Best Canadian ETFs – Canada’s Top ETFs For 2020

Although we primarily focus on individual stocks and learning how to buy stocks here at Stocktrades.ca, I feel I would be doing readers a disservice by not going over some of the top Canadian ETFs for 2020. Canadian ETFs have become a staple in many investors portfolios, and for good reason.

  • Canadian ETFs, at least when compared to mutual funds offer significantly lower management fees. You can invest in some Canadian ETFs that have management fees as low as 0.05%, as compared 2.35% of the average mutual fund.
  • Many brokerages in Canada allow commission free ETF transactions. Now, keep in mind this is typically only to purchase the ETF. You’ll be required to pay a commission when you sell. But if we’re long term investors (which, you should be) this is something we shouldn’t have to worry about if we are doing some due diligence on the Canadian ETF prior to purchasing.
  • Your dividends are reinvested immediately. This is a huge benefit for Canadian ETFs, as it allows you to create a “snowball” like effect. Over time, you’re dividends that have been reinvested are going to be earning dividends themselves, and so on.

If you’re brand new to ETFs, you’ve got some things to learn before you begin to construct the best ETF portfolio for yourself. Before we get to the list of the best Canadian ETFs, lets first go over what exactly an ETF is. I’ll be short and sweet with this, and if you already know what an ETF is and are strictly looking for the best ETFs, just scroll down or click here to see them.

So, what is an ETF, and how can they help me?

If you’ve heard of a mutual fund, an ETF is very similar. An ETF is a batch of assets that trades on an exchange. And unlike mutual funds which are updated only at the end of the day, ETFs are much like investing in stocks in the fact that their price fluctuates throughout the day.

Used most often by popular platforms such as Robo-advisors and by individuals who do not want to pick individual companies, ETFs can give you broad exposure to a particular industry or even a whole index (like a Canadian index fund).

There’s even situations where ETFs are used to convert currencies! Read a little more on Norberts Gambit to learn more about this.

Canadian ETF Fees

As you’ve probably seen from Questrade’s advertisement campaign, financial advisor’s fees kill investment portfolios. As you can see in the image below, it’s no joke. The dent a mutual fund can have on the returns of your investment portfolio is significant.

Stocktrades Fee Comparison

Now, this chart doesn’t take into account how much you’ll save moving your money to Canadian ETFs, but you can imagine the savings when comparing the MER of a 2.35% mutual fund to a 0.4% ETF. Canadian ETFs offer lower fees simply because they don’t need to be managed as much.

When you purchase a mutual fund, there is a lot of work involved from managements side of the fund. The portfolio manager must manually go into the market and invest the funds, file all the applicable paperwork and such.

Time is money. And with fund managers, their time is worth a lot of money. Therefor, that is why you see mutual funds charging such high fees. In terms of an ETF, all you have to do is simply head to your discount brokerage, find the ETF you’d like, and purchase it. You’re charged a commission (or like I said, maybe not even) and you begin to realize gains or losses immediately.

Instant diversification

Canadian ETFs truly are a one stop shop in terms of diversification. Think about it this way. An individual stock picker has to go to the grocery store, grab a cart and scour the whole store looking for particular ingredients and food they need to fill their cupboards.

An investor investing in Canadian ETFs however, simply has to research the packages the grocery store offers in terms of “pay and pick up” options. They head in the front door, grab their bags and they are on their way.

Lets look at the Vanguard FTSE Canada All Cap Index ETF for example. The ETF currently has over two hundred holdings. Now, even at an amazingly cheap discount brokerage like Questrade, that’s going to cost an individual investor over $1000 in commissions to purchase all the companies in this Canadian ETF.

However, an investor looking at ETFs simply has to make one transaction, and in turn has instant exposure to some of Canada’s best companies like Royal Bank, Suncor, CP Rail and much more.

There’s also even easier options out there if you are looking for a laser focus. This post about Canadian banking ETFs will show you the top ETFs that solely focus on Canadian bank stocks.

