Despite covering exchange-traded funds (ETFs) as an analyst, I rarely issue outright sell ratings. Most ETFs have a place in a portfolio somewhere. The problem is not that a fund is bad. It is that some have become less optimal over time as the market has evolved around them. Fees come down, structures improve, and better versions of the same idea eventually show up.
That is exactly the case with the two ETFs below. When they launched a decade or so ago, they were solid options. Today, they have largely been overtaken by competitors that offer similar exposure at much lower costs. If you are a newer investor considering these strategies, it is worth knowing there are more efficient alternatives.
Canadian dividend-growth stocks
The first ETF I would think twice about today is iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX:CDZ).
CDZ owns large-cap Canadian companies that have increased their dividends for at least five consecutive years. In the U.S., the dividend aristocrat label requires 25 years of increases. Canada’s smaller market makes that impractical, which is why the threshold is lower.
On its own, CDZ is not a bad fund. It pays a 12-month trailing yield of about 3.45% with monthly distributions. Over the past 10 years, total returns with dividends reinvested have compounded at roughly 10.21% annualized. The issue is cost. CDZ charges a 0.60% management fee, which rises to a 0.66% management expense ratio after other costs. On a $10,000 investment, that is about $66 per year in fees.
A cheaper alternative is Hamilton CHAMPIONS Canadian Dividend Index ETF (TSX:CMVP).
This ETF tracks the Solactive Canada Dividend Elite Champions Index, which requires at least six consecutive years of dividend growth, making the screen slightly stricter than CDZ’s.
More importantly, CMVP currently carries a 0% management fee until January 31, 2026. After that, it reverts to 0.19%, still well below CDZ’s ongoing cost.
Canadian financial sector stocks
The second ETF I would avoid today is iShares S&P/TSX Capped Financials Index ETF (TSX:XFN).
XFN isolates the financial sector from the broader TSX. It includes banks, life insurers, asset managers, exchanges, and specialty lenders. Historically, it has performed well.
Over the past 10 years, total returns with dividends reinvested have compounded at about 13.86% annually. The current 12-month trailing yield is around 2.37%, paid monthly.
Again, the issue is fees and structure. XFN charges a 0.55% management fee and a 0.61% management expense ratio. It is also market-cap weighted, which means the largest banks dominate the portfolio, leaving it quite top heavy.
A lower-cost and more balanced alternative is the Hamilton Canadian Financials Index ETF (TSX:HFN).
This ETF tracks the Solactive Canadian Financials Equal Weight Index. By equal-weighting holdings, it reduces concentration in the largest banks and spreads exposure more evenly across the sector.
Like CMVP, HFN is waiving its management fees until January 31, 2026, after which the fee drops to 0.19%, far below what XFN charges.
