Top 7 Canadian ETFs You Should Own March 2024 – Personal Finance Freedom (2024)

What Is An ETF?

An ETF (Exchange-Traded Fund) is an investment fund that represents a basket of stocks, bonds, or other investments. Unlike conventional mutual funds, an ETF is traded on a stock exchange and often tracks a market index or may have a specific investment strategy.

An exchange-traded fund (ETF) is a collection of securities – stocks, commodities, and bonds, that you can purchase and auction through a broker.

ETFs are offered in most investment categories varying from traditional investments to alternative investments like stocks or currencies. If you looking for a new investment option to diversify your portfolio, you can consider ETFs. Canadian ETFs are an attractive investment as they are a low-cost option to build a well-diversified portfolio.

How Do ETFs Work?

When stock exchanges are open, ETFs are purchased and traded like company stock during the day. And like the stock, an ETF has its own symbol with information on intraday price which is readily available during the trading day.

However, contrary to company stock, the volume of outstanding shares of an ETF changes daily. This is due to the constant creation of new shares and the redemption of existing shares. The constant creation and redemption of shares allow the market price of ETFs to stay in line with their underlying securities.

While the primary focus of ETFs is on individual investors, institutional investors also play a major role. Maintenance of liquidity and tracing of the integrity of the ETF through the trading of creation is done by institutional investors.

However, when the price of the ETF doesn’t correspond to the underlying asset value, institutional investors bring an arbitrage mechanism into play. This mechanism is permitted by the creation units to pull the ETF price back in line with the fundamental asset value.

Types Of ETFs

There are several different types of ETFs available to investors, each with its own unique characteristics and investment strategies. Some of the most common types include:

1. Equity ETFs: These ETFs hold a portfolio of stocks and provide investors with exposure to a particular market, sector, or index. For example, there are ETFs that track the performance of the S&P 500, the NASDAQ, or the FTSE 100.

2. Bond ETFs: These ETFs hold a portfolio of bonds and provide investors with exposure to the bond market. They can track the performance of a specific bond index, such as the Barclays Capital Aggregate Bond Index, or focus on a particular type of bond, such as Treasury bonds or corporate bonds.

3. Commodity ETFs: These ETFs provide exposure to the price movements of specific commodities, such as gold, oil, or agricultural products.

4. Currency ETFs: These ETFs provide exposure to the foreign exchange market, allowing investors to gain exposure to different currencies.

5. Inverse or Short ETFs: These ETFs are designed to profit from a decline in the value of an underlying asset. They are also known as short ETFs, as they are shorting the underlying assets.

6. Actively managed ETFs: These ETFs are managed by professional fund managers. They try to beat the market by picking individual stocks or bonds, rather than tracking an index.

7. Smart Beta ETFs: These ETFs use alternative weighting schemes, such as fundamental indexing or low volatility strategies, to try to outperform traditional market-cap-weighted indexes.

It’s important to note that ETFs can be complex and may not be suitable for all investors, so it’s important to understand the risks, fees, and strategies of the ETFs you’re considering before investing.

How To Pick An ETF Portfolio?

Let me explain. First of all, What Do I mean by designing an ETF Portfolio?

You have hundreds of Canadian/US ETFs trading in the market. Every single day. The question really everyone is looking for is – how diversified is your Investment Portfolio? and the growth of it of course.

Coming back to the topic here, by ETF Portfolio I mean to say, a basket of ETFs that is well-diversified and you have good exposure to Canadian/US/European/Asian and Emerging Markets. Again, quick correction, I am not saying you should have exposure to all the above stock markets. No!

It depends on you. But an ideal ETF Basket will contain good exposure in proportions to all of the above markets. (including international)

Example ETF Basket: US (40%), Canada (40%), Europe (10%), Asia (10%).

Now, a single ETF can give you this exposure or you might want to pick multiple ETFs to play the safe game. It all depends on how you want to Invest and the time frame you have.

Now consider this scenario:

I want to pick the lowest fees ETFs, weighted towards the funds with lower MER, one each of the following (all following broad market indexes):

• VUN/XUU/ZSP (US)

• VCN/XIC/ZCN (Canada)

• VIU/XEF/ZEA (foreign developed)

• VEE/XEC/ZEM (foreign emerging)

• ZAG/VAB/XBB (Canada aggregate bonds)

If you don’t want bonds then one of XAW/VXC and one of VCN/XIC/ZCN should be good.

