Top 7 Canadian ETFs You Should Own In 2020

Today, 700+ Canadian ETFs trade on the stock market every single day. But, we hardly pick know only a handful of the ETFs, that’s probably because of the market returns or the popularity of the fund house. 

At the end of the day, what really matters is the percentage of returns you make. In simple terms, ROI from the investment money you pool in.

Now, how can you maximize the returns on the Investments you make? We’re left with a couple of options here: 

  1. To pick the Best Canadian ETFs which have delivered consistent returns over time. High Growth ETFs.

  2. Second, never let your emotions drive the investments you make today and hold it for the long term.

  3. Don’t let your investments be too broad or generic, invest your money only in the funds/industries you are knowledgeable about. This way you know exactly what you are doing with the money you pump in. 

  4. Be consistent and periodic in the investments you make and always stick to your decisions for the long haul (5+ years at least). Do not get into FOMO (Fear of Missing out)

  5. Always take the investment decisions on your own and don’t rely on any TikTok videos or YouTubers to decide your fate and choices. Instead, focus on the company investor relations page to drive you for the purchase decisions. 

Investments can be for the shorter or the long haul. Investing for longer terms is what is recommended by industry experts for better growth and higher returns over time.

I’ve something for everyone here. Whether you are a risk-taker or a novice investor looking for your first trade, you can find a couple of great options here to start with.

If you are looking to invest your money in some of the best Canadian ETFs, I’ve pretty much covered you here with almost 30+ high quality and excellent ETF choices. 

At the end of this post I’ve also included a comprehensive list of the Top 10 all-time best Canadian ETFs, so make sure you check that out! That’s in addition to the Top 7 ETFs list of course 😉

Table Of Contents

What Is An ETF? 

An ETF (Exchange-Traded Fund) is an investment fund that represents a basket of stocks, bonds or other investments. Unlike conventional mutual funds, an ETF is traded on a stock exchange and often tracks a market index or may have a specific investment strategy.

An exchange-traded fund (ETF) is a collection of securities – stocks, commodities, and bonds, that you can purchase and auction through a broker.

ETFs are offered in most investment categories varying from traditional investments to alternative investments like stocks or currencies. If you looking for a new investment option to diversify your portfolio, you can consider ETFs.

Canadian ETFs are an attractive investment as they are a low-cost option to build a well-diversified portfolio.

ETF purchase

How Do ETFs Work?

When stock exchanges are open, ETFs are purchased and traded like company stock during the day. And like the stock, an ETF has its own symbol with information on intraday price which is readily available during the trading day.

However, contrary to company stock, the volume of outstanding shares of an ETF changes daily. This is due to the constant creation of new shares and the redemption of existing shares. The constant creation and redemption of shares allow the market price of ETFs to stay in line with their underlying securities.

While the primary focus of ETFs is on individual investors, institutional investors also play a major role. Maintenance of liquidity and tracing of the integrity of the ETF through the trading of creation is done by the institutional investors.

However, when the price of the ETF doesn’t correspond to the underlying asset value, the institutional investors bring an arbitrage mechanism into play. This mechanism is permitted by the creation units to pull the ETF price back in line with the fundamental asset value.

How To Pick An ETF Portfolio? 

Let me explain. 

First of all, What Do I mean by designing an ETF Portfolio? 

You have hundreds of Canadian/US ETFs trading in the market. Every single day. The question really everyone is looking for is – how diversified is your Investment Portfolio? and the growth of it of course. 

Coming back to the topic here, by ETF Portfolio I mean to say, a basket of ETFs which is well-diversified and you have good exposure to Canadian/US/European/Asian and Emerging Markets. 

Again, quick correction, I am not saying you should have exposure to all the above stock markets. No! 

It depends on you. But an ideal ETF Basket will contain good exposure in proportions to all of the above markets. (including international)

Example ETF Basket: US (40%), Canada (40%), Europe (10%), Asia (10%). 

Now, a single ETF can give you this exposure or you might want to pick multiple ETFs to play the safe game. It all depends on how you want to Invest and the time frame you have. 

Now consider this scenario: 

I want to pick the lowest fees ETFs, weighted towards the funds with lower MER, one each of the following (all following broad market indexes):

  • VUN/XUU/ZSP (US)

  • VCN/XIC/ZCN (Canada)

  • VIU/XEF/ZEA (foreign developed)

  • VEE/XEC/ZEM (foreign emerging)

  • ZAG/VAB/XBB (Canada aggregate bonds)

If you don’t want bonds then one of XAW/VXC and one of VCN/XIC/ZCN should be good.

An easier approach would be to pick one of VGRO, VBAL, or VCNS.

I am one for bonds but I prefer to keep them separate so that if there’s a serious market event (crash!) then I can sell them to buy cheap equities.

