You may be familiar with SPDR S&P 500 ETF Trust (NYSEMKT: SPY), which is currently the world’s largest exchange-traded fund (ETF). But did you know that a Canadian ETF holds the title for being the oldest? That’s right, iShares S&P/TSX 60 Index Fund (TSX: XIU), which launched all the way back in 1990, actually paved the way for the ETF revolution we see today.
Today, I’ll be showcasing why Canadian ETFs deserve a place in your investment portfolio. I’m going to introduce you to three top Canadian ETF picks that span across different investment strategies: a low-cost index ETF for broad market exposure, a dividend-focused ETF for income-seeking investors, and a reliable ‘safe-haven’ ETF that offers a handsome 5% yield.
Image source: Getty Images
Low cost index ETF
The first on my list of Canadian ETFs is the Vanguard FTSE Canada All Cap Index ETF (TSX: VCN). This ETF offers investors a straightforward, cost-effective way to gain exposure to the broad Canadian equity market. And when I say ‘broad’, I mean it! VCN covers over 90% of the investable Canadian market, including companies of all sizes — large-, mid-, and small-cap.
The real charm of VCN lies in its simplicity and affordability. As a passive fund, it aims to mimic the performance of the FTSE Canada All Cap Domestic Index, rather than trying to outperform it. This passive approach results in lower transaction costs and, subsequently, a lower expense ratio of just 0.05%. This makes VCN one of the most cost-effective ways to invest in the Canadian market.
Dividend ETF for income
Next up is a gem for those investors seeking a steady income stream from their investments — iShares Core S&P/TSX Composite High Dividend Index ETF (TSX: XEI). This fund targets dividend enthusiasts by focusing on companies within the S&P/TSX Composite Index that have a higher-than-average yield. Currently, XEI pays a 12-month trailing yield of 5.18%.
XEI provides a diversified portfolio of about 75 Canadian companies across multiple sectors, with a tilt towards financials and energy, but also utilities and communications — sectors known for their stable, dividend-paying characteristics. You have the potential for capital appreciation from the performance of the underlying stocks, as well as regular income generated by the dividends of these companies.
HISA ETF for safety
Last but not least on our list is a fund that offers safety, liquidity, and a respectable yield — Horizons High Interest Savings ETF (TSX: CASH). Unlike the previous two ETFs which invest in stocks, CASH invests in high-interest deposit accounts. This strategy offers a very low-risk way to earn interest on your cash while maintaining liquidity, unlike GICs that have a lock-up period.
The main advantage of CASH is its predictability. Given its conservative investment strategy, it provides stability in both principal and yield, offering investors peace of mind in volatile markets. It’s a perfect option for investors looking to park their cash for the short-term without the typical worries associated with more volatile investments. Right now, CASH pays a 5.16% annual gross yield!