An easier approach would be to pick one of VGRO, VBAL, or VCNS.

I am one for bonds but I prefer to keep them separate so that if there’s a serious market event (crash!) then I can sell them to buy cheap equities.

Out of the above, my vote would be for VCN, VUN, VIU, VEE and ZAG. Combined MER will come in around 0.10%.

My actual ETF picks are ZLB + XIT (Canada), VGT + IJR (US), SCZ (foreign developed), XSOE (foreign emerging), ZAG + CPD (bonds and preferred shares).

My combined MER is around 0.20% (though I also hold stocks so on my total portfolio it is around 0.10%).

Again it all depends! I am just trying to help you by showing how it can be done.

How To Invest In The Best Canadian ETFs?

There are two main parameters to consider before investing in the Canadian ETFs and they are:

1. Management Expense Ratio or MER

Every ETF that you’ll invest in will have an MER fee associated.

So What Is the Management Expense Ratio?

The Management Expense Ratio (MER) is the combined total of the management fee, operating expenses, and taxes charged to a fund during a given year expressed as a percentage of a fund’s average net assets for that year.

All mutual funds and Canadian ETFs have an MER.

What Is A Good MER?

A good low-expense MER ratio is generally considered to be around 0.5% to 0.75% for an actively managed portfolio, while an expense ratio greater than 1.5% is considered to be high.

Mutual fund expense ratios are typically higher than the expense ratios for ETFs.

For passive index funds, the typical overall ratio across the industry is approximately 0.2%.

2. Underlying Market Index

This makes perfect sense, as the reason for investing is to gain a specific type of exposure and for Canadian ETFs, this will be determined by the index it tracks.

Looking under the bonnet of Canadian ETFs to examine the underlying index composition and its potential sector and/or stock biases is key to understanding the fundamental drivers of the fund’s performance.

What Are The Types Of Canadian ETFs?

We have 10 different types of Canadian ETFs and they are:

1. Market ETFs

Market ETFs basically track major market indexes like the NASDAQ or S&P 500. They are one of the most active ETFs on any exchange platform.

However, some market ETFs do trace low-volume indexes. The purpose of a market ETF is to imitate an underlying index and not exceed it. It is a great way to get started as a new investor in ETFs.

2. Bond ETFs

Bond ETFs are developed to give exposure to nearly all kinds of bonds available be it the corporate, international, U.S. treasury, or municipal.

Bonds generally trace low-liquidity investment products and are not active in secondary markets.

3. Sector and Industry ETFs

Industry ETFs principally trace a sector index portraying a certain industry. It was developed to give frontage to a specific industry, particularly oil, pharmaceuticals, or advanced technology.

The sector and industry ETFs help investors earn exposure to specific markets. For example, the Invesco Dynamic Pharmaceuticals ETF (PJP)

4. Commodity ETFs

Commodity ETFs and industry ETFs are quite similar in that they target specific areas of the market.

Nonetheless, when you buy a commodity ETF, like oil or gold, you don’t really buy the commodity. Instead, these ETFs entail derivative contracts to mimic the price of the fundamental commodity.

5. Style ETFs

First Style ETFs follow an investment procedure or market capitalization priority like large-cap value or small-cap growth.

Style ETFs are highly exchanged in the United States existing on growth and value indexes.

6. Foreign Market ETFs

Foreign market ETFs help you to acquire exposure to foreign currencies without completing complex transactions.

It was developed to follow foreign markets, like the Hang Seng index in Hong Kong or Japan’s Nikkei Index.

7. Inverse ETFs

Developed to benefit from a dip in the prevailing market.

When the market falls, investors want to short their positions. Entering inverse ETF creates short positions when you buy them, helping you to short easily. Inverse ETFs are more suited to veteran investors.

8. Actively Managed ETF

Actively Managed ETFs are created to beat a market, not following the trend of most ETFs, which are created to trail a market.

It integrates the advantages of both mutual and exchange-traded funds into one asset.

9. Exchange-Traded Notes

These are debt securities backed by the credit power of the bank handing it out.

These are developed to grant a pathway to asset markets with the added advantage of creating little or short-term capital profits taxes.

If you are looking for a quick turnaround on your money, this is a great trading option for you.

10. Alternative Investment ETFs

Alternate Investment ETFs are systems that allow you to trade with volatility or gain knowledge in a specific investment technique.