Out of the above, my vote would be for VCN, VUN, VIU, VEE and ZAG. Combined MER will come in around 0.10%.

My actual ETF picks are ZLB + XIT (Canada), VGT + IJR (US), SCZ (foreign developed), XSOE (foreign emerging), ZAG + CPD (bonds and preferred shares).

My combined MER is around 0.20% (though I also hold stocks so on my total portfolio it is around 0.10%).

Again it all depends! I am just trying to help you by showing how it can be done. 

canadian etfs

How To Invest In The Best Canadian ETFs?

There are two main parameters to consider before investing in the Canadian ETFs and they are:

1. Management Expense Ratio or MER

Every ETF that you’ll invest in will have an MER fee associated. 

So What Is the Management Expense Ratio?

The Management Expense Ratio (MER) is the combined total of the management fee, operating expenses and taxes charged to a fund during a given year expressed as a percentage of a fund’s average net assets for that year.

All mutual funds and Canadian ETFs have an MER.

What Is A Good MER? 

A good low expense MER ratio is generally considered to be around 0.5% to 0.75% for an actively managed portfolio, while an expense ratio greater than 1.5% is considered to be high.

Mutual fund expense ratios are typically higher than the expense ratios for ETFs.

For passive index funds, the typical overall ratio across the industry is approximately 0.2%.

2. Underlying Market Index

This makes perfect sense, as the reason for investing is to gain a specific type of exposure and for Canadian ETFs, this will be determined by the index it tracks.

Looking under the bonnet of Canadian ETFs to examine the underlying index composition and its potential sector and/or stock biases is key to understanding the fundamental drivers of the fund’s performance. 

What Are The Types Of Canadian ETFs?

We have 10 different types of Canadian ETFs and they are:

1. Market ETFs

Market ETFs basically track major market indexes like the NASDAQ or S&P 500. They are one of the most active ETFs on any exchange platform.

However, some market ETFs do trace low-volume indexes. The purpose of a market ETF is to imitate an underlying index and not to exceed it. It is a great way to get started as a new investor in ETFs.

2. Bond ETFs

Bond ETFs are developed to give exposure to nearly all kinds of bonds available be it the corporate, international, U.S treasury, or municipal.

Bonds generally trace low-liquidity investment products and are not active in secondary markets.

3. Sector and Industry ETFs

Industry ETFs principally trace a sector index portraying a certain industry. It was developed to give frontage to a specific industry, particularly oil, pharmaceuticals, or advanced technology.

The sector and industry ETFs help investors earn exposure to specific markets. For example, the Invesco Dynamic Pharmaceuticals ETF (PJP)

4. Commodity ETFs

Commodity ETFs and industry ETFs are quite similar in that they target specific areas of the market.

Nonetheless, when you buy a commodity ETF, like oil or gold, you don’t really buy the commodity. Instead, these ETF entails derivative contracts to mimic the price of the fundamental commodity.

5. Style ETFs

Style ETFs follow an investment procedure or market capitalization priority like the large-cap value or small-cap growth.

Style ETFs are highly exchanged in the United States existing on growth and value indexes.

6. Foreign Market ETFs

Foreign market ETFs helps you to acquire exposure to foreign currencies without completing complex transactions.

It was developed to follow foreign markets, like the Hang Seng index in Hong Kong or Japan’s Nikkei Index.

7. Inverse ETFs

Developed to benefit from a dip in the prevailing market.

When the market falls, investors want to short their positions. Entering inverse ETF creates short positions when you buy them, helping you to short easily. Inverse ETFs are more suited to veteran investors.

8. Actively Managed ETF

Actively Managed ETFs are created to beat a market, not following the trend of most ETFs, which are created to trail a market.

It integrates the advantages of both mutual and exchange-traded funds into one asset.

9. Exchange-Traded Notes

These are debt securities backed by the credit power of the bank handing it out.

These are developed to grant a pathway to asset markets with the added advantage of creating little or short-term capital profits taxes.

If you are looking for a quick turnaround on your money, this is a great trading option for you.

10. Alternative Investment ETFs

Alternate Investment ETFs are systems that allow you to trade with volatility or gain knowledge in a specific investment technique.

ETF vs. Stocks

Top 7 Best ETFs In Canada 

Alright then, let’s jump straight to the list of Top 7 Canadian ETFs, first on the list is the “Vanguard S&P 500 ETF” or VOO

1. Vanguard S&P 500 ETF (VOO)

Vanguard S&P 500 ETF seeks to track the performance of a benchmark index that measures the investment return of large-capitalization stocks.

Why Vanguard S&P 500 ETF? 

