If you are looking to invest using Exchange-Traded Funds (ETFs), this post covers some of the best ETFs you can buy and hold in your portfolio in Canada.
The very first ETF was launched in Canada in 1990 and the industry has come a long way since then.
In 2020, Canadian ETF assets exceeded $200 billion and there has been an increasingly steady inflow of cash to ETFs compared to mutual funds.
ETFs are popular for good reasons.
Similar to stocks, you can purchase an ETF easily using an online brokerage platform at the price it is selling for (intraday price) when you place your order.
Similar to mutual funds, they offer easy diversification by holding hundreds to thousands of securities. They are also a cost-effective option for lowering the risk level of your portfolio, compared to investing in individual stocks.
Compared to mutual funds, ETFs are often cheaper and can save you money over time in investment fees.
We should note that ETFs are by no means risk-free, and you should do your due diligence before investing.
What is an ETF?
An ETF is a basket of securities combined into one fund and traded on a stock exchange similar to stocks. ETFs can hold stocks, bonds, commodities, precious metals, currencies, and other assets.
They are designed to track an investment index such as the S&P/TSX 60 or S&P 500 and are expected to provide a return similar to that of the benchmark index.
Most ETFs are passively managed and have lower fees compared to mutual funds.
Types of ETFs
Depending on the investments held by an ETF, its focus on specific industries or sectors, its investment management style, and its use of derivatives, an ETF may be classified as:
- Stocks ETFs
- Bond ETFs
- Commodity ETFs
- Industry/Sector-specific ETFs
- International ETFs
- Actively Managed ETFs
- Alternative ETFs
- Smart Beta ETFs, and more
There are 37 ETF providers in Canada, including Vanguard Investments Canada Inc., BMO Asset Management, BlackRock Canada, and Horizons ETFs Management (Canada) Inc.
Best ETFs in Canada
Given that there are now over 1,000 ETFs listed on Canadian exchanges, choosing the best ETFs is a big challenge.
In general, the best ETF for you depends on your risk tolerance, investment objectives, and your overall finances.
For example, if you are not dependent on the income generated from your portfolio to pay for day-to-day expenses and are looking at a 15-30 year investment time frame, a growth portfolio with a higher than average risk profile may work for you.
On the other hand, if you are close to retirement, you may want to go easy on the volatility and opt for a conservative or balance portfolio.
Below, I cover a number of ETFs that in my opinion occupy top placements in different categories for ETFs in Canada.
Since there is no “one size fits all” approach to investing, you should do your own research or work with an investment advisor to determine what best suits your needs
Best All-in-One ETFs in Canada
All-in-One or asset allocation ETFs are my newly found favourites.
They eliminate the need for manual rebalancing and already have your risk tolerance in mind. They are also globally diversified.
While I’m biased towards Vanguard-issued funds, the asset allocation ETFs by iShares and BMO are just as good (in my opinion).
1. Vanguard Growth ETF Portfolio (VGRO)
VGRO is designed for investors who are seeking long-term capital growth. It has a 4:1 equity-to-fixed income asset allocation ratio and exposes you to 12,521 stocks and 17,336 bonds as of September 30, 2020.
While Vanguard rates the volatility of this ETF as “low to medium” you should expect to see a lot more volatility compared to an ETF with a higher bond weighting.
Some fund facts for VGRO are:
- Ticker symbol: VGRO
- Inception date: January 25, 2018
- MER: 0.25%
- Asset allocation: 80% stocks; 20% bonds
- Net assets: $1.483 billion (September 20, 2020)
The underlying ETFs making up VGRO as of October 31, 2020 are:
|VGRO ETF Holdings||Allocation|
|Vanguard US Total Market Index ETF||33.30%|
|Vanguard FTSE Canada All Cap Index ETF||23.40%|
|Vanguard FTSE Developed All Cap ex North America Index ETF||16.60%|
|Vanguard Canadian Aggregate Bond Index ETF||11.90%|
|Vanguard FTSE Emerging Markets All Cap Index ETF||6.50%|
|Vanguard Global ex-US Aggregate Bond Index ETF CAD-Hedged||4.60%|
|Vanguard US Aggregate Bond Index ETF CAD-Hedged||3.70%|
Learn more about VGRO in this VGRO ETF review.