Top 7 Canadian ETFs

Investing in Exchange-Traded Funds (ETFs) is a popular choice among Canadians looking to grow their wealth. These versatile investment vehicles offer diversification, low fees, and simplicity. If you’re considering entering the world of ETFs, it’s crucial to know which ones to consider. Here, we present the top 7 ETFs in Canada that have been capturing the attention of savvy investors.

1. iShares S&P/TSX 60 Index ETF (XIU)

Overview: iShares S&P/TSX 60 Index ETF (XIU) is one of the most widely recognized exchange-traded funds in Canada. It is designed to track the performance of the S&P/TSX 60 Index, which consists of the 60 largest companies listed on the Toronto Stock Exchange (TSX). These companies represent a wide range of sectors, including finance, energy, technology, and more.

Market Returns: Over the past decade, XIU has provided investors with a consistent average annual return of approximately 6-7%. This steady performance makes it an attractive choice for investors looking for long-term growth with relatively low risk. It’s important to note that the returns can vary from year to year, influenced by the performance of the Canadian stock market.

Annual Dividend Percentage: XIU offers an annual dividend yield of approximately 2.6%. This means that for every dollar invested, you can expect to receive around 2.6 cents in dividends annually. It’s an appealing feature for income-focused investors who seek both capital appreciation and regular income.

Popularity: XIU is incredibly popular among Canadian investors due to its reliable performance and low management fees. Its wide diversification across major Canadian companies makes it a core holding in many investment portfolios. The ETF’s liquidity and low costs have contributed to its widespread use.

Investors often choose XIU for its simplicity, diversification, and strong historical performance, making it a solid option for those seeking exposure to blue-chip Canadian stocks in a single investment.

2. Vanguard FTSE Canada All Cap Index ETF (VCN)

Overview: The Vanguard FTSE Canada All Cap Index ETF (VCN) is designed to track the performance of the FTSE Canada All Cap Index. This index covers a broad spectrum of Canadian equities, including large, mid, small, and micro-cap companies. It aims to provide investors with exposure to the entire Canadian stock market.

Market Returns: VCN has historically delivered strong market returns. Over the past several years, it has provided investors with an average annual return of around 7-8%. This consistent performance has made it an appealing choice for investors seeking long-term growth and diversification across Canadian stocks.

Annual Dividend Percentage: The annual dividend yield for VCN is typically around 2-3%. This means that for every dollar invested, investors can expect to receive approximately 2-3 cents in dividends annually. While it’s not among the highest-yielding ETFs, it can be attractive to those who want both growth potential and some income.

Popularity: VCN has gained popularity in Canada due to its comprehensive coverage of the Canadian stock market. It is widely used by investors who want a simple and cost-effective way to invest in Canadian equities. Vanguard is known for its low management fees, which makes VCN an attractive choice for cost-conscious investors.

VCN is considered a core holding in many diversified investment portfolios, offering a balanced mix of Canadian stocks across different market capitalizations. Its popularity is partly due to the combination of broad market exposure and Vanguard’s reputation for providing cost-efficient investment options.

3. BMO S&P 500 Index ETF (ZSP)

Overview: The BMO S&P 500 Index ETF (ZSP) aims to replicate the performance of the S&P 500 Index, which is one of the most well-known benchmarks for the U.S. stock market. While it primarily invests in U.S. equities, ZSP provides Canadian investors with an opportunity to gain exposure to some of the largest and most established companies in the world.

Market Returns: The S&P 500 Index is renowned for its historical returns. Over the long term, it has delivered an average annual return of around 7-9%. Investing in an ETF like ZSP allows Canadians to participate in the growth of U.S. companies, which can be an excellent addition to a diversified investment portfolio.

Annual Dividend Percentage: ZSP offers an annual dividend yield that roughly reflects the dividends paid by the companies within the S&P 500 Index. These dividends typically range from 1.5% to 2.5%. While this may not be among the highest-yielding ETFs, it provides investors with some income alongside potential capital appreciation.

Popularity: The BMO S&P 500 Index ETF is popular among Canadian investors who seek exposure to U.S. equities. Investing in U.S. stocks can be a strategic move to diversify one’s portfolio and benefit from the growth of American companies. BMO is a reputable financial institution in Canada, and its ETFs are well-regarded for their accessibility and cost-effectiveness.