  • Invests in stocks in the S&P 500 Index, representing 500 of the largest U.S. companies (a majority of them are blue-chip companies) 

  • The goal of this ETF is to closely track the S&P 500 index’s return, which is considered a gauge of overall U.S. stock returns

  • It offers high potential for investment growth, share value rises and falls more sharply than that of funds holding bonds

  • More appropriate for long-term goals where your money’s growth is essential

You can see the market summary and the financial screenshot of Vanguard S&P 500 ETF since mid of 2015 below. This will give you an overall idea of the kind of returns you can expect by investing in this fund. 

VOO

From the above screenshot, you can clearly notice the kind of growth VOO ETF has generated over the past 5 years.

VOO is currently trading at $300 USD with a dividend yield of 1.32% annually. 

The 52 week low is 241.27 USD and a high of $305.92.

So the ETFs currently trading near to the 52 weeks high so please be cautious and buy it in dips if you really want to.

Let’s now continue looking at a couple more facts and features of the Vanguard S&P 500 ETF (VOO).

VOO ETF Fund Facts

Asset class

Domestic Stock – General

Category

Large Blend

IOV ticker symbol

VOO.IV

Expense ratio

0.03%

CUSIP

922908363

ETF advisor

Vanguard Equity Index Group

10 Largest Holdings Of The Vanguard S&P 500 ETF (VOO)

As the name suggests S&P 500, the fund invests your money on the 500 largest US Market Cap companies.

Look at the list below you have Apple’s, Microsoft, Facebook, Google, Berkshire, and P&G just to name a few. These are all blue-chip companies as well, so the growth of your money is assured over time, but all you need is patience after investing your money.

You just can’t invest today and expect rock-solid returns in 6 months. 

The other thing is, Blue Chip companies have a history of excellent returns over long horizons of time with excellent dividends and fewer market fluctuations

1 Microsoft Corp.
2 Apple Inc.
3 Alphabet Inc.
4 Amazon.com Inc.
5 Facebook Inc.
6 Berkshire Hathaway Inc.
7 JPMorgan Chase & Co.
8 Johnson & Johnson
9 Procter & Gamble Co.
10 Visa Inc.

Characteristics Of Vanguard S&P 500 ETF

Number of stocks
510
Fund total net assets
$500.7 billion
Net assets of 10 largest holdings
23.2%
Foreign holdings

0.5%

Vanguard S&P 500 ETFs Performance Over Time

Vanguard S&P 500 ETF2. SPDR S&P 500 ETF (SPY)

SPY is the best-recognized and oldest ETF and typically tops rankings for the largest AUM and greatest trading volume.

The fund tracks the massively popular US index, the S&P 500.

Few realize that S&P’s index committee chooses 500 securities to represent the US large-cap space – not necessarily the 500 largest by market cap, which can lead to some omissions of single names.

Still, the index offers outstanding exposure to the US large-cap space.

SPY

Look at the above 5-year growth chart of SPY ETF, as you can clearly notice the growth of this ETF has been tremendous and today the stock is trading at $328 USD.

Also, the dividend yield of this stock is 1.71% which is pretty decent. The expense ratio is 0.09%. 

SPY Summary Data 

State Street Global Advisors SPDR
 
1/22/1993
 
0.09%
 
$289.14B
 
$15.04B
 
0.00%

SPY Portfolio Data

$262.27B
 
22.66
 
3.45
 
1.76%
 
12/20/19
 
506

SPY Index Data

S&P 500
 
Market Cap
 
Committee
 
MSCI USA Large Cap Index
 

SPY

SPY Risk Statistics

I’ve outlined the Risk of SPY over 3, 5 and 10 years investment category average for your reference. 

SPY Risk3. Fidelity Zero Total Market Index Fund (FZROX)

Let’s look at a couple of key benefits and features of the Fidelity Zero Total Market Index Fund (FZROX):

1. Seeks to provide investment results that correspond to the total return of a broad range of publicly-traded companies in the US.

2. There is a 0% expense ratio and no minimums to invest in FZROX.

3. Fund Facts: 

  • Fund Category – Large Blend

  • Fund Inception – 8/2/2018

  • Expense Ratio (Gross) – 0.00% 8/2/2018

  • Expense Ratio (Net) – 0.00%8/2/2018

  • NAV – $11.2112/6/2019

  • Minimum to Invest – $0.00

  • Turnover Rate – 5%4/30/2019

  • Portfolio Net Assets ($M) – $4,491.6611/30/2019

  • 12 Month Low-High – $8.24 – $11.23

Fidelity Zero Total Market Index Fund (FZROX)

FZROX Fund Objective

The fund seeks to provide investment results that correspond to the total return of a broad range of U.S. stocks.

FZROX Fund’s Investment Strategy

Normally investing at least 80% of its assets in common stocks included in the Fidelity U.S. Total Investable Market Index, which is a float-adjusted market capitalization-weighted index designed to reflect the performance of the U.S. equity market, including large, mid and small-capitalization stocks.

