For many investors, exchange-traded funds (ETFs) feel more comfortable and palatable than individual stocks. It’s understandable because ETFs are theoretically less volatile than individual stocks, and many of them can offer consistent long-term returns.
But even if you are comfortable with individual stocks, having a few ETFs in the portfolio is typically a good idea, and if you are planning on adding some to the mix in 2025, two should be on your radar.
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A value-oriented ETF
CI Morningstar Canada Value Index ETF (TSX: FXM), or more accurately, the underlying index, focuses on low-priced Canadian stocks. The current portfolio consists of 31 companies from different sectors, predominantly utility, energy, and financial services. The ETF offers quarterly distributions, but they are not consistent, and the current yield is around 2.1%.
However, distributions are not what makes it a compelling fund. That credit goes to its performance, which has historically been relatively modest but has significantly improved, especially in the last year. The ETF has already risen over 25% in the previous 12 months, which is impressive considering its diversified and safe makeup.
It’s worth noting that the current momentum makes this ETF attractive. While it’s safe enough, its return has been relatively modest for most of its time on the TSX. The management fee is also relatively high, at 0.6%. So, even though this ETF is worth recommending, it’s also a good idea to keep track of its current momentum so you can exit at the right time.
A tech-oriented ETF
If an individual tech stock is too volatile for you but you still want to take advantage of the rapid movement and accelerated growth that the Canadian tech sector offers, at least compared to most other sectors, then iShares S&P/TSX Capped Information Technology Index ETF (TSX: XIT) might be the right fit for you.
It’s a mature ETF and was initially established in 2001. It exposes you to a large slice of the Canadian tech sector (21 companies), but just three companies make up two-thirds of the index’s weight. This makes it far less diverse than a typical ETF, and its performance relies heavily on these three companies.
But this also makes the fund highly rewarding when all three of these stocks are bullish. This has happened twice in the last five years. The long-term return potential of the fund is also quite decent. If you had invested in the fund 10 years ago, you would have grown your capital by roughly five times.
Foolish takeaway
The two funds offer different return potentials. The low-valuation fund is bullish, but its history isn’t very impressive. The tech ETF is high risk, but the chances of offering you solid returns (much higher than broad-market ETFs) are decent. They are similar in terms of fees, although the tech ETF has a higher risk rating.