ZSP is an attractive option for investors looking to participate in the performance of large-cap U.S. companies while enjoying the convenience of trading on the Canadian stock exchange. Its popularity is due to its focus on a globally recognized index and the benefits of diversification into the U.S. market.

4. Horizons S&P/TSX Capped Composite Index ETF (HXCN)

Overview: The Horizons S&P/TSX Capped Composite Index ETF (HXCN) is designed to provide investors with broad exposure to Canadian equities. It seeks to replicate the performance of the S&P/TSX Capped Composite Index. This ETF is an attractive option for those looking to invest in a diverse range of Canadian companies, including large-cap, mid-cap, and small-cap stocks.

Market Returns: The S&P/TSX Capped Composite Index is one of the primary benchmarks for the Canadian equity market. Historically, it has delivered solid long-term returns, mirroring the performance of the Canadian economy. While returns can vary from year to year, Canadian stocks have shown resilience and growth potential.

Annual Dividend Percentage: HXCN offers investors access to the dividends paid by the companies included in the S&P/TSX Capped Composite Index. Canadian companies often have a strong tradition of paying dividends, making this ETF appealing to income-focused investors. The annual dividend yield typically ranges from 2.5% to 3.5%, providing a potential income stream.

Popularity: The Horizons S&P/TSX Capped Composite Index ETF (HXCN) is popular among investors seeking comprehensive exposure to the Canadian stock market. It’s particularly favored by those who believe in the long-term growth prospects of the Canadian economy and want to benefit from the dividends paid by Canadian companies.

HXCN stands out due to its focus on the Canadian market and its diversified approach. With its mix of large-cap and smaller-cap stocks, it can provide a balanced exposure to the domestic economy. Horizons ETFs are known for their innovative structure, offering total return swaps to minimize taxes for investors.

This ETF can be a valuable component of a diversified investment portfolio for those looking to capture the potential of the Canadian equity market.

5. Vanguard Total Stock Market ETF (VUN)

Overview: The Vanguard Total Stock Market ETF (VUN) is an exchange-traded fund that aims to track the performance of the CRSP US Total Market Index. This index represents the entire spectrum of the U.S. stock market, encompassing large-cap, mid-cap, small-cap, and micro-cap stocks. VUN is designed to provide investors with diversified exposure to the U.S. equity market.

Market Returns: The CRSP US Total Market Index reflects the overall performance of U.S. stocks, making it a comprehensive benchmark for investors. Historically, the U.S. stock market has delivered competitive long-term returns. It’s known for its resilience and its potential for capital appreciation over time.

Annual Dividend Percentage: The Vanguard Total Stock Market ETF (VUN) offers investors access to dividends paid by the constituent companies in the CRSP US Total Market Index. The dividend yield typically ranges from 1.5% to 2% annually, providing a potential income stream for investors. This can be an attractive feature for those seeking both capital appreciation and income.

Popularity: VUN is a highly popular ETF among investors, particularly those who are looking for a one-stop solution to gain exposure to the entire U.S. stock market. Its broad diversification across various market segments makes it an attractive choice for long-term investors who believe in the growth potential of the U.S. economy.

Vanguard, as a well-established and trusted investment management company, is known for its low-cost and efficient ETFs. VUN is a part of the Vanguard fund family, renowned for its commitment to passive index investing. Investors are drawn to VUN due to its cost-efficiency and the potential for long-term capital growth through exposure to the U.S. stock market.

This ETF is often used as a core holding in diversified investment portfolios, where it serves as a foundation for U.S. equity exposure. Whether you’re a seasoned investor or just starting, VUN can be an essential building block for your investment strategy.

6. BMO Aggregate Bond Index ETF (ZAG)

Overview: The BMO Aggregate Bond Index ETF (ZAG) is an exchange-traded fund designed to track the performance of the Bloomberg Barclays Global Aggregate Canadian Float Adjusted Bond Index. ZAG focuses on providing investors with exposure to a broad range of Canadian fixed-income securities, making it a crucial component for those looking to diversify their investment portfolio.

Market Returns: The fund aims to replicate the returns of the Bloomberg Barclays Global Aggregate Canadian Float Adjusted Bond Index. This index consists of a variety of Canadian fixed-income assets, including government bonds, corporate bonds, and other debt securities. Bonds are known for their stability and income-generating potential, which can make them an essential part of a balanced investment portfolio.

