Why More and More Canadians Are Flocking to ETFs

Here’s a look at some of the main reasons why Canadians love ETFs and some notable picks.

Tony Dong, MSc, CETF®

Tony turned a series of 2017 marijuana stock losses into a freelance career advocating for ETF investing. He currently holds a Master’s in Risk Management from Columbia University and is a Certified ETF Advisor (CETF®). Tony is the founder of ETF Portfolio Blueprint (etfportfolioblueprint.com) and the Lead ETF Analyst for ETF Central, a partnership between Trackinsight and the NYSE. His analysis has also been featured in publications like Kiplinger, 24/7 Wall St., U.S. News & World Report, TheStreet, and Benzinga.

Published December 31, 2024 3:45 pm EST

As of October 31, the Canadian ETF Association (CETFA) reported that the total assets under management (AUM) for Canadian exchange-traded funds (ETFs) had soared to $502.3 billion.

That’s over half-a-trillion dollars tied up in these ETFs! It’s clear that more and more investors are choosing ETFs over mutual funds and even individual stocks. Here are three key reasons and a standout ETF for each.

ETF chart stocks — Image source: Getty Images

ETFs can be dirt cheap

Gone are the days of a bank advisor shilling you a mutual fund with a 2% management expense ratio (MER)—the annual fee charged as a percentage of your investment.

ETFs, however, are significantly cheaper, putting more of your money to work. Take TD Canadian Equity Index ETF (TSX:TTP) as an example.

It tracks 282 stocks in the Solactive Canada Broad Market Index and charges a rock-bottom 0.05% MER. For a $10,000 investment, that’s just $5 annually in fees—a fraction of what mutual funds would cost.

ETFs can be highly diversified

Diversification means spreading your investments across various market sectors, company sizes, geographies, and even other asset classes like bonds. Doing this on your own can get complicated and costly.

Or you could simplify with a single diversified ETF like Vanguard Growth ETF Portfolio (TSX:VGRO).

For a 0.24% MER, VGRO provides an 80% stock and 20% bond portfolio that includes 13,469 stocks and 19,390 bonds. It covers U.S., Canadian, and international equities, along with government and corporate bonds. All of this comes in one convenient package that trades with the liquidity of a single stock.

ETFs can automate complex strategies

Let’s say you’re bullish on Tesla and want to own it while generating income. The problem? Tesla doesn’t pay a dividend.

To create income, you’d need to buy 100 shares at roughly $420 each—a total of US$42,000. Then you’d have to sell a call option yourself and possibly even borrow on margin to add leverage, say 1.25x.

Or you could just buy Purpose Tesla (TSLA) Yield Shares ETF (NEOE:YTSL). This ETF mirrors that strategy: it holds Tesla, writes call options for income, and uses leverage to enhance returns.

Plus, it trades at just $31 per share, is eligible for registered accounts, and currently offers an 11.42% yield with monthly payouts, making it far more accessible and convenient than managing the strategy yourself.