ETFs Driving Markets to Dangerous Highs

So far in 2026, new daily highs on the Toronto Stock Exchange have outpaced new lows on roughly 85% of trading days. Much of this strength is being driven by brokerage firms aggressively promoting Exchange‑Traded Funds (ETFs). By my estimate, ETFs account for two‑thirds to three‑quarters of all new daily highs.

This should surprise no one. Bay Street and Wall Street love ETFs because they require daily rebalancing to maintain target weightings—an activity that generates constant commissions. ETFs are unquestionably more profitable for the brokerage industry than mutual funds, which explains the relentless promotion.

History shows what happens during corrections: ETF holders tend to sell all at once, and buyers vanish when prices are falling. Many ETFs in past downturns were simply liquidated, leaving investors to absorb the losses. Our long‑held view remains unchanged: the most profitable way to benefit from ETFs over time is to own the companies that manage them, not the funds themselves.

Markets Are Dangerously Overvalued

There is no reasonable argument to the contrary. Canadian bank stocks recently reached P/E ratios near 22×, the highest since 1954, compared with a long‑term average of 13–15×. Both the Toronto and New York markets are firmly in overvalued territory. Markets may break the Tech Bubble highs, but a bear market will begin by late 2026. It is impossible for markets to continue on this trajectory. 

A second major risk is the unsustainable debt burden carried by governments and consumers across North America and Europe. Continuous borrowing reduces future spending power, and interest charges create no wealth—except for the lender. Eventually, excessive debt drags on the economy. The reseting of mortgages at interest rates sometimes 300-times higher like they are in Canada is going to have a profound affect on spending. 

Dividend Investing: A Proven Strategy

We have always valued receiving dividends, especially from companies that raise them consistently. All of our past newsletter recommendations abide by an increasing dividend policy.

• Canadian Utilities holds the best dividend‑growth record on the TSX, raising its dividend for 54 consecutive years.
• Enbridge follows closely with 53 consecutive years of increases.
• Canada’s major banks have raised dividends in 53 of the past 57 years and have paid dividends every year of their existence.
• Atco Industries, which controls Canadian Utilities, has increased its dividend for 33 straight years.

In May, four of the holdings in the final portfolio of the past investment newsletter announced dividend increases:

1. Bank of Nova Scotia
   • Quarterly dividend: $1.14, up from $1.10
   • Yield on Initial Capital = 7.5%, annually.
2. National Bank (purchased via  takeover of Canadian Western Bank)
   • Quarterly dividend: $1.32, up from $1.24
   • Yield on Initial Capital = 7.2%, annually.
   • This is the eighth increase in four years
3. Bank of Montreal
   • Quarterly dividend: $1.71, up from $1.65
   • Yield on Initial Capital = 13.1%, annually.
4. Pembina Pipeline
   • Quarterly dividend: $0.735, up by 3.5 cents
   • Yield on Initial Capital = 21.3%, annually.
   • Sixteenth consecutive annual increase.

Yield on Initial Capital = Current Dividend/Average Purchase Price