2. Vanguard Balanced ETF Portfolio (VBAL)
If you are looking for a lower volatility ETF portfolio that offers both long-term capital growth and some income, VBAL may work for you.
This ETF targets a 3:2 stock to bond ratio. It is rated as “low to medium” risk by Vanguard and may be suited to investors with an average risk tolerance.
Comparable all-in-one balanced ETF portfolios are iShares Core Balanced ETF Portfolio (XBAL) and BMO Balanced ETF (ZBAL).
Funds facts for VBAL include:
- Ticker symbol: VBAL
- Inception date: January 25, 2018
- MER: 0.25%
- Asset allocation: 60% stocks; 40% bonds
- Net assets: $1.68 billion (as of September 30, 2020)
The ETFs making up VBAL as of October 31, 2020, are:
|VBAL ETF Holdings||Allocation|
|Vanguard US Total Market Index ETF||24.80%|
|Vanguard Canadian Aggregate Bond Index ETF||23.80%|
|Vanguard FTSE Canadian All Cap Index ETF||17.40%|
|Vanguard FTSE Developed All Cap ex North American Index ETF||12.40%|
|Vanguard Global ex-US Aggregate Bond Index ETF CAD-Hedged||9.40%|
|Vanguard US Aggregate Bond Index ETF CAD-Hedged||7.30%|
|Vanguard FTSE Emerging Markets All Cap Index ETF||4.90%|
Find out more in this VBAL review.
3. Vanguard ALL-Equity ETF Portfolio (VEQT)
If you are comfortable with tying up all your investments in 100% stocks, VEQT makes it easy.
As you would expect, this fund of funds is more volatile than both VGRO and VBAL and is given a “medium” risk rating by Vanguard.
I’d say your risk tolerance should be well above-average and you should be thinking long-term if you plan to buy VEQT.
As of September 30, 2020, an investment in VEQT exposes you to 12,521 stocks.
VEQT fund facts:
- Ticker symbol: VEQT
- Inception date: January 29, 2019
- MER: 0.25%
- Asset allocation: 100% stocks
- Net assets: $435 million (as of September 30, 2020)
iShares offers a comparable ETF referred to as iShares Core Equity ETF Portfolio (XEQT).
The ETFs making up VEQT are:
- Vanguard US Total Market Index ETF
- Vanguard FTSE Canada All Cap Index ETF
- Vanguard FTSE Developed All Cap ex North America Index ETF, and
- Vanguard FTSE Emerging Markets All Cap Index ETF
Best Canadian Equity ETFs
There are ETF options tracking the different Canadian indices including the S&P/TSX 60, S&P/TSX Capped Composite Index, and FTSE Canada All Cap Domestic Index.
For this review, my top picks for Canadian Equity ETFs are VCN and ZCN.
1. Vanguard FTSE All Cap Index ETF (VCN)
VCN provides exposure to large, mid, and small cap companies in Canada. It holds 181 stocks and has a low MER of 0.06%
The average annual return for VCN since its inception is 5.64% (as of October 31, 2020).
- Ticker symbol: VCN
- MER: 0.06%
- Inception date: August 2, 2013
- Net assets: $2.453 billion (September 30, 2020)
The top-5 stock holdings for VCN as of October 31, 2020, are:
|VCN Equity Holdings||Allocation|
|Royal Bank of Canada||6.28416%|
|Shopify Inc. Class A||6.27695%|
|Canadian National Railway Co.||4.45751%|
2. BMO S&P/TSX Capped Composite Index ETF (ZCN)
This equity ETF includes 224 stocks that constitute 95% of the Canadian equity market. It is designed to replicate the returns of the S&P/TSX Capped Composite Index, net of fees.
The average annual performance of ZCN since its inception is 5.96% (as of October 30, 2020).
- Ticker symbol: ZCN
- MER: 0.06%
- Inception date: May 29, 2009
- Net assets: $4.371 billion ( November 13, 2020)
The top-5 stock holdings for ZCN as of November 13, 2020, are:
|ZCN Equity Holdings||Allocation|
|Royal Bank of Canada||6.06%|
|Canadian National Railway Co.||4.30%|
Best U.S. Equity ETFs
If you are building your ETF portfolio, it is likely that you would want some U.S. equity exposure to benefit from growth in the world’s largest economy. This also increases your diversification.
My top picks for U.S. equity ETFs for Canadian investors are VFV and XUU.
