Welcome to another Motley Fool dispatch! Today, we’re focusing on the world of exchange-traded funds (ETFs) from a Canadian perspective.
For those just beginning their investment journey, or seasoned veterans looking to broaden their horizons, ETFs offer a cost-effective and transparent way to diversify a portfolio while reducing the risk inherent in individual stock selection.
Rest assured, no financial jargon will cloud your understanding. I’ve broken everything down in layman’s terms, keeping in line with our commitment to help you make informed, confident decisions about your investment portfolio. Here’s a look at my top three picks this month.
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The S&P 500
First up is BMO S&P 500 Index ETF (TSX: ZSP), which tracks none other than the popular S&P 500 index. By buying this ETF, investors gain instant exposure to 500 of the largest and most well-known U.S. stocks. It covers all 11 stock market sectors but is currently tilted towards technology at around 28%.
The best part about ZSP? That would be its low fees. This ETF carries a very competitive management expense ratio (MER) of just 0.09%. If you invested $10,000 in ZSP, you can expect to pay just $9 in annual fees. This is significantly lower than most mutual funds and even competing ETFs!
The Nasdaq 100
Are you bullish on momentum from some of the largest U.S. tech stocks? Or maybe you favour a growth investing style? The ETF of choice here is BMO NASDAQ 100 Equity Hedged to CAD Index ETF (TSX: ZQQ), which tracks the Nasdaq 100 index and holds 100 of the largest non-financial stocks listed on the Nasdaq.
Compared to ZSP, ZQQ is less diversified, but this could be desirable for investors looking for a higher risk, potentially higher-growth pick. However, a downside of ZQQ is its much higher expense ratio of 0.39%, which works out to around $39 for an annual $10,000 investment.
The S&P/TSX Capped Composite
For diversified exposure to Canadian stocks, the ETF of choice could be BMO S&P/TSX Capped Composite Index ETF (TSX: ZCN). This ETF tracks around 230 large-, mid-, and small-cap Canadian stocks. It’s a great way to gain broad exposure to the entire investable Canadian market.
ZCN tracks a “capped” index, meaning that each stock in it cannot exceed a 10% weight. This is good for diversification, as it reduces concentration risk. Best of all, the ETF is even cheaper than ZSP, with an MER of just 0.06%, or $6 annually in fees for a $10,000 investment.
