Investors are often told to diversify their portfolios. While that is sound advice, it can feel complicated for investors, particularly when they are faced with picking a few winners from hundreds of different stocks. That’s where picking Canadian ETFs can help.
ETFs allow investors to buy a basket of companies under a single ticker. This provides instant diversification, and depending on the ETF selected, broad exposure to entire markets and sectors.
Rather than trying to find the right mix of Canadian bank stocks, energy companies, U.S. technology names, and overseas businesses, investors can use a few broad-market ETFs to cover those regions quickly.
Here are three Canadian ETFs that can provide that instant diversification.
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Start with exposure to Canada’s largest companies
The first of three Canadian ETFs for investors to consider is iShares S&P/TSX 60 Index ETF (TSX:XIU). The ETF is one of the easiest ways for investors to gain broad exposure to Canada’s largest publicly traded companies.
As the name suggests, XIU tracks the S&P/TSX 60 Index. That includes 60 of the largest and most established companies on the TSX. Included in that basket are the big bank stocks, energy producers, utilities, industrials, railroads, and other businesses.
That makes the fund a simple choice for investors looking for Canadian exposure without needing to pick individual tickers.
Even better, the fund also provides investors with dividend income. Many of the largest companies in the fund are established cash-generating businesses that have paid dividends for decades.
As of the time of writing, the fund offers a yield of 2.1% paid out on a quarterly cadence.
This makes it one of the better Canadian ETFs to add to a portfolio.
Add some broad exposure to the U.S. market
As great as XIU is among Canadian ETFs, the fund is concentrated on the Canadian market. To diversify our portfolio a bit further, let’s now consider a fund that can provide exposure to the U.S. market.
Enter BMO S&P 500 Index ETF (TSX:ZSP).
This fund gives Canadian investors direct access to 500 of the largest companies in the U.S. market. That includes everything from established Dividend Kings in consumer staples, to utilities, telecoms and even the high-growth tech names.
For Canadian investors, the diversification and potential from adding Canadian ETFs like ZSP is huge. Apart from the appeal of being less dependent on the Canadian market, the fund can serve as a passive investment.
In other words, investors don’t need to predict what U.S. investment will become the next major winner. Instead, investors own a broad slice of the market. This way, the strongest companies can drive returns over time.
And like XIU, ZSP does offer a quarterly distribution, but the 0.77% yield isn’t the main appeal of this fund.
Add some developed international markets into the mix
Rounding out the trio of Canadian ETFs is iShares Core MSCI EAFE IMI Index ETF (TSX:XEF). This fund adds yet another layer of diversification by providing exposure to developed international markets outside North America.
That includes businesses located in multiple developed markets such as Japan, the U.K., France, Germany, Switzerland, and Australia.
The fund gives investors access to companies and industries that may perform differently from those in Canada and the United States. As a result, this gives investors alternative exposure to markets at different points of the economic cycle.
Diversifying into international markets also helps investors avoid becoming over-reliant on North American markets.
These Canadian ETFs offer a simple diversified starting point
The trio of Canadian ETFs mentioned above provide investors with exposure to multiple companies in Canada, the U.S., and developed international markets across just three tickers.
That makes these Canadian ETFs a starting point for investors seeking a diversified portfolio without researching and monitoring countless individual stocks.
That makes these funds ideal options for investors looking to build a simple, well-diversified portfolio.