1. Vanguard S&P 500 Index ETF (VFV)
VFV tracks the performance of the S&P Index and provides exposure to the largest-capitalization stocks in the United States.
This fund has returned an average of 17.08% per year since its inception (October 31, 2020).
- Ticker symbol: VFV
- MER: 0.09%
- Inception date: November 2, 2012
- Net Assets: $3.262 billion (as of September 30, 2020)
The top-5 stock holdings for VFV as of October 31, 2020, are:
|VFV Equity Holdings||Allocation|
|Facebook Inc. Class A||2.32400%|
|Alphabet Inc. Class A||1.78400%|
2. iShares Core S&P U.S. Total Market Index ETF (XUU)
XUU gives investors exposure to the entire US stocks market, and it is designed to provide long-term capital growth.
It tracks the S&P Total Market Index and had an average annual return of 10.85% since its inception (as of October 31, 2020).
- Ticker symbol: XUU
- MER: 0.07%
- Inception date: February 10, 2015
- Net assets: $1.316 billion (November 13, 2020)
XUU is made up of the following underlying ETFs (comprising of 3572 stocks).
|XUU ETF Holdings||Allocation|
|iShares Core S&P ETF (IVV)||50.22%|
|IShares Core S&P Total U.S. Stock (ITOT)||41.91%|
|IShares Core S&P Mid-Cap ETF (IJH)||4.02%|
|iShares Core S&P Small Cap ETF||3.77%|
Best Bond ETFs in Canada
Bonds (fixed-income assets) help to moderate the volatility (risk) of your portfolio. As your risk tolerance decreases, the portion of your portfolio held in fixed income securities and cash should increase.
One strategy is to hold your age in bonds. For example, if you are 50 years old, you may want to hold up to 50% in bonds and the remainder in stocks.
This is not a golden rule by any means, and a 50 year-old individual may tweak their asset allocation up or down depending on several other factors, including their life expectancy and returns expectations.
My top picks for Canadian bond ETFs are ZAG and VAB.
1. BMO Aggregate Bond Index ETF (ZAG)
ZAG represents the broad Canadian bond market and consists of investment-grade federal, provincial, and corporate bonds.
It aims to replicate the returns of the FTSE Canada Universe XM Bond Index, and its average annual returns since its inception is 4.28%.
- Ticker symbol: ZAG
- MER: 0.08%
- Inception date: January 19. 2020
- Net assets: $5.199 billion ( November 13, 2020)
ZAG consists of a mix of 1,331 bond ETFs, government and corporate bonds of varying maturities.
2. Vanguard Canadian Aggregate Bond Index (VAB)
This fund tracks the performance of the Bloomberg Barclays Aggregate Canadian Float Adjusted Bond Index.
VAB invests in government and corporate investment-grade bonds. It has provided an average annual return of 3.90% since its inception (as of September 30, 2020).
- Ticker symbol: VAB
- MER: 0.09%
- Inception date: November 11, 2011
- Net assets: $3.216 billion ( September 30, 2020)
The top-10 holdings of this ETF included Government of Canada Bonds, Province of Ontario bonds, and Canada Housing Trust No 1.
Best International Equity ETFs in Canada
Similar to U.S. Equity ETFs, international equities add diversification to your portfolio and reduce home–country bias.
My top picks for international equity ETFs are XAW and VIU.
1. iShares Core MSCI All Country World ex Canada Index ETF (XAW)
XAW offers diversification on a global basis by providing exposure to large, mid, and small cap companies in developed countries (excluding Canada) and emerging markets.
Its average annual return since inceptions is 7.86% (as of October 31, 2020).
- Ticker symbol: XAW
- MER: 0.22%
- Inception date: February 10, 2015
- Net assets: $1.36 billion ( November 13, 2020)
The ETFs underlying XAW (comprising 8,804 assets) as of November 13, 2020, are:
|XAW ETF Holdings||Allocation|
|iShares Core S&P ETF (IVV)||50.66%|
|IShares MSCI EAFE IMI Index (XEF)||28.69%|
|IShares Core MSCI Emerging Markets (IEMG)||12.58%|
|IShares Core S&P Mid-Cap ETF (IJH)||3.42%|
|IShares Core S&P Small-Cap ETF (IJR)||2.29%|
|IShares Core S&P Total U.S. Stocks (ITOT)||2.24%|
2. Vanguard FTSE Global All Cap ex Canada Index ETF (VXC)
Similar to XAW, VXC invests in small-large capitalization stocks of companies in developed and emerging markets, excluding Canada.
