As the popularity of ETFs grew over the years, ignoring them isn’t possible. For once, they offer a simplicity with low fees that you cannot find anywhere else. They can also provide access to sophisticated investing strategies to boost income in retirement.
While I started reviewing the ever popular Canadian Dividend ETFs, I also started to look at the all-in-one ETFs to assess their place in my investment strategy. The fees are also much better than what mutual funds charge, and some online trading platforms offer free ETFs.
Over the last 20 years, the selection of ETFs has increased dramatically to the point that it’s now hard to filter through the list of ETFs. Whether you do index investing or not, the selection is large.
This ultimate Canadian ETF guide will help you navigate through the list more easily. Just know there are more ETFs than common stocks on the TSX.
- How to Choose Which ETFs To Include In Your Portfolio
- Top Favorite ETFs in Canada for 2023
- How To Buy ETFs in Canada For Free
- An Exclusive List Of The Best ETFs In Canada [45 ETFs]
- Best Canadian All-in-One Portfolio ETFs
- Best Canadian Stock Market ETF
- Best Canada Bond ETFs
- Best Canadian Dividend ETFs
- Best Canadian REIT ETFs
- Best U.S. Stocks ETF for Canadians
- Best Canadian ETFs For Your RRSP
- Best Canadian ETF for TFSA
- FAQ on Top Canadian ETFs
How to Choose Which ETFs To Include In Your Portfolio
Due to the different goals and risk tolerances of various investors, the Canadian ETFs are going to be broken down into their goals. So the big question you have to answer is which investor are you?
Once you know what you are looking for, screening for ETFs is easier as all you have to do is compare the following metrics.
- MER & Fees: The lower the better when all things are equal.
- Performance Since Inception: If you aren’t comparing the same index, this can make a difference over time.
One consideration to take into account are the taxes paid depending on the account you plan to hold the ETF in.
Top Favorite ETFs in Canada for 2023
- Best All-In-One ETF in Canada: XEQT – iShares Core Equity ETF Portfolio
- Best TSX ETF: XIU – iShares S&P/TSX 60 Index ETF
- Best Bond ETF: VGV – Vanguard Canadian Government Bond Index ETF
- Best Dividend ETF: VDY – Vanguard FTSE Canadian High Dividend Yield Index ETF
- Best Canadian REIT ETF: ZRE – BMO Equal Weight REITs Index ETF
- Best U.S. Stocks ETF: VFV – Vanguard S&P 500 Index ETF
These are the best of the best but read on to see what alternatives are available in case some of them are free with your discount broker.
How To Buy ETFs in Canada For Free
One day you decided it was time to make your money work for you and set on an investing journey. Little did you know that you would face so many options in choosing a Canadian broker to invest with.
- Select your Canadian online broker of choice and sign up if you don’t have one already. A handful offer free trades on ETFs, and others offer free trades on select ETFs. It’s almost like you need to know what you invest in first before you sign up.
- Setup the accounts you need. Usually, you open all three accounts (RRSP, TFSA, and non-registered). However, there may be a fee per account depending on your choice of trading platform.
- The last step before trading is to fund the account. That means setting up payment transfers from your financial institution.
To buy ETFs, it’s pretty simple from here. For example, if you have $100 to invest this month, and you want to invest in VFV, you do the following:
- You select VFV in the ticker area.
- You look at the price and divide $100 by the price for VFV to find out the number of whole shares you can buy. VFV trades just under $100 so you would be able to get 1 share.
- With the whole share number, you put that in as the number of shares to purchase.
- You then select to buy at the market order, or you use a limit order.
- You then click on the buy button to request the trade to be executed. If you place the trade after hours, you will have to wait until the next day. I often place my orders at night and it executes when the markets open.
- The trade should execute relatively quickly with a market price.
An Exclusive List Of The Best ETFs In Canada [45 ETFs]
Feel free to export the table for your own use. The best way to stay on top of data like this is to use a stock and ETF screener.
|Bristol Gate Capital Partners||BGC||TSX|
This is a short list of best ETFs in Canada taken from the ETF providers in Canada, including but not limited to BMO, Vanguard Canada, BlackRock Canada, and Horizons ETFs.
ETFs for indexing tend to focus on broad exposure but there are specialized ETFs covering specific investing strategies as well. If you want to keep it simple, stick to what you are familiar with like Canada and the US and buy one of the index.
I am a little bit of a rebel investor and don’t buy into all the financial sayings such as diversification and asset allocation … The big investors don’t follow it really. I gave up on sector diversification (read all about it).
So while many would say to buy an all-in-one ETF, I am going to say to just buy the S&P500 index where you hold the 500 biggest companies in the US. Those companies usually operate globally anyways … That’s what my kids are doing as beginner investors.
If your investment goals are to generate income in retirement (instead of maximizing growth opportunities during the accumulation years) then you have to consider if you really just want income with some capital preservation, or if you still want some growth. Hard to get both and the best of both worlds.
