Canadian investors have access to a wide variety of ETFs and, through those ETFs, to many markets other than the TSX. A healthy number of ETFs give you exclusive exposure to U.S. securities and markets, which tend to grow faster than their Canadian counterparts.
However, even if you want to stick to Canadian ETFs and still enjoy market-beating returns, there are quite a few selections at your disposal. And you won’t have to go beyond your risk tolerance for these higher-than-average returns. Two ETFs stand out from this select pool for various reasons, and they are the ones you should start with.
A tech ETF
The tech sector in Canada is known to offer marketing-beating returns, but it comes with a slightly higher risk. But the industry is becoming more diversified, which balances the risk to an extent. This makes iShares S&P/TSX Capped Information Tech Index ETF (TSX: XIT) a decent candidate for investors that wish to stay ahead of the market.
The ETF saw a price appreciation of over 800% in the decade preceding the current fall, triggered by the sector-wide correction. But even if you take that into account, you would have grown $10,000 capital to about $60,000 by now if you invested in the ETF precisely 10 years ago. The six-fold growth leaves the overall market’s growth in the dust.
Even though the ETF comes with a relatively higher MER of 0.61% and a medium- to high-risk rating, the return potential makes it a worthy investment. And if you take advantage of the current discount, you may be able to beef up the return potential in the long term.
A momentum-oriented index
If a sector-specific ETF is not your cup of tea, you may consider an ETF like CI Morningstar Canada Momentum Index ETF (TSX: WXM) for market-beating returns. By replicating the approach and performance of the underlying index, the ETF aims to take advantage of the price movement of some of the largest and most liquid equities in the country.
It’s currently comprised of just 31 holdings, with the weight relatively equally distributed. The energy and materials sector are presently dominating the portfolio, reflecting the trading activity in the market.
When it comes to performance, the ETF is marketing beating, but not nearly to the same extent as the tech ETF, though it comes with an even higher MER (0.66%).
If you had invested about $10,000 in the fund at the time of inception, which was almost a decade ago, you would currently be sitting on about $26,000. The good news is that the diversification it offers has pushed down the risk rating to medium, making it a viable choice for a larger pool of conservative investors.
Foolish takeaway
Thanks to the higher MERs, the two ETFs seem to lean more on the mutual fund’s side of the ETF vs. mutual funds debate. But when you are planning for the long term, even a 10th of a percent can make a significant impact, and the fact that both MERs are below the 70% mark, and assuming most mutual funds have fees above 1%, can result in a high cost of investment savings in the long run.