It seeks to trade the FTSE Global All Cap ex Canada China A Inclusion Index and has returned 9.69% on average per year since its inception (as of October 31, 2020).
- Ticker symbol: VXC
- MER: 0.26%
- Inception date: June 30, 2014
- Net assets: $907 million
VXC held 10,609 equities as of October 31, 2020, including:
|VXC Equity Holdings||Allocation|
|Facebook Inc. Class A||1.5146%|
|Alibaba Group Holding Ltd.||0.95858%|
|Johnson & Johnson||0.65745%|
One international Equity ETF that excludes Canada and the U.S. is VIU (Vanguard FTSE Developed All Cap ex North America Index ETF).
Best Canadian Dividend ETFs
If you envy dividend investors and want in on the action but do not feel you have the time to track (obsess over) individual stocks and analyze them, a Canadian dividend ETF could work for you.
While I personally prefer straightforward indexing (as a limited-attention-span type of guy), my top picks for the best dividend ETFs are ZDV and XEI.
1. iShares S&P TSX Composite High Dividend Index ETF (XEI)
This ETF pays a monthly dividend income and aims to replicate the returns of the S&P/TSX Composite High Dividend Index. It currently yields 5.42% and has a MER of 0.22%.
Its top 5 holdings (76 in total) as of November 13, 2020 are:
|XEI Equity Holdings||Allocation|
|Canadian National Resources Ltd.||5.30%|
|Royal Bank of Canada||4.99%|
2. BMO Canadian Dividend ETF (ZDV)
ZDV is designed for investors who are looking for regular income and long-term growth.
It is made up of Canadian dividend paying stocks, has a MER of 0.38%, and a dividend yield of 4.87%.
ZDV’s top-5 equity holding (52 in total) as of November 13, 2020, are:
|ZDV Equity Holdings||Allocation|
|Power Corp. of Canada||3.28%|
|Sun Life Financial Inc.||3.17%|
|Bank of Montreal||3.15%|
|Canadian Imperial Bank of Commerce||3.12%|
|Manulife Financial Corp.||3.12%|
Two other popular Canadian dividend ETFs are:
- iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (CDZ), and
- Horizon Active CDN Dividend ETF (HAL)
You can read this review of HAL on Cut The Crap Investing.
Creating an ETF Portfolio
If you are not using an all-in-one ETF solution, you could combine 2 or more of the ETFs listed to make up a portfolio that meets your needs.
For example, if you want a growth portfolio with an 80% equity to 20% allocation, you could use:
- VAB (bond/fixed income): 20%
- VCN (Canadian equities): 30%
- VFV (U.S. Equities): 30%
- VIU (International equities): 20%
The total MER for this sample portfolio is 0.107% which is lower than the 0.25% MER for VGRO.
Of course, this example is entirely hypothetical and you could easily vary the allocations or even mix Vanguard, iShares, BMO and other funds together.
You can also use fewer funds to design your desired portfolio.
Compared to an all-in-one ETF portfolio, the one shown in the sample above will require rebalancing and your fees will add up over time, eroding or eclipsing the fee savings when compared to one-stop ETFs.
This is why I keep mine simple with a one-solution fund.
How To Buy ETFs in Canada
One of the advantages of ETFs is the ease with which you can get them.
To start investing in ETFs, you can open a brokerage account or invest using a robo-advisor.
Buy ETFs Using a Brokerage Account
Self-directed investors can use a brokerage platform to buy and sell stocks, ETFs, mutual funds, options and other investment products.
While all the major banks in Canada offer online trading accounts, you could save on fees by using an independent broker e.g. Wealthsimple Trade or Questrade.
Questrade: This is Canada’s largest independent brokerage platform. It offers free ETF purchases and when you sell, a $4.95 to $9.95 fee applies per trade.
You can use Questrade to trade stocks, ETFs, options, currencies, mutual funds, GICs, and bonds at competitive fees for the industry.
Accounts offered include RRSP, TFSA, RRIF, LIF, RESP, margin, and corporate (business) accounts.
You need a minimum balance of $1,000 to start trading on Questrade and new clients get $50 in free trades.
