The universe of exchange traded funds (ETFs) is as vast as it is diverse. Investors have a wide range of options to choose from in this space, from index funds to sector-specific ETFs, and even single-stock ETFs now littering the landscape.
Thousands of such options can make it difficult for investors to choose which vehicle suits their investing profile the best. That said, a number of top Canadian banks are now offering ETF exposure for free (or very low fees). With that in mind, here are three of the top options for investors considering Canadian ETFs right now.
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iShares Core S&P/TSX Capped Composite Index
One of the oldest and most well-established ETFs in Canada, the iShares Core S&P/TSX Capped Composite Index ETF (TSX:XIC) is a great option to consider for those thinking long-term.
This ETF provides broad exposure to Canadian large and mid-cap stocks, with mid-teens annualized returns seen in recent years. The compounding effect XIC has provided is notable, and a key reason why I think long-term investors should continue to hold some exposure to this top ETF.
Now, I’m not going to sugarcoat it – valuations are starting to look a bit frothy for many of the top Canadian names held in this ETF. But with an expense ratio below 10 basis points, and a much better valuation than comparative U.S. index ETFs, this is a preferable option for those seeking relative value right now.
BMO S&P 500 Index ETF
For investors looking to also hold a decent amount of exposure to U.S. stocks, the BMO S&P 500 Index ETF (TSX:ZSP) is a great way to go.
What I like about this ETF in particular is the unhedged currency exposure Canadian investors can get to the U.S. market. Indeed, investors who have owned this fund for the past decade have benefited not only from much better capital appreciation south of the border, but also a strengthening U.S. dollar relative to the CAD.
I think ZSP is a great holding in tandem with XIC, for Canadian investors looking for truly balanced exposure to the North American economy. Other top international ETFs can help round out one’s geographic risk/reward profile. But next, I’m going to touch on another asset class I think can provide even better diversification for those thinking long-term.
BMO Aggregate Bond Index ETF
Last, but certainly not least on this list of top Canadian ETFs for investors to consider, is the BMO Aggregate Bond Index ETF (TSX:ZAG).
For investors who may be concerned about recessionary headwinds actually manifesting in some sort of significant drawdown, holding a decent amount of exposure to high-quality investment-grade bonds is an excellent idea. That’s precisely what this ETF provides.
With approximately $10 billion in assets under management, this is among the top fixed income ETFs in the Canadian market. That’s a key reason why this particular fund finds itself on this list.
That said, I do think the broad exposure to a range of fixed income assets likely suits the passive income (and downside portfolio protection) needs of many investors right now. Personally, this is the ETF of the three I’m currently looking most closely at.
