When researching the best ETFs in Canada, investors should consider a combination of broad market exposure, stability through large-cap stocks, and international diversification. The following five ETFs offer a comprehensive approach to building a diversified and well-rounded Canadian portfolio.
Vanguard FTSE Canada All Cap ETF (VCN)
Vanguard FTSE Canada All Cap ETF (VCN) offers broad market coverage, including large-, mid-, and small-cap Canadian stocks. Known for its low management expense ratio (MER) of 0.05%, it is cost-effective for long-term investors. The ETF’s diversification across various sectors reduces industry risk.
Historically, VCN has provided stable and consistent returns, reflecting the overall performance of the Canadian economy. It offers a dividend reinvestment plan (DRIP) that allows dividends to be reinvested in the fund.
VCN is ideal for long-term investors seeking broad market exposure at low cost, as well as those who want to diversify their Canadian assets across all market capitalizations. It complements more targeted ETFs by providing broad market coverage.
iShares Core S&P/TSX Capped Composite ETF (XIC)
The iShares Core S&P/TSX Capped Composite ETF (XIC) tracks the S&P/TSX Capped Composite Index, which represents approximately 95% of the Canadian stock market. With a low MER of 0.06%, it is an affordable option for investors. High liquidity makes it easy to buy and sell without significant price changes.
Its performance reflects the overall Canadian market, offering stable returns in line with the broader economy.
XIC provides broad market coverage, complementing other ETFs that may focus on specific sectors or market capitalization sizes. XIC is suitable for investors who want access to a wide range of Canadian companies and performs well as a core holding in a diversified portfolio.
BMO S&P/TSX Capped Composite ETF (ZCN)
The BMO S&P/TSX Capped Composite ETF (ZCN) aims to track the S&P/TSX Capped Composite Index, covering a significant portion of the Canadian market. It has a competitive MER of 0.06%, which increases net returns, as well as a stable dividend yield of approximately 3.0%, making it attractive to income-oriented investors.
ZCN provides returns that closely track the performance of the Canadian market and offers broad diversification, making it a good complement to sector or international ETFs. This ETF is suitable for investors seeking to capture the entire Canadian market, as well as cost-conscious investors looking for low-fee options.
Horizons S&P/TSX 60 Index ETF (HXT)
The Horizons S&P/TSX 60 Index ETF (HXT) focuses on Canada’s 60 largest companies, providing access to the most stable and recognized firms. It uses a total return swap structure, increasing tax efficiency by minimizing taxable distributions. Historically, HXT has boasted strong performance thanks to its focus on Canada’s largest and most successful companies and offers the opportunity to reinvest dividends. The expense ratio is very low at 0.04%.
This ETF complements broader ETFs by focusing on stable, large-cap companies and is suitable for investors seeking stability and growth from large, well-established companies, as well as those looking for tax-efficient investment options.
iShares MSCI Canada Index ETF (EWC)
The iShares MSCI Canada Index ETF (EWC) provides access to large and mid-cap Canadian companies for both domestic and international investors. It includes a variety of sectors, offering diversified exposure, and works well alongside domestic-focused ETFs in a portfolio, attracting international investors and offering a different perspective on the Canadian market.
Over time, it has delivered solid returns, reflecting the performance of large- and mid-cap Canadian companies. High trading volume ensures ease of buying and selling. The expense ratio is higher at 0.51%, but it offers the benefits of international diversification.
EWC is suitable for investors looking for a diversified Canadian portfolio with sector exposure, as well as those who want to invest in Canada from a global perspective.
Final thoughts and considerations
When considering ETFs in Canada, the ones listed above complement each other, providing a combination of broad market exposure (VCN, XIC, ZCN), focused stability of large-cap companies (HXT), and international diversification (EWC). This combination allows investors to create a well-balanced Canadian portfolio that benefits from the stability of large-cap stocks, the growth potential of small- and mid-cap stocks, and sector diversification.
Before purchasing, investors should consider their investment objectives, costs (e.g., MER), tax implications, and current market conditions. These considerations will help investors make informed decisions and create a portfolio that suits their individual needs and goals.