Annual Dividend Percentage: BMO Aggregate Bond Index ETF (ZAG) is known for its income-generating potential. The annual dividend percentage is influenced by the yields on the underlying bonds held by the ETF. Typically, ZAG offers investors a dividend yield that is competitive with prevailing interest rates in the fixed-income market.

Popularity: ZAG is a popular choice among investors who seek a balanced and diversified fixed-income exposure. Its broad holdings in various types of bonds and maturities make it suitable for both conservative and income-oriented investors. BMO, one of Canada’s leading financial institutions, manages the fund. The fund’s popularity is partly due to the trust investors place in BMO’s financial expertise and the fund’s reputation for offering stable returns.

Investors use ZAG to add stability and regular income to their portfolios. Whether you’re saving for the long term, preparing for retirement, or seeking to mitigate the effects of market volatility, ZAG can be a valuable addition. It is often used in a strategic asset allocation strategy, providing an anchor of stability in a diversified investment portfolio.

Please note that the specific returns and yields of ZAG can fluctuate based on market conditions and the performance of the underlying bonds.

7. iShares Gold Bullion ETF (CGL)

Overview: The iShares Gold Bullion ETF (CGL) is an exchange-traded fund that provides investors with exposure to gold, one of the world’s most well-known and historically valued precious metals. This ETF is designed to track the performance of the price of gold bullion, making it an accessible and convenient way for investors to invest in gold without the need for physical ownership.

Market Returns: CGL aims to replicate the performance of the price of gold bullion. Gold has a long history of being a store of value, making it a popular choice among investors during times of economic uncertainty. The value of CGL is closely tied to the prevailing market price of gold.

Annual Dividend Percentage: Unlike traditional equities or income-generating assets, gold does not pay dividends or interest. Therefore, an ETF like CGL typically does not provide an annual dividend. Instead, investors in gold-oriented ETFs like CGL often rely on the potential for capital appreciation when the price of gold rises.

Popularity: The popularity of iShares Gold Bullion ETF (CGL) tends to increase during periods of economic uncertainty, market volatility, or inflation concerns. Investors often turn to gold as a hedge against these risks, and CGL provides a liquid and easily tradable way to invest in gold. The fund is managed by BlackRock, one of the world’s largest and most reputable asset management firms, which adds to its appeal.

Investors use CGL to diversify their portfolios and reduce risk, as gold tends to have a negative correlation with other asset classes, particularly during turbulent market conditions. Additionally, CGL is considered a convenient way to access the potential benefits of gold without having to store physical gold bullion.

Please keep in mind that investing in gold, including through ETFs like CGL, comes with its own set of risks, and the value of the fund can fluctuate significantly based on the price of gold in the global market.

Top Canadian ETFs

In addition to the above list of the top 7 best Canadian ETFs, I’ve also listed down 7 more all-time favorite ETFs preferred by Canadians over and over again.

I’ve compiled the below list by going through numerous Reddit forums and discussions with active investors and Canadians over time over preferences and selections. Anyway here’s the list:

1. VCN or XIC – VCN is the Canadian Couch Potato’s currently recommended Canadian Equities ETF.

When comparing VIC Vs. XIC, note the MER of 0.06, and close to $2B assets in XIC vs VCN’s of 0.11 and $330M, having a similar number of holdings, suggesting XIC beats VCN in almost all ways.

Also, XIC’s dividend is a bit higher than VCN’s as well. So comparing Apples to Apples seems like a better position. XIC is more liquid than VCN. With that said, either one is a great pick for your portfolio!

2. XAW – XAW is an index fund that tracks the world stock market (excluding Canada). XAW is the Canadian Couch Potato Recommended world Equities ETF (excludes Canada which is why you need to include VCN as part of your portfolio)

3. ZAG – ZAG is from the BMO’s bond component and is the currently recommended bond index by Canadian Couch Potato.

4. VGRO – VGRO is an all-in-one fund with an 80/20 mix of equities and bonds. VGRO holds around six ETFs, covering full geographic equity (Canada, US, developed markets, emerging markets) and bonds (Canada, International) and periodically rebalance them. So it holds everything in one wrapper.

The underlying assets of VGRO are VCN, VUN, VEE, etc so no need to hold multiple ETFs and no efforts into rebalancing.

Thus, VGRO replaces VCN, XAW, and ZAG using one ticker. You can read my complete review on VGRO by clicking here.

