Environment: Consider how current and projected interest rates impact bond prices.

Credit Quality

Credit quality indicates the issuer's ability to repay:

• Credit Ratings: Check ratings from agencies like Moody's, S&P, and Fitch.
• Issuer Financial Health: Review the issuer's financial statements and track record.
• Default Risk: Higher-rated bonds typically have lower default risks.

Maturity Dates

Maturity dates affect investment strategy:

• Short-Term vs Long-Term: Short-term bonds are less sensitive to interest rate changes. Longer term GICs can benefit from compound interest.
• Laddering Strategy: Spread investments across different maturities to manage risk and liquidity.

Where to find financial news and commentary from Qtrade

In addition to the tools we’ve mentioned already, Qtrade also offers market commentary and analysis to help you stay updated on market trends.

Qtrade Market Commentary

Access daily market briefings:

• Dow Jones Morning Briefing: Start your day with key market insights.
• Desjardins Morning Pulse: Get daily updates on market trends.

Weekly and Monthly Insights:

• Weekly Market Pulse: Macroeconomic commentary and market index performance.
• The Q Review: Monthly top market headlines and Top 10 buys and sells on the platform

Trading Central Newsletter

Qtraders can also sign up for market updates from Trading Central:

• Morning Brief: Daily market outlook with trending news and earnings notifications.
• Daily Market Report: directional views from the global research desks of Trading Central, giving starting points for your own research to identify opportunities that make sense for you.
• Sector Newsletters: Get specific market segment insights.

Research is the backbone of successful self-directed investing. By understanding the importance of thorough research, knowing what to look for, and leveraging the tools and information available, you can make informed decisions that enhance your investment portfolio.

Remember, continuous learning and staying updated are crucial to navigating the dynamic world of investing. Empower yourself with knowledge and take control of your financial future today.