Best Canadian All-in-One Portfolio ETFs
In the all-in-one portfolio, most offerings are similar so what you really are looking for is to buy free ETFs with the right trading platform offering free ETFs. The next challenge you will have is to pick your asset allocation which is not an easy decision as it’s more portfolio management than selecting a great ETF.
Best In Class All-In-One ETF: XEQT – iShares Core Equity ETF Portfolio
+ Relatively new offering
+ Low MER of 0.20%
Head over to a comprehensive review of many Canadian all-in-one ETFs to build a winning portfolio.
While these new all-in-one portfolio ETFs are a game changer for investors, make sure the asset allocations are really what you need. The industry is very conservative and DIY investors figure out late that they don’t need bonds at 30 years old or even 40 years old. In fact, some advocates argue you don’t need bonds …
Best Canadian Stock Market ETF
Unlike US ETFs, not many Canadian ETFs track the full TSX. Considering the TSX has over 700 stocks and the maximum holdings covering a TSX ETF is 287, it’s not a full index. I cannot tell you why but the only two I found that hold the most stocks are XIC and ZCN.
It’s more of a reflection on the Canadian market than anything else I would suspect. The performance of those two holdings is not equal to other ETF covering just the TSX 60. Not all indices are equal and there comes the complication of index investing as there exists many indices to pick from.
Investing in the TSX 60 is like investing in the S&P 500 I would say and it’s a popular index. As such we can compare the TSX 60 ETFs with the broad TSX ETFs.
Best In Class TSX ETF: XIU iShares S&P/TSX 60 Index ETF
+ No need to hold more than the best 60, the ETFs is better
+ Broad TSX ETFs only hold just around 230 stocks instead of all of them
If you must own a Canadian TSX ETF, I would go with one of the two ETFs that cover the TSX 60 but I am not a fan of any of them. I don’t believe they offer a good enough return on investment or diversification as compared with an S&P 500 ETF.
Best Canada Bond ETFs
Old school investment theory has investors look for bonds as a way to invest safely but I warn you that bond ETFs are not the same as the same bond coupons which don’t lose their value unless you sell it on a secondary market. On the other hand, bond ETFs can fluctuate as they did during the pandemic.
If you are still interested in bonds, here is what you should be looking for. Safety first as opposed to growth. Looking for a growth bond ETF is a bit of a conundrum … it should not exist.
Therefore, when it comes to Bond ETFs, it’s all about getting super-stable government bonds.
Best In Class Bond ETF: VGV – Vanguard Canadian Government Bond Index ETF
+ Stability is what bonds are for and this one provides it
+ The income is also decent and in line with individual government bond coupon
Best Canadian Dividend ETFs
While I am a big fan of dividend investing, I tend to favor handpicking dividend stocks for my portfolio as most dividend ETFs will cover a broad range of dividend holdings, many of which I would not hold. While a dividend ETFs offer broad diversification, it doesn’t necessarily provide less risk in the end.
With that said, we need to be clear here that there are various dividend strategies with high yield ETFs, covered call ETFs, and the vanilla dividend ETFs. Confused by the options?
|Low Growth||Medium Growth||High Growth|
|Low Yield||Dividend ETFs|
|Med Yield||High Yield ETFs|
|High Yield||Covered Call ETFs|
While the TSX 60 ETF isn’t a dividend ETF, most holdings pay a dividend which makes it worth to include as an option. However, considering the go to for a dividend ETF happens to be the Canadian Dividend Aristocrat ETF with the CDZ ticker, we will use that as our baseline.
Best In Class Dividend ETF: VDY – FTSE Canadian High Dividend Yield Index ETF
+ The return on investment is the best over 5 and 10 years
+ The distribution yield also one of the highest
If you follow dividend stock investing, you know the yield isn’t really anything special and you don’t really have visibility on dividend growth either. What you get is an average yield (like the banks) with a decent growth to provide you with a decent return on investment with ETF.
Best Canadian REIT ETFs
For some reasons, REITs (Real Estate Investment Trusts) hold a special place with investors focused on income. Unfortunately, the income is a bit of a mirage as more often than not, REITs will drop the distribution. Read why I don’t invest in REITs anymore.
It’s one of the easiest asset classes for investors to understand, and a lot of real estate investors build a solid income stream, so why not invest in REITs then … Just be aware that it’s not the same.
With that said, the following REIT ETF will provide you with a more consistent distribution which is not the highest for a REIT and not the lowest either. In a way, you can get better consistency over picking the wrong REIT.
Best In Class Canadian REIT ETF: ZRE – BMO Equal Weight REITs Index ETF
+ Higher MER than others, but the yield makes up for it.
+ Best historical return
Best U.S. Stocks ETF for Canadians
I like to keep it simple when investing in the US and focus on the US blue-chip stocks for stability and healthy returns. To that end, the best index is the S&P 500 index.
