2 Canadian ETFs I’d Move Quickly to Add to a TFSA Right Now

The slate of Canadian ETFs is growing, and for those ETF investors who want a good mix of index ETFs as well as more of an active approach (or maybe a factor-based approach that minimizes costs), there are ample options to consider. If you’re not looking to clobber the stock market over the long run and just want to further your diversification (through a range of sector ETFs or anything else), I do think that it makes sense to consider what else is out there to help you meet your investment goals.

The rise of covered-call ETFs, I think, might serve passive income investors better, especially in sideways markets where one would not mind paying a higher fee (management expense ratio) for the labour involved in writing covered call options to add premium income on top of the dividends collected from the holdings within the ETF.

As the markets surge to new highs while some of the stocks in the background chop around wildly, I think it’s time to think about some of the neglected value plays. Also, if you were unsettled by volatility, opting for lower-beta plays or underrepresented sectors could be a good move to help level up the diversification of your TFSA or RRSP portfolio.

Here are two great ETFs that look enticing right here:

Vanguard FTSE Canada Index ETF

Let’s start off with a great Canadian equity ETF in the Vanguard FTSE Canada Index ETF (TSX: VCE). It’s a low-cost way to bet on the strength of the Canadian stock market. The VCE yields a decent 2.3%, which is way higher than the S&P 500 ETFs. Further, with the TSX ETF, you’re getting a lot of financials (big banks and insurers) along with the energy and materials plays, both of which I find to be undervalued, even after their hot past year of performance.

Of course, you’ll also get other sectors sprinkled in. For investors seeking an easy name to stash away for a TFSA, the VCE is a strong contender. Though, investors seeking a bit more yield might do better with a more dividend-focused ETF.

iShares S&P/TSX Capped Energy Index ETF

For more energy exposure, the iShares S&P/TSX Capped Energy Index ETF (TSX: XEG) looks like a great bet on weakness. Shares are down around 6% from recent highs, thanks in part to the volatility in oil prices.

Of course, oil is running higher again, but as to whether the US$100 per barrel level can be breached again remains the big question. Oil could stay volatile, but regardless of where prices settle, I like the value to be had in the top Canadian producers. At around 16 times trailing price-to-earnings (P/E), the XEG does seem like a relative bargain, even if oil stays in the US$90 range for a while longer or dips once a peaceful resolution can be reached between Iran and the U.S.

If you own the TSX Index itself, you probably already have more than your fair share of energy production exposure. But for investors who want to further it, I do think the XEG stands out, provided you’re willing to pay a 0.60% MER.

In short, the XEG is a great way to fine-tune your energy exposure. If you think the sector remains undervalued, I think it’s a great supplement to a TFSA.