The Smartest TSX ETF to Buy With $1,000 Right Now

Here’s my preferred ETF when it comes to investing in TSX-listed stocks.

| More on:
exchange traded funds

Image source: Getty Images

While I don’t personally invest in any specific Canadian stocks listed on the TSX, if I were to venture into that market, I would undoubtedly choose to do so via an exchange-traded fund (ETF).

ETFs offer broad coverage of the market at a remarkably low cost. They provide a simple and efficient way to quickly build a diversified portfolio. Additionally, many ETFs offer the advantage of decent dividend payouts and tax efficiency.

Given the variety of options available, it’s important to choose wisely. My top pick for the smartest TSX ETF to buy right now with $1,000 is BMO S&P/TSX 60 Index ETF (TSX:ZIU). Here’s why.

Why the TSX 60?

The S&P/TSX 60 Index, as its name suggests, tracks the 60 largest publicly listed stocks in Canada.

This selection of stocks includes the country’s foremost banks, railway companies, pipeline operators, as well as major telecom and insurance companies, representing a robust cross-section of Canada’s blue-chip corporations.

In comparison, there are ETFs available that track the S&P/TSX Capped Composite Index. This index includes all the companies from the TSX 60 plus several hundred additional mid and small-cap stocks.

While this broader index might seem like an attractive option due to the potential for higher returns, historical data suggests it doesn’t necessarily outperform and tends to introduce more volatility into an investment portfolio.

From the image provided, which compares the growth of investments in the TSX 60 and the TSX Capped Composite from 2002 to 2024, it’s clear that the TSX 60 has consistently performed well with less volatility.

Both indexes experienced similar dips and recoveries, but the TSX 60 has shown a slightly better recovery and less pronounced drops, especially in turbulent market periods. Why? Well, it excludes many of the more speculative small-cap mining and oil companies the TSX Capped Composite has.

For investors aiming to focus on stable, well-established Canadian companies, the TSX 60 offers a less volatile avenue with a concentration on the largest and most secure blue-chip stocks.

Why ZIU?

I like ZIU because compared to its older competitor from iShares, it is less expensive. Whereas the latter charges a 0.18% management expense ratio, ZIU undercuts it at 0.15%. Keep in mind that you’re getting the same exposure.

What else does ZIU provide? Quarterly dividend payments (the yield is still yet to be decided as this is a newer ETF, but I anticipate it to be around 3%). It’s also very liquid — you shouldn’t have issues buying and selling it like any normal stock.

I also anticipate it to be very tax-efficient. Given that virtually all of its holdings are Canadian-listed companies, the distributions from this ETF will likely be comprised of eligible dividends, which are subject to lower rates.

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

calculate and analyze stock

Prediction: My 2 Top TSX Stocks to Beat the Market in 2024 and Beyond

Any investment is a prediction on the future of stock. Here are two stocks that should deliver predictably strong returns…

Read more »

Retirees sip their morning coffee outside.

Here’s the Average RRSP Balance at Age 71 in Canada

If you hold stocks like Fortis Inc (TSX:FTS) in an RRSP, you pay no dividend and capital gain tax until…

Read more »

Dividend Stocks

2 REITs to Buy to Earn Like a Lazy Landlord

Becoming a landlord and managing the property yourself may give you the most direct exposure, but it also comes with…

Read more »

money cash dividends
Dividend Stocks

Beat the TSX Immediately With This Cash-Gushing Dividend Stock

This dividend stock has already beat the TSX today, even from 52-week lows. But it could only be the beginning.

Read more »

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 »