We’ve done the homework for you, so keep reading to learn about Canada’s best-performing ETFs. Canadians may now invest for a fraction of the cost of a standard mutual fund portfolio found at a major bank or investment company thanks to exchange-traded funds (ETFs).
ETFs have undoubtedly benefited investors, but with almost 900 ETFs currently available, choosing the best ETF in Canada may be difficult. Fortunately, there are a plethora of decent ETF alternatives available. Vanguard and other ETF industry heavyweights, such as iShares, have brought down prices to the point that Canadians may easily assemble a globally diversified portfolio for approximately 25 basis points.
To put it in context, a comparable mutual fund portfolio may cost 2.5 percent. In terms of dollars, assuming a $25,000 portfolio, an ETF portfolio would cost $62.50 a year, while a mutual fund portfolio would cost $625. What a change!
This article includes the following sections:
• In search of the best ETF in Canada
• For Canadian investors, the best ETFs to buy right now are
• How to Invest in Exchange Traded Funds (ETFs)Is Now a Good Time to Invest in Exchange-Traded Funds (ETFs)?
• Last Thoughts
Choosing the Most Beneficial ETF in Canada
Every year, it seems that the ETF environment in Canada is becoming more favorable. The most recent addition to the area is a new trend of all-in-one “asset allocation” ETFs, which are becoming more popular. Finally, we have a balanced mutual fund accessible in the form of an exchange-traded fund. These one-ticket ETF solutions reduce the need for investors to keep many funds and relieve them of the effort of rebalancing their portfolios, as well. ETFs have the advantage of providing wide exposure to the whole globe with a single fund while also allowing investors to drill down into specialized sectors such as renewable energy and real estate investment trusts, or even into individual businesses such as bitcoin and cannabis.
Rather than attempting to predict which hot new sector or industry will outperform, we’ll stay with the tried-and-true basic “set-it-and-forget-it” ETFs for the sake of this article. How does one go about compiling a list of the finest Canadian exchange-traded funds (ETFs)? We began by evaluating the best exchange-traded funds (ETFs) for the Canadian market, the United States market, the international market, and the bond market (Canadian and global).
Finally, we looked into all-in-one exchange-traded funds (ETFs) as a cost-effective approach to consolidate everything into a single fund and then rated the top performers.
Vanguard’s VCN is the Best-Performing Canadian Exchange-Traded Fund.
The iShares XIU, which follows the S&P/TSX 60 Index, is by far the most popular exchange-traded fund in Canada (the largest 60 companies in Canada). However, in this situation, larger isn’t always preferable to better. As a result, we choose Vanguard’s VCN as the best Canadian ETF because of its exposure to small, medium, and large-cap companies (182 in total), as well as its ultra-low management expense ratio (MER) of 0.05% (compared to 0.18% for XIU).
When it comes to returns, VCN follows the FTSE Canada All Cap Index, and the product has provided an impressive annual return of 8.18% since its launch in August 2013. Canada is a tiny market with a disproportionately large presence in the banking and energy industries. By increasing our diversification to 182, we lessen the danger of concentrating our assets in just two sectors while also gaining exposure to small and medium-sized businesses that may be positioned to break out.
iShares’ XUU is the most popular exchange-traded fund in the United States.
Because the United States stock market is the biggest in the world, it stands to reason that you’d want to buy the whole market in order to have exposure to the best of American creativity at its best. With its Core S&P US Total Market Index ETF, iShares has achieved the desired level of diversity (Ticker: XUU). With an ultra-low management expense ratio (MER) of 0.07%, XUU owns an amazing 3,627 equities, including all of the big names like Microsoft, Apple, Amazon, Alphabet, and Facebook, as well as hundreds of small-cap enterprises you’ve never heard of before.
XUU is a fund of funds, which means that its underlying assets are comprised of four other iShares’ exchange-traded funds.
• iShares Core S&P 500 ETF (IVV)
• S&P Total U.S. Stock ITOT iShares Core S&P Total Stock
• IJH iShares Core S&P Mid-Cap ETF (iShares Core S&P Mid-Cap ETF)
• The IJR iShares Core S&P Small-Cap ETF is a mutual fund that invests in small-cap stocks.
Two of its top three sector holdings are in technology and healthcare, both of which are hard to come by in the Canadian stock market these days. That alone should be sufficient motivation for Canadian investors to diversify their portfolios to include exposure to the United States. Since its debut in February 2015, XUU has generated a return of 13.01%.
iShares’ XAW is the Most Popular International Exchange-Traded Fund.
Several years ago, Vanguard and iShares debuted their All-World ex-Canada ETFs, which became one of the most significant ETF discoveries in history. This implies that, for the first time, Canadian investors will be able to have exposure to every worldwide market (with the exception of Canada) via a single mutual fund.
Prior to the introduction of these All-World funds, investors required a minimum of four to five funds to establish a properly internationally diversified portfolio that included investments in Canada, the United States, international, and emerging markets. Vanguard’s VXC has a lower cost (0.22%), however iShares’ XAW has a more tax efficient structure and is thus preferred over Vanguard.
Although the situation is confusing, the bottom line is that Canadian investors are liable to foreign withholding tax on dividends, which increases the cost of these ETFs by 30 to 40 basis points. XAW is a “fund-of-funds,” with its underlying assets consisting of other iShares ETFs that are traded on the New York Stock Exchange. XAW differs from its primary competitor VXC in that it derives its developed market exposure from XEF, a Canadian-listed exchange-traded fund that owns its underlying equities directly, making XAW somewhat more tax efficient than its main competitor.