Using statistical sampling techniques based on such factors as capitalization, industry exposures, dividend yield, price/earnings (P/E) ratio, price/book (P/B) ratio, and earnings growth to attempt to replicate the returns of the Fidelity U.S. Total Investable Market Index using a smaller number of securities. Lending securities to earn income for the fund.

FZROX Fund’s Top 10 Stock Holdings

1. MICROSOFT CORP

2. APPLE INC

3. AMAZON.COM INC

4. FACEBOOK INC CL A

5. BERKSHIRE HATHAWAY INC CL B

6. JPMORGAN CHASE & CO

7. ALPHABET INC CL C

8. ALPHABET INC CL A

9. JOHNSON & JOHNSON

10. PROCTER & GAMBLE CO

4. iShares Russell 2000 ETF (IWM)

Fourth on this list of the Top 7 Best ETFs for Canadians is “iShares Russell 2000 ETF or IWM”

1. Exposure to small public U.S. companies

2. Access to 2000 small-cap domestic stocks in a single fund

3. Use to diversify a U.S. stock allocation and seek long-term growth in your portfolio

IWM FUND’S INVESTMENT OBJECTIVE

The iShares Russell 2000 ETF seeks to track the investment results of an index composed of small-capitalization U.S. equities.

IWM

IWM Fund Key Facts

  • Net Assets – USD 46,418,231,748

  • Size of Fund (Millions)  – USD 46,418.23

  • Base CurrencyUSD

  • Share Class launch date22/May/2000

  • Asset ClassEquity

  • DomicileUnited States

  • Benchmark IndexRussell 2000 Index

iShares Russell 2000 ETF (IWM)

With reference to the above ETF chart, you can clearly see the growth trajectory of the IWM ETF over the past 5 years.

Also, the P/E ratio of this ETF stands at 21.38 which is good and not expensive.

The dividend yield stands at 1.27% annually which is decent as well. Overall a well-diversified, balanced ETF for your investment portfolios

IWM Portfolio Characteristics

  • Shares Outstanding –  285,200,000

  • Number of Holdings – 1,981

  • Benchmark Level – USD 8,250.27

  • Total Net Assets – USD 46,418,231,747.63

  • Benchmark TickerRU20INTR

  • Distribution Yield – 1.29%

  • Fiscal Year-End – 01/Jul/2019

  • P/E Ratio – 17.56

  • P/B Ratio – 2.05

IWM Fund Fees

Management Fee 0.19
Acquired Fund Fees and Expenses 0.00
Foreign Taxes and Other Expenses 0.00
Gross Expense Ratio 0.19

IWM Exposure Breakdown Sector-wise:

IWM Exposure Breakdown Geographically:

5. Vanguard FTSE Developed Markets (VEA)

1. VEA seeks to track the investment performance of the FTSE Developed All Cap ex US Index.

2. It provides a convenient way to match the performance of a diversified group of stocks of large-, mid-, and small-cap companies located in Canada and the major markets of Europe and the Pacific region.

3. Follows a passively managed full-replication approach.

VEA

As you can see from the above chart, VEA currently trades at $43.57 US per share. Also, this ETF yields a 2.40% annual dividend in returns for the investor which is really good. 

VEA - 1

VEA ETF Fund Facts

Asset class
International/Global Stock
Category
Foreign Large Blend
IOV ticker symbol

 
VEA.IV
Expense ratio
as of 04/26/2019

0.05%

CUSIP
921943858
ETF advisor
Vanguard Equity Index Group

Top 10 Largest Holdings Of VEA 

1 Nestle SA
2 Royal Dutch Shell plc
3 Samsung Electronics Co. Ltd.
4 Roche Holding AG
5 Novartis AG
6 Toyota Motor Corp.
7 HSBC Holdings plc
8 Unilever
9 SAP SE
10 AstraZeneca plc

VEA Characteristics

Fund total net assets
$118.1 billion
Number of stocks
3960
Net assets of 10 largest holdings
10.0%

VEA Expenses

Expense Expense Ratio
FTSE Developed Markets ETF 0.05%
The average expense ratio of similar funds

1.01%

 

VEA

If you had invested $8,000 in 2009, look at growth right now, it stands at almost double your money at more than $16,000 in terms of appreciation and fund growth. Now, that’s excellent returns over a decades time.  

6. Invesco PowerShares QQQ

Invesco QQQ ETF is ranked in the top 1% tracking the NASDAQ-100 index. Since its formation in 1999, it has demonstrated a history of impressive performance.

Invesco QQQ is an exchange-traded fund based on the Nasdaq-100 Index.

The Fund will, under most circumstances, consist of all of the stocks in the Index.

The Index includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization. The Fund and the Index are rebalanced quarterly and reconstituted annually.

QQQ

As you can see from the above chart, PowerShares QQQ ETF is doing really good in terms of growth over the past 5 years.