Another element in terms of diversification that makes Canadian ETFs so unique is the fact you can diversify within a particular industry. An investor looking for more exposure to the oil and gas industry may find themselves mulling over a few of the top individual picks like Suncor or Imperial Oil.

However, ETFs like the BMO Equal Weight Oil & Gas Index ETF (ZEO), an investor has exposure to virtually the whole industry with some of the biggest holdings being Enbridge, Pembina Pipeline, Imperial Oil, and Suncor.

A set and forget approach

No investment should ever really be given a true set and forget approach, but with ETFs it’s easier to lean at least somewhat in this direction. Individual stock pickers must sift through individual company reports, digest financial information and make changes based on economic conditions.

If an individual oil and gas stock that makes up 5% of their portfolio falters, it will have a bigger effect on their overall portfolio than it would a Canadian ETF investor, as that individual stock in an ETF may only make up 5 or 6% of the total ETF holdings.

Stable, reliable ETFs like XIU, which holds some of the largest stocks in Canada, truly do offer about as close to a set and forget investment approach as you can get. For new investors, they are an excellent option as their experience levels may not be up to snuff in terms of picking individual stocks.

This way, they can get broad exposure to the market, all while paying a ridiculously low price for the privilege. The same cannot be said for mutual funds.

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Construct the best ETF portfolio with these top Canadian ETFs for 2020

Best Canadian ETF For Security: iShares S&P/TSX  Index ETF (XIU.TO)

Holdings: 60
Dividend Yield: 2.94%
Net Assets: $10 billion
Fees: 0.18%
Returns: 1 YR: 1.41%  3 YR: 10.25% 5 YR: 6.38%, 10 YR: 8.86%

The iShares MSCI Canada ETF is one of the biggest Canadian ETFs you can buy with over $10 billion dollars in net assets. The ETF contains 60 of the biggest stocks in the country. Its portfolio is heavily weighted towards the financial, energy, and industrial sector.

Its top 10 holdings making up 49.53% of the portfolio and 9 out of 10 come from these sectors. The lone company that does not is BCE (BCE.TO).

Its two biggest holdings are two of the biggest banks in the country in Royal Bank (RY.TO) and TD Bank (TD.TO) and it holds key positions in 3 of the best dividend paying blue-chip stocks in the energy sector; Suncor (SU.TO), Enbridge (ENB.TO), and Transcanada Corp (TRP.TO). 

Mixed into the ETF are some of Canada’s most stable stocks such as Waste Connections (WCN.TO) and Telus Corp (T.TO). But don’t get discouraged, there is lots of room for growth in this ETF as well. With growth stocks such as Constellation Software (CSU.TO) and CGI INC (GIB.A) the Canadian ETF has some exposure to the high flying Canadian tech sector, which has been extremely reliable in terms of outperforming the TSX.

With a 10 year average annual return of 8.86%, the ETF is one of the top Canadian ETFs for 2020, and should be considered by any Canadian investor looking to build the best ETF portfolio they can. And with a management fee of only 0.18%, you’re paying only $18 a year to invest $10,000 in this ETF stalwart. 

Best Canadian ETF For Dividends: Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY.TO)

Holdings: 59
Dividend Yield: 4.60%
Net Assets: $463 million
Fees: 0.22%
Returns: 1 YR: -0.78%  3 YR: 10.68% 5 YR: 6.01%, Since Inception8.01%

If you’re looking for an ETF that relies heavily on some of the best Canadian dividend companies, than the Canadian High Dividend Yield Index ETF is for you. We’ve got another great post as well if you’d like to see other Canadian dividend ETFs.

One thing to note, this ETF is heavily based on Canadian financial companies, with over 65% of its holdings being from the sector. In fact, 7 of its top 10 holdings are either Canadian banks like Bank of Nova Scotia (BNS.TO), Royal Bank (RY.TO) or insurance companies like Manulife Financial (MFC.TO) and Sun Life Financial (SLF.TO).

Almost 30% of its portfolio is made up of two stocks. One we mentioned above in Royal Bank, which holds 15.2% of the portfolio, and the other being TD Bank (TD.TO). These two stocks are considered to be some of the best dividend paying stocks in the country by us, and we are not worried at all by the large amount allocated to the two.

