When it comes to building a portfolio with Canadian stocks and exchange-traded funds (ETFs), it’s not surprising to see that most investors tend to focus on the same handful of names.
Typically, most investors stick to buying broad-market index funds and maybe a few high-yield dividend ETFs, and then call it a day, and for some investors, there’s certainly nothing wrong with that.
In fact, for a lot of investors, that’s exactly how they should be thinking about what they should be doing. Gain exposure to the broader economy, buy reliable, diversified funds, and hold for the long haul.
That said, though, while a simple investment strategy can work for many investors, there are still a number of high-quality Canadian ETFs that don’t get nearly as much attention as they should, even though they can play a very specific and valuable role in a portfolio.
Because the goal isn’t just to own more investments, it’s to own the right mix of investments.
And that’s especially important in an environment like today, where uncertainty is higher, interest rates aren’t falling as quickly as expected, and simply relying on broad market exposure may not give you the balance you actually need.
That’s why some of the most overlooked Canadian ETFs right now aren’t the biggest names that offer exposure to everything; they’re often funds that are designed to do one thing really well.
Why specialized funds can make a bigger difference than most investors think
When it comes to investing in ETFs, one of the first things investors learn is that ETFs can serve a variety of purposes.
For example, while the biggest names are usually the funds that are designed to give you broad exposure to the market, many others are built to solve a very specific problem.
For example, something like BMO Low Volatility Canadian Equity ETF (TSX:ZLB) doesn’t try to outperform the market by taking on more risk.
Instead, it does the opposite, focusing on lower-volatility, high-quality companies that can hold up better when markets get uncertain.
It helps solve a problem by offering a reliable portfolio of Canadian stocks that not only have resilient business models but also pay sustainable dividends.
So, not only does it protect your hard-earned capital well, but it also pays a dividend with a current yield just shy of 2%.
And if dividend and income are more of a priority for you, there are specific funds you can buy, such as BMO Canadian High Dividend Covered Call ETF (TSX:ZWC), which is built specifically for income.
It owns a portfolio of reliable, dividend-paying Canadian stocks, then boosts that income even further by writing covered calls. In fact, it currently offers a yield of roughly 5.7%.
And while you do give up some potential upside in strong bull markets with this strategy, the key point is that these ETFs aren’t trying to be everything; they’re designed with a purpose.
The overlooked Canadian ETFs that can improve your portfolio in ways broad funds can’t
In addition to Canadian ETFs that are built with a specific purpose, you can also consider ETFs that offer exposure to a certain sector, like BMO Equal Weight REITs Index ETF (TSX:ZRE), for example.
Canadian real estate stocks have been under pressure for the last few years due to higher interest rates, and because of that, a lot of investors have simply avoided the sector altogether, making now an excellent opportunity to gain exposure while the industry offers a ton of value.
And ZRE is one of the best ETFs that Canadians can buy because it gives you diversified exposure across the REIT sector, but its equal-weight structure ensures you’re not overly reliant on just a handful of large names.
And on top of that, it offers a current yield of 4.5% and returns cash to investors monthly, which is often what many income-focused investors are looking for.
At the end of the day, if you’re looking to buy high-quality Canadian ETFs for your portfolio, it’s essential to understand what you own and why you own it.
And while broad-market ETFs will always be some of the best picks to buy as the foundation of your portfolio, adding a few specialized ETFs that solve specific problems, whether it’s reducing volatility, increasing income, or adding growth, can help balance and position your portfolio far more effectively over the long haul.
