What kind of Canadian ETFs are best to hang onto for the long haul at the core of your TFSA or RRSP? Indeed, sometimes, the simplest and cheapest broad-based ETFs are the best to hang onto. And while I’m not against making either the S&P 500 or TSX Index (maybe the Nasdaq 100 if you’re looking for a double-dose of tech exposure and quicker access than other indices to the looming slate of AI mega IPOs), I do think that passive investors should also be aware of what else is out there.
Of course, buying up a ton of ETFs might be a bit counterproductive. The phenomenon known as “di-worsification” seems to be the real deal. But, at the end of the day, being insufficiently diversified, especially as a beginner investor, seems like the lesser of the two evils.
In this piece, we’ll narrow the list to two ETFs beyond the S&P 500 and TSX Index, ones that most passive investors are already well familiar with that might be worth stashing on your radar.
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BMO Low Volatility Canadian Equity ETF
First up, we have the BMO Low Volatility Canadian Equity ETF (TSX:ZLB), which has been stalling lately, now up just over 1% year to date while the rest of the market surges higher. Indeed, lower volatility often entails a greater mix of defensive dividend stocks. With such a low beta (0.62 right now) and a decent 1.9% dividend yield, the ZLB certainly looks like an intriguing way to play defence if you’ve just about had it with AI stocks, semis, and all the sort, which have been the hottest topic of late.
With big AI IPOs looming, I expect the enthusiasm to grow, and things might get out of hand enough that another pullback could be on the way. While I do think going for growth is wise, provided you keep track of valuations and only buy when the price of admission makes sense relative to the growth path that lies ahead, I also think that allocating a portion to defensives, even when they’re stalling relative to other sectors, could be a great move.
Of course, the added safety and steadiness provided by low-volatility ETFs tends to come at the cost of less explosiveness on the upside when the bull roars. In any case, I like the mix of stocks in the ETF, with staples (grocers), utilities, and lower-beta financials comprising a nice chunk of the pie.
TD Cash Management ETF
The TD Cash Management ETF (TSX:TCSH) is a very interesting one for investors who have too much cash parked in a low-interest savings or no-interest chequing account. As inflation weighs, the opportunity costs of holding cash have the potential to be great. But it still makes sense to have some dry powder as you await opportunities in the stock market.
For the cash hoard that needs a better parking spot, I like TCSH, which offers a decent 2.6% (or so) yield, with a share price that tends to hover around $50 after every month’s reset. Sure, the yield isn’t gigantic, but as a fantastic cash alternative that invests in extremely short-duration Canadian debt, I like the ETF over cash. But, of course, stocks beat cash and cash equivalents over the long run.