Interestingly, it’s one of the last ETFs looked at by Canadian investors but it should be one of the first. The tax impact on the distribution is minimal compared to the performance of the ETF vs the other “best” Canadian ETFs.
Best in Class U.S. Stocks ETF: Vanguard S&P 500 Index ETF
+ Lowest fee of the group
+ Second largest after ZSP
Best Canadian ETFs For Your RRSP
When it comes to building your RRSP portfolio, know that with an ETF, you get a basket of stock. One ETF can do the trick but many feel the need to have more than one and that’s where portfolio damage can happen.
The biggest advantage of an RRSP account over the other accounts, like the TFSA, is that you don’t pay any taxes on US holdings. Aside from that, it’s just a tax strategy.
Ask yourself clear questions:
- Do you need asset allocations? That’s real estate, or fixed income, or gold, or equity.
- Do you need diversification? Well, generally, with an ETF you get a basket except for specialty ETFs. What is diversification, and does it really help? (I learned my lesson and will follow Buffett here)
Diversification is protection against ignorance. It makes little sense if you know what you’re doing.Warren Buffett
Keep it all simple. Look at the beginner ETF portfolio. It’s called a beginner portfolio just to get a determined DIY investor get started but there are no reasons to change it if you have more money.
While I do cover all-in-one ETFs, they are built for simplicity but are too broad and too spread across economies. You end up averaging the averages and it’s not great in the end. I prefer to stick with economies I understand which happen to be the North American companies. With investing, you go nowhere playing defense. While you work, it’s offense time! Go with the best US ETF for your RRSP. You still hold many stocks, and you just buy systematically and call it a day.
As you can see, keeping it simple doesn’t mean selecting a complex ETF that invests in many ETFs which in turn invest in many ETFs. Since the S&P 500 is one of the most popular stock indexes in the world, it’s good enough for me as it also generally beats the performance of a Canadian index and a world index.
Best Canadian ETF for TFSA
The TFSA is the RRSP’s little brother but I would say it is superior in the long term.
Don’t change the plan for the TFSA even if you hold US holdings and you have to pay US withholding tax on dividends.
FAQ on Top Canadian ETFs
What is an ETF?
It’s very similar to a mutual fund in that it holds many investments, but the ETF trades like stocks on the same stock exchange.
Are ETFs free to trade?
That’s an interesting question. ETFs in and of itself have an MER (Management Expense Ratio) that is covered within the fund and that’s the fee for the company to manage the fund. The simpler the fund is, the cheaper the MER.
Now, as for the trading fee, that’s really up to the discount broker you use. There are many that offer free ETFs and some you have to pay per transaction whether you buy 1 share or 100 shares.
What are the top ETF companies in Canada?
Another interesting question as many of the banks are playing at the table with their offering but generally, I have found that there are four major providers with BMO, Vanguard Canada, BlackRock Canada, and Horizons ETFs while some of the smaller providers are TD, RBC, CIBC, AGF, Mackenzie, Manulife, Purpose Investment, and Invesco.
Which Canadian ETF Should You Buy?
The first question to answer before looking for an ETF is if you are in the accumulation years, or the retirement years. During the accumulation years, you add money and dollar cost average but in the retirement years, you decumulate and work to ensure you do not outlive your money.
Generally, you are looking for an ETF that grows your money with a 10% annual rate of return (in my opinion), and you look for income and safety in retirement. My approach would be to buy VFV during the accumulation years and during retirement to start including bank ETFs and covered call ETFs with a yield over 4%.
Is there an ETF for Canadian Banks?
Absolutely! There are many in fact. Specialized ETFs tend to cover sectors and industries. You can even find a bitcoin, or crypto, ETF
What was the best performing Canadian ETF?
This is not a good question.
First of all, you don’t have a timeframe … Is it for the last day? Last year? Last 10 years?
Second of all, risky investments usually have the best return at a point in time as they tend to gamble and for some period of time, they are winners.
More context is needed to frame an appropriate answer but I can guarantee you that it is not Canadian bond ETFs.
What are the cheapest ETFs in Canada?
I screened 955 ETFs trading in Canada. The price of each vary but here there are bucketed in ranges.
What ETF is the most reliable in Canada?
The word reliable with investment is a little odd … I would think of reliability with cars or electronics but with an investment, the most reliable would be a money market ETF. You don’t make much, but you also never lose money.
I don’t think you want a reliable investment. You want reliable advice. There isn’t a single ETF that will not lose money in a down market, or recession. That sort of makes it impossible to find a good investment that is reliable every year for 50 years.
It simply doesn’t exist. It’s not a word I would use with investing. I just don’t think it can describe risks implied with the stock market.
What is the best Canadian ETF to invest in now?
The ETF that follows the S&P500. Canadians need to move away from their Canadian biases by skipping investing in Canadian stocks.