Why Are Canadian Investors So Obsessed With ETFs?

Here’s why ETFs are so popular among Canadian investors and some of my top ETF picks.

| More on:
exchange traded funds

Image source: Getty Images

Have you ever noticed that a particular type of investment seems to be the talk of the town among Canadian investors? No, it’s not meme stocks or crypto. Instead, we’re talking about exchange-traded funds, or ETFs. I think it’s about high time we explore why our fellow Canadians are so enamoured with this investment vehicle.

As an ETF analyst, I think the allure of ETFs can be traced back to a combination of three factors: low fees, diversification, and variety. Let’s dig into each of these factors in greater detail, breaking down why ETFs have become such a hit among Canadian investors, and look at some notable ETF picks of mine!

ETFs have low fees

The old saying, “A penny saved is a penny earned” rings particularly true when it comes to investing. One of the primary reasons ETFs have become so popular among Canadians is their relatively low fees.

Most ETFs are passively managed, which means they aim to replicate the performance of a particular index rather than trying to outperform it. This approach requires less active management and, as a result, often incurs lower fees than actively managed funds.

Lower fees can make a significant difference in your investment returns over time. Consider this: if you invest $10,000 in a fund with a 2% annual expense ratio, over 20 years, you could end up paying more than $8,000 in fees alone.

In contrast, if you invest the same amount in an ETF with a 0.1% annual fee, you’d pay just over $400 in fees over the same period. That’s a substantial saving that can help you grow your investment pot more efficiently.

Some of the lowest-cost ETFs in Canada are those tracking large-cap Canadian stocks. Examples include Horizons S&P/TSX 60 Index ETF, which costs just 0.04%, and Vanguard FTSE Canada All Cap Index ETF, which charges 0.05%.

ETFs provide easy diversification

Another compelling reason Canadian investors are turning to ETFs is the easy diversification they offer. By spreading your investments across different assets, you can help to manage risk — if one asset performs poorly, others might perform well and offset potential losses.

An ETF typically holds a variety of assets, such as stocks, bonds, or commodities, mirroring a specific index. This means that with just one ETF, you can gain exposure to a broad range of assets, such as stocks from multiple geographies or sectors.

A great example are ETFs like BMO Growth ETF and iShares Core Growth ETF, which both hold thousands of global stocks and bonds in a single ticker. Without ETFs like ZGRO and XGRO, diversifying to that extent would be highly difficult.

Variety: The spice of investing life

Finally, the sheer variety of ETFs on the market is a major draw for Canadian investors. There’s an ETF for almost every sector, commodity, geographic region, and investment theme you can think of.

This extensive variety allows you to tailor your investment portfolio to your interests, risk tolerance, and financial goals. It also allows you to take advantage of specific market trends or sectors without having to research and buy individual stocks. Whether you’re a cautious investor looking for steady returns or an adventurous one seeking higher growth, there’s likely an ETF that fits your needs.

Interested in global tech companies? The TD Global Technology Leaders Index ETF has you covered. What about crypto? There’s CI Galaxy Bitcoin ETF. Do you want dividend stocks? Vanguard FTSE Canadian High Dividend Yield Index ETF is a fan favourite.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

question marks written reminders tickets
Tech Stocks

Nvidia’s Historic Stock Split: Will Investors See Bigger Gains?

Nvidia's (NASDAQ:NVDA) record 10:1 stock split entices many investors in several important ways. But some myths aren't technically correct.

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog

Retirees: 2 TSX Dividend Stocks That Have Raised Payouts Annually for Decades

These stocks offer high yields and should continue to raise their payouts.

Read more »

TFSA and coins

5 Canadian Stocks With a Real Chance of Tripling Your TFSA’s Value

TFSA balances can triple in value with five Canadian stocks that have delivered outsized gains in recent years.

Read more »

A worker drinks out of a mug in an office.
Tech Stocks

Want $1 Million in Retirement? 3 Stocks to Buy Now and Hold for Decades

Growth stocks such as Docebo and Celsius Holdings should help you generate outsized gains in the upcoming decade.

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Dividend Stocks

This 8% Dividend Stock Pays Cash Every Month

Earn monthly cash of $154 with this 8% dividend stock.

Read more »

A miner down a mine shaft
Metals and Mining Stocks

Should Investors Buy the Correction in Lundin Mining Stock?

Lundin (TSX:LUN) stock has fallen by 10% in the last few weeks, but so has the price of copper. Coincidence?…

Read more »

Metals and Mining Stocks

Best Stocks to Buy in May 2024: TSX Materials Sector

A TSX materials sector ETF could help investors gain cheap diversified exposure to the hot sector's stocks – so will…

Read more »

man is enthralled with a movie in a theater

Should You Buy Cineplex While it’s Below $9?

With analysts expecting a significant recovery in the second half of 2024, is this the last chance to buy Cineplex…

Read more »