Wealthsimple Trade: This is Canada’s only no-commission trading platform. You can use it to trade thousands of stocks and ETFs listed on Canadian and U.S. stock exchanges for free.
It does not have a minimum balance requirement, making it one of the best discount brokerage options for beginners.
Wealthsimple Trade offers personal non-registered, TFSA, and RRSP accounts. When you open a funded account here, you get a $25 cash bonus.
When you use an online discount broker, you are in control of your portfolio and are responsible for ensuring it remains rebalanced.
You typically won’t have access to financial advice and should be comfortable with doing your own research.
If you’d rather not take on this responsibility, consider using the services of a robo-advisor.
Buy ETFs Using a Robo-Advisor
Robo-advisors are online wealth management firms that utilize low-cost ETFs in creating your investment portfolio.
These financial technology companies offer benefits including:
- Automatic rebalancing so you don’t have to worry about doing it manually
- Free financial advice
- Customised portfolios to suit your risk tolerance
- Dividend re-investing and tax-loss harvesting
In exchange for these benefits, you pay a small management fee on top of the ETF’s in-built fees.
Two of the best robo-advisors in Canada are:
Wealthsimple: This company has more than $5 billion in assets under management and is the most popular robo-advisor in Canada.
Wealthsimple offers multiple accounts including TFSA, RRSP, RESP, RRIF, LIRA, non-registered, and corporate investment accounts.
There’s no minimum balance and you get a $75 cash bonus when you open an account.
The management fee for this platform is 0.40% to 0.50% per year depending on your account balance.
Learn more about Wealthsimple’s offerings in this review.
CI Direct Investing: Formerly known as WealthBar, this fintech company was founded in 2012 and is a top robo-advisor in Canada. It offers RESP, TFSA, RRSP, LIRA, RRIF, personal and business non-registered investment accounts.
CI Direct Investing’s management fees range from 0.35% to 0.60% and the minimum investment amount is $1,000.
You can learn more about what they offer in the CI Direct Investing review.
Pros and Cons of ETFs
ETFs have simplified the investing process and made it easier than ever to become a do-it-yourself investor and not feel like you are leaving significant returns on the table.
Below are some of the advantages and disadvantages of ETF:
Pros of ETFs:
- Diversification: ETFs give you exposure to hundreds or thousands of investment products and your portfolio can be globally diversified using only one or a few ETFs.
- Liquidity: Similar to stocks, you can easily buy and sell most ETFs whenever you want as long as the stock market is open.
- Lower fees: Compared to mutual funds, you pay a lower management expense ratio (MER) for ETFs. For example, the average MER for equity mutual fund is approximately 1.98%, however, you can find Equity ETFs with MER as low as 0.05%.
- Transparent: ETF asset holdings are published daily so you know what securities are being held and in what proportion.
Cons of ETFs
- Transaction fees: If you are trading small amounts of ETFs on a regular basis and paying commissions, your transaction fees add up and may erode your returns over time. You can limit your fees by using a no-commission broker.
- Lack of control: Investors have no say over the assets held by an ETF. If you prefer to avoid a specific stock of any reason, you may have to avoid the fund entirely even if all its other holdings are to your taste.
- Tracking error: An ETFs return may differ from the return of its benchmark index due to fees, cash holdings, timing of rebalancing, etc.
ETFs vs. Mutual Funds
ETFs and mutual funds provide investors with diversification and index mutual funds try to replicate the performance of an index, just like most ETFs.
They are different in some respects:
Trading: ETFs can be bought and sold during the trading day at the current market price. Mutual funds can be traded based on the net asset value (NAV) calculated at the close of day.
Cost: Mutual funds are generally more expensive than ETFs because the fund managers use an active management style with the intent to generate above-market returns. While they rarely achieve this goal, investors end up paying for the increased activity via the management expense ratio.
Taxes: ETFs are generally more tax-efficient than mutual funds. Increased buy-and-sell transactions by mutual funds may result in capital gains distributions outside of your control.
Account minimum: Some brokerage platform have a $1 minimum balance to open an account and start trading. In many cases, you need at least $500 to open an account and purchase mutual funds.
If you are looking for the best ETFs to buy in Canada, we have listed a few of the top options.
To save on fees, check out Wealthsimple Trade where you can purchase thousands of stocks and ETFs for free.
You can also take a look at Questrade for free ETF purchases and competitive fees when you sell.