5. XEC – iShares Emerging Markets ETF. XEC has a 0.27 MER. Also, XEC should ideally be about 10 – 15% of your overall ETF or investment portfolio

6. VXC – VXC is an International ETF with a heavy US (50%+) weight. If you prefer more on the Canadian equities then VCN would be the right choice to make.

7. VAB – Legacy here. VAB was the CCP-recommended fund years ago. If you looking to invest in VAB you can actually consider VXC as well. VAB is an excellent pick for your RRSPs.

8. XGRO – It’s a great product that is well-diversified with an overall portfolio of 80% global equities and 20% bonds. XGROs MER is also low at around 0.2%. I prefer XGRO over VGRO because it has a little more on the US equities which is any day better than Canadian returns.

9. VDY – When you compare VDN with the likes of VCN, VCN has 0.06% MER while VDY is at 0.22% MER.

However, it appears that VDY distributes dividends monthly, while VCN distributes quarterly which is a big plus to some of the value or dividend investors.

Also, VDY generates a monthly dividend of 4%.

VDY is also more stable but VCN should return more over time.

10. XEQT or VEQT – XEQT currently yields a dividend of 3.20% quarterly. XEQT has a 0.18 MER and VEQT has 0.22.

Another thing is that XEQT has 25% in Canadian equities whereas VEQT has 30 here. Looking at these numbers alone, XEQT seems like a better choice.

What gets really interesting here is the fact that VEQT could be slightly more tax-efficient (depending on the investment account that it’s held in) because it holds only Canadian ETFs in its overall aggregate holdings.

On the other hand, XEQT holds 2 US-listed ETFs in the aggregate, and that could represent more withholding taxes from its distributions unless you want it in your RRSPs.

11. XRE or ZRE – The MER for XRE is 0.61%. It doesn’t sound like a lot, but you can probably build a more balanced and diversified portfolio for a lot less than that.

ZRE instead, which is BMO’s version of XRE. The issue with XRE is that the top few holdings dominate in terms of weighting, whereas the BMO fund is equally weighted, so there’s a little more protection if one of the larger REITs does not perform well.

Best Canadian S&P 500 ETFs

If you are someone who is more inclined towards investing in the US S&P 500 stock market Index, then there are a couple of great choices as well. But remember these ETFs trade on the Toronto Stock Market (TSX) and track the US S&P 500 Market Index overall.

Some of my favorite S&P 500 ETFs are – ZSP from BMO, VFV from Vanguard, XUS, and IVV from Blackrock, VOO from Vanguard again.

I’ll not get into the complete depth here, instead, I will just compare the S&P 500 ETFs and will, in turn, help you identify a couple of great options to choose from.

Again, out of the lot I just mentioned, ZSP is my all-time favorite. It is from BMO, has an excellent trade volume of more than 8M daily, and is consistent in terms of market returns.

VFV is not far behind – It’s from Vanguard and the returns are extremely good as well. The traded volume daily is less than ZSP of course. But, that alone should not be a deal-breaker.

Here’s ZSP Vs. VFV market returns over time (Considering Maximum timeframe for better understanding)

From the first screenshot above, can you seriously notice any difference at all in the blue and the red lines (which are ZSP and VFV)? They both track the S&P 500 market index and the returns are intact right? Also, look at the second screenshot above, the dividends are identical too, with ZSP having a slight edge over VFV by a margin of 0.02%.

Investing in the US S&P 500 Stock Market Index ETFs will not only make your portfolio more robust and better yields but will also help your investments grow that much faster. This is from my personal experience again!

Top Gold ETFs In Canada

While the price of Gold is ever surging and at an all-time high now, it makes perfect sense to invest your hard-earned cash on some of the best Gold ETFs right?

I bet so too. After all, the billion-dollar man and Investing guru Warren Buffet is investing in Gold as well.

In this section of the post, let’s look at some of the best Gold ETFs you can probably get started with. These are the market leaders in the Gold ETF sector.

The price of gold increased by 39.2% in the past year, significantly exceeding the 13.0% 1-year total return for the overall market, as represented by the S&P 500.