The Canadian ETF has put up impressive returns since its inception in 2012, totaling 8.01% assuming all dividends were reinvested. 

The only downside? Well, the top 10 holdings make up over 75% of this portfolio. And in terms of sector allocation, financials and oil and gas make up almost 88%. If you’re looking for a diversified ETF, this one may not be it.

What you are getting though is an ETF that is comprised of some of the most stable, largest and most importantly reliable companies the country has to offer.

Best Canadian ETF For Growth: iShares S&P/TSX Capped Info Tech ETF (XIT.TO)

Holdings: 10
Yield: 0%
Net Assets: $113.64 million
Fees: 0.61%
Returns: 1 YR: 16.60% 3 YR: 16.14% 5 YR: 16.53% 10 Yr: 14.31%

Getting into some more growth style Canadian ETFs, we come across the iShares S&P/TSX Capped Info Tech ETF. I’m not one for paying excessive management fees when it comes to ETFs, and 0.61% is quite high to me.

However, when a Canadian ETF is posting returns like this one has been, I don’t mind paying the fees. The ETF has done nothing but impress since 2013 as the Canadian tech sector seems to outperform the TSX on a regular basis. The ETF hasn’t had a down year since 2011 and has posted a 7 year return of nearly 18% since then.

The ETFs top two holdings are two of the biggest tech giants in the country CGI Group (GIB.A.TO) and Shopify (SHOP.TO). The two stocks make up nearly half the portfolio, add in the third biggest holding Constellation Software (CSU.TO) and you’ve got over 68% allocated to three stocks.

This ETF is a growth play on the Canadian tech sector as a whole, and should be treated with proper care to ensure your risk for ruin is relatively low. The ETF is more likely to face significant volatility compared to some of the other ETFs on this list, and investors need to make sure they have a well diversified Canadian ETF or stock portfolio outside of this one.

The other pitfall I see with XIT is its 5.73% allocation towards Blackberry. I’ve never been fond of the stock and probably never will be. But other companies such as Open Text Corp (OTEX.TO) and Kinaxis (KXS.TO) make up for this.

All in all, if you’re looking for a high risk high reward play in the form of the Canadian tech sector and simply don’t know which company to run with, buy them all with this Canadian ETF.

Best Canadian ETF For Real Estate: Vanguard FTSE Canadian Capped REIT Index ETF (VRE)

Holdings: 18
Yield: 4.5%
Net Assets: $194 million
Fees: 0.35%
Returns: 1 YR: 11.47% 3 YR: 11.43% 5 YR: 9.03% Since Inception: 7.46%

I’ve never been one to invest in Canadian REITs. I’ve more so just gone out and acquired real estate. However, in terms of Canadian ETFs, if you’re looking to find one to give you some exposure to the real estate market, VRE is an excellent option.

The ETF contains only 18 holdings, and the top 10 holdings make up over 77.5% of the portfolio. The ETF has only been around since 2013, and pays a healthy dividend yield of 4.5%. This is very much in line from what I would expect from a REIT based Canadian ETF.

RioCan REIT (REI-UN.TO) is the biggest allocation in this ETF at 13.2%, but there isn’t an overwhelming favourite when it comes to this REIT ETF. You’ll see large scale names such as H&R REIT (HR-UN) and FirstService Corp (FSV.TO) as well.

The one thing I wish this REIT had was more of Colliers International (CIGI.TO). In my opinion, this is the number one stock to own right now in terms of real estate exposure. This Canadian ETF only allocates about 5% of its portfolio to Colliers.

At only 6 years old, I would consider the ETF to still be in its youth stages, and there are a lot of differing opinions on the Canadian real estate market right now. If you’re pro Canadian housing market, you’ll have to take a look at this ETF.

Best Canadian ETF For Lucrative Industries: Marijuana Life Sciences Index ETF (HMMJ.TO)

Holdings: 49
Yield: 4.90%
Net Assets: $931.68 million
Fees: 0.94%
Returns: 1 YR: 7.46%

It was a tough back half of 2018 for marijuana companies here in Canada. Pending legalization caused these stocks to skyrocket, and in return they just couldn’t keep up with supply and revenue was not where most investors expected.

