Top Canadian ETFs

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Did you know that the Canadian exchange-traded fund (ETF) industry is considered a pioneer worldwide? The oldest ETF in the world was actually listed on the Toronto Stock Exchange on March 9, 1990, and it was called the Toronto 35 Index Participation Fund, or TIPS.1

On March 7, 2000, TIPs merged with the Hundred Index Participation Fund (HIPS), becoming what we now know as the iShares S&P/TSX 60 ETF (XIU), which is currently Canada’s oldest running and largest ETF in terms of assets under management (AUM).1

Since the creation of XIU, the Canadian ETF industry AUM has swelled to $365.2 billion as of March 31, 2023.2 Thanks to this growth, Canadian investors have no shortage of low-cost, transparent, and accessible ETFs to invest in.

Looking to kick-start an ETF portfolio? This guide will get you up to speed on the most popular Canadian ETFs trading on the market right now.

What is an ETF?

An ETF can be thought of as a “basket” of different investments you can buy and sell on a stock exchange, just like you would buy or sell a single stock.

The purpose of an ETF is to allow investors to invest in a wide range of stocks, bonds, or other assets, without having to buy each one individually.

An ETF bundles these assets together and sells shares to you. If you purchase an ETF share, you gain proportional exposure to the underlying assets, along with their risks and returns.

Think of ETFs like a sports team: instead of picking and choosing each player to join your team, you’re instead buying a share in the whole team. This way, you benefit from the combined performance of all the players, reducing the risk of relying on just a few.

Thus, ETFs offer a simple and cost-effective way to diversify your investments. They typically also have lower fees compared to other investment options, like mutual funds, and can be bought and sold throughout the trading day with great liquidity, which provides flexibility.

ETFs are also highly transparent. Unlike mutual funds, most ETF providers disclose a daily list of their updated holdings online, so you know what you’re investing in at a glance. 

Finally, like all funds, ETFs charge fees. In Canada, this is called a management expense ratio (MER). The MER includes not only management fees, but also administrative, operational, and marketing expenses. It is expressed in percentages deducted from your total investment annually, like 0.50%. Keeping this as low as possible can help improve long-term returns.

Top Canadian ETFs

The following Canadian ETFs currently possess the highest AUM as of the time of writing.

ETF NameInception dateExpense ratioHighlights
iShares S&P/TSX 60 Index ETF (TSX:XIU)September 28, 19990.18%Tracks the S&P/TSX 60 Index net of fees
BMO S&P 500 Index ETF (TSX:ZSP)November 14, 20120.09%Tracks the S&P/ 500 Index net of fees  
iShares Core S&P/TSX Capped Composite Index ETF (TSX:XIC)February 16, 20010.06%Tracks the S&P/TSX Capped Composite Index net of fees

Data accurate as of April 24, 2023.

iShares S&P/TSX 60 Index ETF

XIU tracks the S&P/TSX 60 Index, a market-cap weighted index of 60 large-cap, blue-chip Canadian stocks. It is considered the benchmark ETF for Canadian large-cap exposure and is currently the largest ETF in Canada as of April 24, 2023 with over $11 billion in AUM.

BMO S&P 500 Index ETF

ZSP tracks the S&P 500 index, a market-cap weighted index of 500 large-cap U.S. stocks selected by the S&P Committee to be representative of the overall U.S. market. The ETF is non-currency hedged, meaning that fluctuations between the U.S. and Canadian dollar can affect its performance.

iShares Core S&P/TSX Capped Composite Index ETF

XIC tracks the S&P/TSX Capped Composite Index, which combines the large-cap stocks in the S&P/TSX 60 with hundreds of other mid- and small-cap stocks to represent the total investable Canadian market. The index is “capped” in that no individual stock can exceed a 10% weighting.

Pros of investing in ETFs

ETFs have several advantages that make them popular investments among Canadian investors:

  1. Diversification: ETFs offer an easy way to diversify your investments across a broad range of assets, sectors, or even countries. This helps to spread risk and reduce the impact of poor performance due to concentration.
  2. Cost efficiency: ETFs, especially passively managed index variants, tend to charge very affordable expense ratios lower than the average Canadian mutual fund.
  3. Liquidity: ETFs are traded like individual stocks on exchanges, which allows investors to trade them easily during market hours.

Cons of investing in ETFs

However, ETFs are not perfect investments by any means. They have some disadvantages, which include:

  1. Tracking error: Index ETFs can sometimes lag their benchmark index, which is called a tracking error. This occurs due to fees and trading costs. Over time, this can cause underperformance.
  2. Limited control: When you buy an ETF, you have limited control over its holdings. If there’s a stock you dislike and want to avoid, investing in an ETF might not be a good choice.
  3. Lack of specific exposure: Conversely, if there is a specific stock you want extra exposure to, an ETF may not be the best tool with which to do so.

Are ETFs right for you?

ETFs are an excellent investment tool for any investor, but whether or not they’re suitable for you depends on your investment objectives. If your goal is to construct a well-diversified portfolio with only a few tickers, then the breadth, accessibility, and liquidity of ETFs might be beneficial.

If your goal is to ditch pricey mutual funds and manage a DIY portfolio, then ETFs can provide affordability and flexibility. However, if you’re looking to do research and bet on individual stocks, then an ETF might be too broad for your needs.

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This article contains general educational content only and does not take into account your personal financial situation. Before investing, your individual circumstances should be considered, and you may need to seek independent financial advice.

To the best of our knowledge, all information in this article is accurate as of time of posting. In our educational articles, a "top stock" is always defined by the largest market cap at the time of last update. On this page, neither the author nor The Motley Fool have chosen a "top stock" by personal opinion.

As always, remember that when investing, the value of your investment may rise or fall, and your capital is at risk.