I’ve considered 5 years as it is a good placeholder to compare returns over time. The ETF also yields a dividend of 0.71% annually which is decent, but that all matters is the growth which is good. 

Currently, this ETF trades at $221. 45 USD per share with a PE Ratio (TTM) of 56.85. 

Overall Portfolio Composition is 100% in Stocks and 0% in Bonds which is good for the growth investor in mind

QQQ

7. Schwab US Dividend Equity ETF (SCHD)

Charles Schwab offers another significant lower cost ETF for the family investment. This is among the best American dividend ETFs to explore.

If you are keen on turning your portfolio into cash flow, the fund on large companies brings a stable dividend. Retirees seek to earn income from a portfolio without selling often use dividend stock as the main issue.

This means the ETF is passively managed to track the Dow Jones U.S dividend 100 indexes. It charges a very competitive 0.07% expense ratio.

schd chart

As you can see from the above chart, the growth of this ETF over the past 5 years has been excellent.

The ETFs currently trading at $58.32 and yields a dividend of 2.01% which is good. 

SCHD Fund Highlights

1. A straightforward, low-cost fund offering potential tax-efficiency 

2. The Fund’s focused approach can complement a diversified portfolio 

3. Tracks an index focused on the quality and sustainability of dividends 

4. Invests in stocks selected for fundamental strength relative to their peers, based on financial ratios

SCHD Dividends 

SCHD Equity Fund pays out very good dividends as you can see from the screenshot below. Dividends have been increasing over time and that’s a very positive sign for any good ETF in the first place. 

I’ve also included the screenshot for the dividend payments since 2017 so that it gives you a good idea of what to expect going forward. 

The annual dividends so far have been $1.71 in the recent four quarters. 

SCHD Dividend

SCHD Market Returns

You can find the SCHD ETFs Market Returns in the below screenshot: 

As you can see from the screenshot above, the overall market returns of the SCHD ETF have been fairly consistent and excellent in fact with double-digit returns since inception. 

SCHD Top Holdings

Below List is the “Top Holding” in the SCHD ETFs Portfolio:

As you can see from the below screenshot, this ETF is well diversified with not much concentration into one sector, but in fact, stretching itself to a couple of sectors and not many IT stocks weightage. 

Top 10 All-Time Best Canadian ETFs

In addition to the above list of top 7 best Canadian ETFs, I’ve listed down 7 more all-time favourites ETFs preferred by Canadians over and over again. I’ve compiled the below list by going through numerous Reddit forums and discussions with active investors and Canadians overtime over preference and selections. Anyways here’s the list: 

1. VCN or XIC – VCN is the Canadian Couch Potato’s currently recommended Canadian Equities ETF.

When comparing VIC Vs. XIC, note the MER of 0.06, and close to $2B assets in XIC vs VCN’s of 0.11 and $330M, having a similar number of holdings, suggesting XIC beats VCN in almost all ways.

Also, XIC’s dividend is a bit higher than VCN as well. So comparing Apples to Apples seems like a better position. XIC is more liquid than VCN. With that said, either one is a great pick for your portfolio!

2. XAW – XAW is an index fund that tracks the world stock market (excluding Canada). XAW is the Canadian Couch Potato Recommended world Equities ETF (excludes Canada which is why you need to include VCN as part of your portfolio)

3. ZAG – ZAG is from the BMOs bond component, and is the currently recommended bond index by Canadian Couch Potato.

4. VGRO – VGRO is an all-in-one fund with an 80/20 mix of equities and bonds.

VGRO holds around six ETFs, covering full geographic equity (Canada, US, developed markets, emerging markets) and bonds (Canada, International) and periodically rebalances them. So it holds everything in one wrapper.

The underlying assets of VGRO are VCN, VUN, VEE, etc so no need to hold multiple ETFs and no efforts into rebalancing.

Thus, VGRO replaces VCN, XAW, and ZAG using one ticker. You can read my complete review on VGRO by clicking here.

5. XEC – iShares Emerging Markets ETF. XEC has a 0.27 MER. Also, XEC should ideally be about 10 – 15% of your overall ETF or investment portfolio

6. VXC – VXC is an International ETF with a heavy US (50%+) weight. If you prefer more on the Canadian equities then VCN would be the right choice to make.

7. VAB – Legacy here. VAB was the CCP recommended fund years ago. If you looking to invest in VAB you can actually consider VXC as well. VAB is an excellent pick for your RRSPs.

8. XGRO – It’s a great product that is well-diversified with an overall portfolio of 80% global equities and 20% bonds. XGROs MER is also low at around 0.2%. I prefer XGRO over VGRO because it has a little more on the US equities which is any day better than Canadian returns.