There are just too many players in a young industry to be picking individual companies. We’ve seen potential market manipulation accusations for companies like Aurora, and Canopy Growth fall from highs of over $60 to mid $30’s in a matter of a few months.

This Canadian ETF made the list simply because I believe there are a ton of people out there looking to get into the cannabis industry. And if I were to make one suggestion if you were dead set on doing so, it would be to purchase an ETF rather than place a bet on a single horse to win the race. The Canadian ETFs 3 biggest holdings are Canopy Growth (WEED.TO), Cronos Group (CRON.TO), and Aurora Cannabis (ACB.TO).

Among the rest of the holdings are smaller companies like HEXO Corp (HEXO.TO) and a company that I believe will eventually become one of the best marijuana companies in the country, CannTrust Holdings (TRST.TO).

The ETF is in its infancy, which is why only one year returns are listed, and its fees are abnormally high as the ETF is going through a lot of holdings turnover. This is typical of an ETF just starting out, especially one focused on such a volatile industry.

If you’re looking for exposure to the Canadian cannabis industry but don’t want to risk losing a fortune on an individual company, you may be wise to take a position in HMMJ. However, I wouldn’t be assigning any sort of significant allocation to the ETF, and I’d expect some heavy volatility over the next few years while an industry tries to stabilize itself and get on its feet.

Best Canadian ETF For The Energy Sector: BMO Equal Weight Oil & Gas ETF (ZEO.TO)

Holdings: 14
Yield: 3.28%
Net Assets: $149.62 million
Fees: 0.61%
Returns: 1 YR: -14.49% 3 YR: -1.20% 5 YR: -7.77 %

Now, you must be thinking I am crazy with this one. I’ve got a list of the best Canadian ETFs, and ZEO is negative on all of its returns. However, it’s key to look at the current time frame and economic or political conditions during it.

ZEO is a Canadian oil and gas ETF. Unless you’ve been living under a rock, you probably know the Canadian oil and gas sector has been getting beat down to no end. With the turmoil of the Trans Mountain pipeline to an all time low of crude oil prices, you would have been wise to avoid the industry at all costs. But a lot of industry experts and analysts are predicting somewhat of a return of Canada’s oil and gas industry in 2019.

And with both federal and provincial elections coming up this year, a change in government at both the federal and provincial levels could do worlds for the industry. The Canadian ETFs holdings are mostly all equal in value, with its biggest allocations made towards Pembina Pipeline Corp (PPL.TO), Enbridge (ENB.TO), and TransCanada Corp (TRP.TO). Two of which are primarily pipeline companies.

The pipeline glut will eventually end. I think we can all agree on that. And if there is one industry that would heavily benefit from this, it would be Canada’s oil and gas industry. Mixed in with the heavy hitting pipeline companies are major Canadian oil and gas companies like Suncor Energy (SU.TO), Imperial Oil, and Cenovus Energy (CVE.TO).

I’m not a major fan of Cenovus, as they seem to be getting hit the hardest with the wide WTI and WCS price spread. But other that that, I feel this ETF can provide Canadian investors with some exposure to an industry that is in the dirt, and is one that I believe will inevitably make it out of it.

Overall, there are a ton of Canadian ETFs for investors to choose from to construct the best ETF portfolio

There are hundreds of ETFs to choose from in Canada. Whether you’re looking for exposure to a particular industry, an ETF that pays dividends or one that is primarily geared for growth, I hope I’ve been able to hit the mark in this article.

I haven’t ranked these Canadian ETFs in any particular order, as each one presents a unique opportunity for individual investors. If you don’t like any of these ETFs, I hope I’ve at least given you some insight or knowledge on how truly extensive the ETF market in Canada is.

There are ETFs for almost all industries, except maybe telecom unfortunately, and you can gain exposure to a whole industry or sector and reap the benefits, rather than invest in a single company and hope to hit the mark.