In addition to holding 9,111 major, mid, and small-cap companies throughout the United States, international, and emerging markets, XAW has a net expense ratio of 0.22%. Since its launch in February 2015, the fund has generated a total return of 10.08%.
ZAG (BMO Capital Markets) is the best-performing bond ETF.
The majority of investors need some level of fixed income in their portfolios. Bonds assist to minimize volatility, making it simpler for investors to ride through a market correction or collapse without losing their cool, according to the Federal Reserve. The BMO Aggregate Bond Index ETF is the biggest bond exchange-traded fund (ETF) in Canada (Ticker: ZAG). It is intended to replicate the FTSE TMX Canada UniverseXM Bond Index, and it holds a mix of federal, provincial, and corporate bonds with varying maturity dates, including both short- and long-term bonds. ZAG has been in operation since January 2010 and has generated yearly returns of 3.77% at that time. It has a MER of just 0.09%, which is very low.
Vanguard’s Canadian Aggregate Bond Index earns a special mention for its performance (Ticker: VAB). It is based on the Bloomberg Barclays Global Aggregate Canadian Float Adjusted Bond Index, which is published weekly. Since its beginning in November 2011, VAB has generated yearly returns of 3.16%, which is an impressive performance. The fund also has a management expense ratio (MER) of 0.09%.
Vanguard’s VBAL is the best all-in-one exchange-traded fund (ETF).
This class of products is referred to as one-stop ETFs, one-ticket solutions, asset-allocation ETFs, and balanced ETFs, among other names. For the sake of this essay, we’ll refer to them as “all-in-one exchange-traded funds.” When it comes to all-in-one exchange traded funds (ETFs), investors have a number of options. The numerous ideas will be briefly discussed before a winner is declared…
The first is Vanguard, which, with the launch of its line-up of all-in-one exchange-traded funds (ETFs), arguably transformed the game for DIY investors (and put robo-advisors on notice). They are as follows:
• Vanguard Conservative Income ETF Portfolio (VCIP) consists of 20% stocks and 80% bonds; it is managed by Vanguard.
• Vanguard Conservative ETF Portfolio (VCNS) consists of 40% stocks and 60% bonds, according to Vanguard.
• Vanguard Balanced ETF Portfolio (VBAL) consists of 60% stocks and 40% bonds, according to Vanguard.
• Vanguard Growth ETF Portfolio (VGRO) is comprised of 80% stocks and 20% bonds.
• Vanguard All-Equity ETF Portfolio (VEQT) — a mutual fund that invests entirely in stocks.
Each of the ETFs listed above has a low-cost management fee of 0.25%.
The following are the Asset Allocation ETFs Offered by iShares:
• iShares Core Income Balanced Portfolio (XINC) is a mutual fund that invests 80% in bonds and 20% in stocks.
• iShares Core Conservative Balanced ETF (XCNS) invests 40% of its assets in stocks and 60% of its assets in bonds
• iShares Core Balanced ETF Portfolio (XBAL) consists of 60% stocks and 40% bonds, according to the fund’s description.
• iShares Core Growth ETF Portfolio (XGRO) consists mostly of stocks with a 20% allocation to bonds.
• iShares Core Equity ETF Portfolio (XEQT) — a mutual fund that invests only in stocks.
The iShares funds are estimated to have a management expense ratio (MER) of 0.20%.
BMO has Introduced Three Exchange-Traded Funds (ETFs) that Invest in Asset Allocation:
• BMO Conservative ETF (ZCON) invests 40% in stocks and 60% in bonds.
• BMO Balanced ETF (ZBAL) invests 60% in stocks and 40% in fixed income.
• The BMO Growth ETF (ZGRO) is composed of 80% stocks and 20% bonds.
The three BMO all-in-one ETFs have a management expense ratio (MER) of 0.20%.
We first selected Vanguard as the winner of this category because of the breadth of its products, which provide options for investors ranging from the most cautious to the most aggressive, as well as everything in between. Recent developments have seen iShares mirror Vanguard’s range of asset allocation ETFs, and the two companies now have a comparable offering of five mutual funds.
I personally converted from my prior two-ETF portfolio, which consisted of VCN and VXC, to the new all-in-one equity’s ETF VEQT, which is 100% invested in stocks. Putting aside my own preferences, I stand by my remark that most investors should consider adding bonds to their portfolios in order to smooth out the turbulence. This is why I’ll single out the traditional 60/40 balanced portfolio (VBAL) as the best all-in-one exchange traded fund (ETF) in Canada.
When it comes to investing, VBAL provides quick global diversity with more than 12,000 unique stock holdings and 17,000 individual bond holdings, making it the ultimate “set-it-and-forget-it” investment.
• Avg. yield: 24.9% Vanguard US Total Market Index ETF
• 23.5% is the yield on the Vanguard Canadian Aggregate Bond Index ETF.
• 18.0% in the Vanguard FTSE Canada All Cap Index ETF (VFINX).
• A 12.5% yield is achieved by the Vanguard FTSE Developed All Cap Ex North America Index ETF.
• A CAD-hedged version of the Vanguard Global ex-US Aggregate Bond Index ETF has a yield of 9.%.
• Vanguard US Aggregate Bond Index ETF CAD-hedged 7.1% Vanguard US Aggregate Bond Index ETF
• A 4.9% gain in the Vanguard FTSE Emerging Markets All Cap Index ETF.
One area to point out is the exposure to both U.S. and worldwide bonds, which is something that most investors cannot receive from a standard ETF or mutual fund portfolio, according to the authors.