9. VDY – When you compare VDN with the likes of VCN, VCN has 0.06% MER while VDY is at 0.22% MER.

However, it appears that VDY distributes dividends monthly, while VCN distributes quarterly which is a big plus to some of the value or dividend investors.

Also, VDY generates a monthly dividend of 4%.

VDY is also more stable but VCN should return more over time.

10. XEQT or VEQT – XEQT currently yields a dividend of 3.20% quarterly. XEQT has a 0.18 MER and VEQT has 0.22.

Another thing is that XEQT has 25% into Canadian equities whereas VEQT has 30 here. Looking at these numbers alone, XEQT seems like a better choice.

What gets really interesting here is the fact that VEQT could be slightly more tax-efficient (depending on the investment account that it’s held in) because it holds only Canadian ETF’s in its overall aggregate holdings.

On the other hand, XEQT holds 2 US-listed ETFs in aggregate and that could represent more withholding taxes from its distributions unless you want it in your RRSP’s.

11. XRE or ZRE – The MER for XRE is 0.61%. It doesn’t sound like a lot, but you can probably build a more balanced and diversified portfolio for a lot less than that.

ZRE instead, which is BMO’s version of XRE. The issue with XRE is that the top few holdings dominate in terms of weighting, whereas the BMO fund is equally weighted, so there’s a little more protection if one of the larger REITs does not perform well.

canadian etfs

Canadian ETFs – Honourable Mentions 

1. iShares Core S&P U.S. Total Market Index ETF/TSX Capped Composite Index ETF

Issuer: BlackRock
Description: Replicates performance of the S&P Total Market Index
AUM (in billions CAD): 4.3
MER: 0.07
TSX SYMBOL: XUU
Market Capitalization of Indexed Companies: small, mid, large

2. BMO S&P TSX Capped Composite IDX ETF

Issuer: BMO Asset Asset Management
Description: Replicates performance of the S&P/ TSX Capped Composite Index
AUM (in billions CAD): 4.1
MER: 0.06
TSX SYMBOL: ZCN
Market Capitalization of Indexed Companies: small, mid, large

3. Horizons S&P/TSX 60 INDEX ETF

Issuer: Horizon Exchange Traded Funds
Description: Replicates performance of the S&P/TSX 60 Index
AUM (in billions CAD): 1.7
MER: 0.03
TSX SYMBOL: HXT
Market Capitalization of Indexed Companies: large

4. Vanguard FTSE Canada All Cap ETF

Issuer: Vanguard Investment Canada
Description: tracks the performance of the FTSE Canada All Cap Index
AUM (in billions CAD): 1.6
MER: 0.06
TSX SYMBOL: VCN
Market Capitalization of Indexed Companies: small, mid, large

Best Canadian S&P 500 ETFs 

If you are someone who is more inclined towards investing in the US S&P 500 stock market Index, then there are a couple of great choices as well. But remember these ETFs trade on the Toronto Stock Market (TSX) and track the US S&P 500 Market Index overall. 

Some of my favourite S&P 500 ETFs are – ZSP from BMO, VFV from Vanguard, XUS and IVV from Blackrock, VOO from Vanguard again. 

I’ll not get into the complete depth here, instead, I will just compare the S&P 500 ETFs and will, in turn, help you identify a couple of great options to choose from. 

Again, out of the lot I just mentioned, ZSP is my all-time favourite. It is from BMO, has an excellent trade volume of more than 8M daily and is consistent in terms of market returns. 

VFV is not far behind – It’s from Vanguard and the returns are extremely good as well. Traded volume daily is less than ZSP of course. But, that alone should not be a deal-breaker. 

Here’s ZSP Vs. VFV market returns over time (Considering Maximum timeframe for better understanding)

best canadian etfs

From the first screenshot above, can you seriously notice any difference at all in the blue and the red lines (which are ZSP and VFV)? They both track the S&P 500 market index and the returns are intact right. Also, look at the second screenshot above, the dividends are identical too, with ZSP having a slight edge over VFV by a margin of 0.02%.

Investing in the US S&P 500 Stock Market Index ETFs will not only make your portfolio more robust and better yields but will also help your investments grow that much faster. This is from my personal experience again! 

Top Gold ETFs In Canada

While the price of Gold is ever surging and at an all-time high now, it makes perfect sense to invest your hard-earned cash on some of the best Gold ETFs right? 

I bet so too. After all, the billion-dollar man and Investing guru Warren Buffet is investing in Gold as well. 

In this section of the post, let’s look at some of the best Gold ETFs you can probably get started with. These are the market leaders in the Gold ETF sector. 

The price of gold increased by 39.2% in the past year, significantly exceeding the 13.0% 1-year total return for the overall market, as represented by the S&P 500.

