Top Canadian Equity ETFs for your portfolio
Today’s post will highlight some of my favourite Canadian equity ETFs for your portfolio.
The iShares S&P/TSX 60 Index Fund (XIU) seeks to provide long-term capital growth by replicating, where possible, the performance of the S&P®/TSX® 60 Index less minor fees. This Index is comprised of 60 of the largest (by market capitalization) and most liquid securities listed on the TSX. You’re not going to receive huge yield with this ETF (just over 3% yield) but holding it should provide long-term capital appreciation. At the time of this post, 10-year returns for XIU are close to 9%. The Management Expense Ratio (MER) on this product is a slim 0.18% – to own the biggest 60 companies in Canada and avoid stock picking all together.
If you want a capped, low-cost, ETF that tracks the Canadian market, this is an excellent product. The key benefit of XIC (over XIU above) is the built-in diversification, XIC owns 237 companies at the time of this post instead of 60. More stocks and capping the securities though come with some additional costs. The MER on this product is low but higher than XIU; 0.27%. Still, this ETF is one of the best of the best.
“The iShares Canadian Fundamental Index Fund (CRQ) seeks to track, less fees the FTSE RAFI Canada Index which comprises those Canadian companies with the highest fundamental weightings.” Yeah, pretty much right from the website. In English, instead of a more pure indexed play; tracking the index by market size like XIC would, this ETF weights its holdings based on cash dividends, free cash flow and total sales. So, there is a little more active management involved – and you’ll pay for that. The MER on this product is 0.72%. You can read a Globe and Mail article about fundamental indexes here.
Vanguard’s entrance into the Canada ETF marketplace has been a blessing for indexed investors, since Vanguard products are typically the lowest of the lot. When investing, fees matter – because the money you pay in management fees is money you never keep for yourself. Countless studies state active mutual fund management virtually has no hope in beating the market over many investment years, so if you’re in high-priced mutual funds still, be aware you’re losing some serious ground (and money) to the market by not investing with an indexed product instead. Anyhow, the Vanguard Canada FTSE Index ETF (VCE) offers 78 companies at the time of this post for a dirt-cheap 0.11% MER. The only downside to this product I see, the top-10 holdings comprise almost 45% of the assets of this fund. So, as the top-10 holdings go so should your VCE ETF returns.
Although iShares and Vanguard tend to take center stage when it comes to ETF publicity in Canada, Bank of Montreal’s suite of ETF products are worthy of consideration – and ZCN is in that list. The BMO S&P/TSX Capped Composite Index ETF (ZCN) has been designed to replicate returns of the S&P/TSX Capped Composite Index less fees. It does a very good job of that. The MER is one of the lowest of the bunch, at 0.15%, to ride the stock market returns of 238 Canadian companies.
Horizons BetaPro has a neat and cheap product, the S&P/TSX 60 Index ETF (HXT). Like XIU, it seeks to mirror the performance of the S&P/TSX 60 Index but in a different way. While the MER is a microscopic 0.07%, HXT uses swap agreements to gain exposure to the index but the upside is, it will reinvest dividends paid. I’m personally not into “swaps” or “derivatives” when it comes to my ETF products but I am a fan of reinvesting dividends, which HXT does, so HXT might have a fit in an investors’ portfolio if you’re looking for something beyond the plain vanilla products above at a super-low cost. Not that vanilla is ever bad when it comes to Canadian equity ETFs…
Well, that’s my list, some of my favourite Canadian equity ETFs for your portfolio.
What are your favourite Canadian equity ETFs? Do you own any of these and if so, in what accounts? Non-registered? RRSP? TFSA? RESP?