Canada’s $1-trillion exchange-traded fund (ETF) industry has become increasingly competitive, with some of the world’s largest U.S. asset managers offering Canadian-listed products.
But if you would rather stick with a homegrown provider, BMO Global Asset Management is one of the heavyweights in the Canadian ETF market. Its lineup also demonstrates that investing in Canadian stocks does not have to mean buying the same portfolio repeatedly. You can own the broad market, deliberately target stocks with lower historical volatility, or tilt toward companies paying higher dividends.
For a Tax-Free Savings Account (TFSA), all three approaches have their uses. Here are three BMO ETFs I would consider depending on whether the priority is broad exposure, lower risk, or higher income.
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BMO S&P/TSX Capped Composite Index ETF
For straightforward exposure to Canadian stocks, I would start with the BMO S&P/TSX Capped Composite Index ETF (TSX: ZCN). ZCN gives investors exposure to a broad cross-section of large-, mid-, and smaller-cap Canadian companies.
The index weights companies primarily according to market capitalization, meaning larger businesses receive larger positions. Individual holdings are capped to prevent any single company from becoming excessively dominant.
Because ZCN represents the broader Canadian market, expect substantial exposure to financials, energy, materials, and industrials. Technology and healthcare play much smaller roles than they do in the U.S. market.
That makes ZCN my choice of the three for a low-maintenance Canadian equity core without making additional bets on a particular investment style or sector.
ZCN charges a 0.06% management expense ratio (MER) and offers a 2% annualized yield.
BMO Low Volatility Canadian Equity ETF
Investors who are more concerned about volatility could instead consider the BMO Low Volatility Canadian Equity ETF (TSX: ZLB). ZLB uses a rules-based strategy designed to favour companies with lower sensitivity to movements in the broader Canadian stock market.
That produces a portfolio that can look quite different from a traditional Canadian index. Lower-volatility sectors such as utilities and consumer staples can receive greater representation, while highly cyclical companies may receive less.
The objective is not to eliminate losses. ZLB still owns stocks and can decline significantly during a bear market. Instead, the strategy attempts to provide Canadian equity exposure with a potentially smoother ride.
ZLB charges a 0.39% management expense ratio and offers a 1.8% annualized distribution yield.
BMO Canadian Dividend ETF
Finally, income-oriented investors could consider the BMO Canadian Dividend ETF (TSX: ZDV). ZDV uses a rules-based methodology to select Canadian companies based on factors including dividend yield, dividend growth, and payout ratio sustainability.
Simply buying the highest-yielding stocks can expose investors to companies whose share prices have collapsed or whose dividends are becoming difficult to sustain. ZDV attempts to balance current income with the financial characteristics supporting those payouts.
The resulting portfolio provides exposure to dividend-paying companies across sectors including financials, energy, utilities, communication services, and pipelines.
For TFSA investors who eventually want to spend some of their portfolio income rather than reinvest everything, ZDV also has the advantage of paying distributions monthly.
ZDV currently charges a 0.39% management expense ratio and offers a 2.7% annualized distribution yield.