List of top three Gold ETFs in Canada: 

1. Invesco DB Precious Metals Fund (DBP)

1-Year Trailing Total Return: 37.3%
Expense Ratio: 0.75%
Annual Dividend Yield: 0.98%
3-Month Average Daily Volume: 20,429
Assets Under Management: $173.4 million
Inception Date: January 5, 2007
Issuer: Invesco

2. SPDR Gold MiniShares Trust (GLDM)

1-Year Trailing Total Return: 36.5%
Expense Ratio: 0.18%
Annual Dividend Yield: N/A
3-Month Average Daily Volume: 2,671,529
Assets Under Management: $3.2 billion
Inception Date: June 25, 2018
Issuer: State Street SPDR

3. Aberdeen Standard Physical Gold Shares ETF (SGOL)

1-Year Trailing Total Return: 36.3%
Expense Ratio: 0.17%
Annual Dividend Yield: N/A
3-Month Average Daily Volume: 1,695,918
Assets Under Management: $2.6 billion
Inception Date: September 9, 2009
Issuer: Aberdeen Standard Investments

Remember, the price of gold can see big swings, meaning ETFs that track it can also be volatile.

The gold ETFs with the best 1-year trailing total return are DBP, GLDM, and SGOL. The top holdings of these ETFs are gold bullion and gold futures.

Advantages Of Canadian ETFs

ETFs do appeal to some investors for lots of advantages such as the way they offer mutual funds. Other advantages include;

1. Trading Flexibility

ETFs are traded during the day when the markets are open. During normal exchange hours, the pricing of ETF shares remains constant. However, due to the changing the intraday value of the underlying assets, prices of share vary throughout the day.

Furthermore, ETF makes it easy for you to transfer money between asset classes including stocks, commodities or bonds. You can efficiently get your allocation into the investments in an hour and then change your allocation in the next. However, that is not advised, but it can be done.

The flexibility of ETFs affords you the benefit of making prompt investment decisions. You get to place orders in different and numerous ways. Furthermore, all trade combinations of investing in common stocks are also available in ETFs, including the limit orders and stop-limit orders.

2. Portfolio Diversification and Risk Management

With ETFs covering a wide variety of sectors, you can easily move your interest into sectors that intrigue you.

Furthermore, there could be instances where your investment in a certain sector is under significant threat that prevent you from diversifying due to taxes or other restrictions.

In that case, you can short an industry-sector ETF or buy an ETF that shorts an industry for you.

3. Lower ETF Costs

You can sustain your operating expenses with your managed funds irrespective of the structure.

Nonetheless, ETF operation costs are cheaper compared to mutual funds. Expenses being passed on to the brokerage firms that hold the customer’s accounts lower the costs of client services.

Other areas where ETFs helps to reduce cost include notifications, transfers and notification.

On the other hand, open-end fund companies require that you send the shareholders regular reports and statements.

4. ETF & Tax Benefits

In comparison to mutual funds, ETFs have two primary tax advantages. Mutual funds tend to incur more capital gains taxes over ETFs due to their structural differences.

Tax on dividends is lesser on ETFs.

The dividends issued by ETFs are of two types; qualified and unqualified. The tax on qualified dividends is between 5 and 15%, while the unqualified dividend is subject to the same tax rate as that of your income.

Disadvantages Of Canadian ETFs

The ETFs might offer a lot of advantages, but it isn’t perfect. There are some drawbacks when it comes to ETFs. They include;

1. Trading Costs

Depending on where you trade, the cost of trading an ETF can be more than the savings from management fees.

For investors using a brokerage firm, trading costs will be lower especially when compared with investors with no brokerage firm.

Also, when buying high and selling low, you should be away from the spread which increases cost in the long run.

Furthermore, not all ETFs are a low-cost you should always check carefully at the expense ratio of the ETF you want to invest.

2. Tracking Error

ETF managers are tasked to keep their funds’ investment performance in line with the indexes they track. It is not as easy as it seems.

There are different ways an ETF can get lost from its intended index. Tracking errors can cost investors to lose profit as ETFs can be hard to track.

3. Complexity and Settlement Dates

Lack of understanding of the operational mechanics of ETFs by individual investors is always a problem.

It comes as no surprise that some investor gets confused when dealing with grantor trusts, exchange-traded noted, unit investment trust and exchange-traded funds.

Another angle of investor confusion is the settlement periods.

The settlement date is the day you pay for your purchase and the day you get cash for selling a fund. The ETF settlement date is always two days after a trade is placed.

ETFs vs. Stocks: Case Study 

Are you a fan of ETFs or do you like Individual blue-chip stocks? Forget penny stocks or any XYZ stock here. That’s not what we are here for. All we are planning to do is compare best in the class ETFs with world-class individual stocks. Makes sense? Let’s do this. 

