The Vanguard Group is one of the world’s oldest index exchange-traded fund (ETF) providers. While it was long ago eclipsed by the likes of Blackrock in terms of size, Vanguard remains one of the top three players in passive investing.
Vanguard was founded by Jack Bogle, a visionary who brought the concepts of passive investing to the masses and was called “a hero to investors” by Warren Buffett. Thanks to Vanguard’s historical influence, it remains one of the most influential index ETF companies to this day.
So, when Vanguard’s economists speak, investors listen. And this week, one of them put out a rather surprising statement:
That Canadian markets are set to beat the U.S. markets for years to come!
The economist who made the above statement, Joe Davis, noted that Canadian markets had bucked the long-term historical trends this year and outperformed their U.S. counterparts. He further added that he foresaw Canadian markets continuing this trend for another five to seven years! While it’s not unusual for Canadian equities to outperform their U.S. peers for a year here or there, such a long streak of outperformance as Davis is forecasting is a rare thing. If Davis’s forecast comes to pass, then those buying TSX stocks today will look very smart in a few years. In the ensuing paragraphs, I’ll explore how you can easily get exposure to the TSX, without needing any expertise in stock analysis.
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TSX index funds
If you want to get a piece of the Canadian markets quickly, easily and with relatively little risk, a low-cost TSX index fund is what you want to hold.
An “index” fund is a fund that tracks the returns of a stock market index, a list of stocks meant to represent all the stocks of a given country, sector, or defining characteristic.
“Low cost” means low management fees and low bid-ask spreads. A management fee is a bit of your money that fund managers take out each year to pay themselves; a bid-ask spread is the difference between what buyers are bidding and sellers are asking. The lower these two costs the higher your return, all else the same.
A good index fund to hold
A pretty good TSX Index fund to hold right now is the iShares S&P/TSX Capped Composite Index Fund (TSX: XIC).
XIC is a highly diversified index fund based on the S&P/TSX Capped Composite Index. The TSX Index consists of 240 stocks, of which XIC holds 211. This number of stocks provides a decent amount of diversification and decent representation of the underlying index. Additionally, the fund charges a low management fee (0.05%) and has low total expenses (0.06%). So, the fund’s managers don’t take their investors to the cleaners. Finally, XIC is a very popular fund, which ensures a sensible bid-ask spread. Overall, you could do much worse than to invest in a fund like CIX.
The bottom line
Investing in index funds is a great way to manage your stock market exposure. Diversified and cheap, they beat many alternative options. Today, one of the world’s biggest index fund managers thinks Canada is set to beat the United States. This would be a good time to get some Canadian ETFs in your portfolio.