Let me quickly compare the best Canadian ETFs with US blue-chip stocks and show you the difference in picking individual great stocks vs. ETFs (Recession-proof stocks)

As you all might know by now, ETFs are a pool of stocks (usually hundreds). Be it an index fund such as the S&P 500 or any other sectorial fund of your choice. In this case, let’s consider some of the best and well knows Canadian ETFs – VFV, XUS, VCN, VBAL, ZSP. 

Now, let’s compare each of these ETFs with Microsoft and Apple stock’s which are blue-chip market leaders with extremely well-diversified product line ups. 

Don’t mind I’m not considering Facebook or Google here coz the majority of their income is from online ads and I’m personally not a great fan of their products or service as I genuinely feel they are not as well diversified as the above two considered.

VFV vs. ZSP 

First of all, over the past year VFV and ZSP, two of the best S&P 500 Index funds have returned 8% each.

VFV Vs ZSP

Now, consider these S&P 500 ETFs against Microsoft or Apple stocks

3 months returns : 

ETFs vs. Microsoft

5 Year Market Returns : (for the long haul and stability) 

ETFs vs. Microsoft

As you can see, Microsoft stock clearly dominates the VFV or ZSP or VCN or XUS or any other S&P 500 Index fund ETFs which are usually considered the best in the market (benchmark).

What I mean to say is, ETFs are great investments, don’t get me wrong, they are well-diversified, your money is so much more secured and safer with ETFs and you won’t lose as much when the market drops. That’s all there. 

But, what’s wrong with picking individual stocks such as Microsoft or Apple? Just these two. Time and again these blue-chips have returned double-digit solid gains. The product roadmap and diversification are excellent with recurring revenue. 

Forget these two stocks, pick any stock you like in the Canadian or the US stock market and be consistent in your investments. (Please pick blue chips only, as its safer and better for the long term:))

Do remember to always check out the Investor Relations Page of the company to understand the business and company fundamentals in detail before making that investment. 

When it comes to Microsoft or Apple stocks, these are some of the most well-diversified, best in class product companies with recurring revenue models and have been consistent and time tested around for decades. Do not enter the markets with FOMO (Fear of Missing out). Always go long term. 

For example, Apple AirPods revenue alone will be the third-highest revenue-generating in Billions for Apple (wearables), while Microsoft Office 365 is a recurring subscription-based now and with WFH and Teams, Microsoft keeps dominating the market over and again. Again they keep making sure that they dominate the markets with new interesting well defined and excellent product streams to make more money. 

VCN Vs NVIDIA stock

Simply head over to their Investor’s relation page, click on the latest quarterly report/slides and look at how well diversified their revenue streams are. 

Coming back to the market returns, isn’t it just mind-blowing, even with the pandemic around, these two massive tech companies are doing extremely well. That’s how robust their businesses are. Microsoft stock alone has returned almost 5 times of what VFV has, that too in the past 5 years alone. 

Consider this, even if you start investing $500 or $1000 every month into Microsoft stock alone, you’ll reach a good healthy lump sum portfolio by the end of the next 5 years. Once you have a decent-sized portfolio then you can probably diversify. Now, that’s just one take. 

Microsoft Vs. Apple stock

Microsoft Vs. Apple stock

Another question you might probably have is: 

Aren’t these stocks expensive compared to the ETF prices? What if the markets crash again? 

Yeah, I believe so too, the markets might crash again, The best approach for that would be to invest consistently every month and not put in a lump sum and suffer severe losses. 

For example: Say you have $10K, why don’t you invest that systematically every month, making sure even if the market crashes your investments are averaged out. Never even get into the habit of options, it’s just a waste of time and energy. Be consistent, track your goals and be focused is all I can say. 

Looks at Apple stock Vs ZSP or VFV ETF returns for the past 1 year and 5-years:

ETFs Vs. Apple stock

I’m repeating, don’t go by the crowd, make your own decisions, do what you feel is right. 

But if you ask me, I will definitely recommend you going with the Individual blue-chip stocks. Be it Apple or Microsft or any Canadian Blue chip such as TD, RBC, CIBC bank, Fortis compared to any ETFs or S&P 500 Index funds.

The most important part for you to think over is your financial goals, risk tolerance and consistency in terms of investing money. Don’t let your emotions drive the investments you make.

Again, this was just a case study on how to pick individual stocks vs. ETFs in the right way. Make sure you don’t just leave the money in the bank account and make it work for you against inflation. 

Conclusion

Now, that was the list of the Top 7 Best Canadian ETFs to buy in 2020. Even though I’ve mentioned the ETF prices in US Dollars, it does not mean that you cannot trade the same on TSX or Canadian Stock Exchange. It’s a personal choice and I’ll leave it to you as an investor to decide. 

All of the choices mentioned above offer something premium and robust annual returns. You are free to pick the one you like and add it to your portfolio for investments. 

Also, the S&P Index funds are time tested and always do well over the long horizon of time. So do keep that in mind before making the selection. 

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