List of top three Gold ETFs in Canada:

1. Invesco DB Precious Metals Fund (DBP)

1-Year Trailing Total Return: 37.3%
Expense Ratio: 0.75%
Annual Dividend Yield: 0.98%
3-Month Average Daily Volume: 20,429
Assets Under Management: $173.4 million
Inception Date: January 5, 2007
Issuer: Invesco

2. SPDR Gold MiniShares Trust (GLDM)

1-Year Trailing Total Return: 36.5%
Expense Ratio: 0.18%
Annual Dividend Yield: N/A
3-Month Average Daily Volume: 2,671,529
Assets Under Management: $3.2 billion
Inception Date: June 25, 2018
Issuer: State Street SPDR

3. Aberdeen Standard Physical Gold Shares ETF (SGOL)

1-Year Trailing Total Return: 36.3%
Expense Ratio: 0.17%
Annual Dividend Yield: N/A
3-Month Average Daily Volume: 1,695,918
Assets Under Management: $2.6 billion
Inception Date: September 9, 2009
Issuer: Aberdeen Standard Investments

Remember, the price of gold can see big swings, meaning ETFs that track it can also be volatile.

The gold ETFs with the best 1-year trailing total return are DBP, GLDM, and SGOL. The top holdings of these ETFs are gold bullion and gold futures.

Advantages Of Canadian ETFs

ETFs do appeal to some investors for lots of advantages such as the way they offer mutual funds. Other advantages include;

1. Trading Flexibility

ETFs are traded during the day when the markets are open. During normal exchange hours, the pricing of ETF shares remains constant. However, due to the changing intraday value of the underlying assets, prices of shares vary throughout the day.

Furthermore, ETF makes it easy for you to transfer money between asset classes including stocks, commodities, or bonds. You can efficiently get your allocation into the investments in an hour and then change your allocation in the next. However, that is not advised, but it can be done.

The flexibility of ETFs affords you the benefit of making prompt investment decisions. You get to place orders in different and numerous ways. Furthermore, all trade combinations of investing in common stocks are also available in ETFs, including limit orders and stop-limit orders.

2. Portfolio Diversification and Risk Management

With ETFs covering a wide variety of sectors, you can easily move your interest into sectors that intrigue you.

Furthermore, there could be instances where your investment in a certain sector is under significant threat that prevents you from diversifying due to taxes or other restrictions.

In that case, you can short an industry-sector ETF or buy an ETF that shorts an industry for you.

3. Lower ETF Costs

You can sustain your operating expenses with your managed funds irrespective of the structure.

Nonetheless, ETF operation costs are cheaper compared to mutual funds. Expenses being passed on to the brokerage firms that hold the customer’s accounts lower the costs of client services.

Other areas where ETFs help to reduce costs include notifications, transfers, and notifications. On the other hand, open-end fund companies require that you send the shareholders regular reports and statements.

4. ETF & Tax Benefits

In comparison to mutual funds, ETFs have two primary tax advantages. Mutual funds tend to incur more capital gains taxes over ETFs due to their structural differences.

Tax on dividends is lesser on ETFs. The dividends issued by ETFs are of two types; qualified and unqualified. The tax on qualified dividends is between 5 and 15%, while the unqualified dividend is subject to the same tax rate as that of your income.

Disadvantages Of Canadian ETFs

The ETFs might offer a lot of advantages, but it isn’t perfect. There are some drawbacks when it comes to ETFs. They include;

1. Trading Costs

Depending on where you trade, the cost of trading an ETF can be more than the savings from management fees. For investors using a brokerage firm, trading costs will be lower especially when compared with investors with no brokerage firm.

Also, when buying high and selling low, you should be away from the spread which increases cost in the long run. Furthermore, not all ETFs are low-cost you should always check carefully the expense ratio of the ETF you want to invest in.

2. Tracking Error

ETF managers are tasked to keep their funds’ investment performance in line with the indexes they track. It is not as easy as it seems.

There are different ways an ETF can get lost from its intended index. Tracking errors can cause investors to lose profit as ETFs can be hard to track.

3. Complexity and Settlement Dates

Lack of understanding of the operational mechanics of ETFs by individual investors is always a problem. It comes as no surprise that some investors get confused when dealing with grantor trusts, exchange-traded notes, unit investment trusts, and exchange-traded funds. Another angle of investor confusion is the settlement periods.

The settlement date is the day you pay for your purchase and the day you get cash for selling a fund. The ETF settlement date is always two days after a trade is placed.

ETFs vs. Stocks: Case Study

Are you a fan of ETFs or do you like Individual blue-chip stocks? Forget penny stocks or any XYZ stock here. That’s not what we are here for. All we are planning to do is compare best-in-the-class ETFs with world-class individual stocks. Makes sense? Let’s do this.

Let me quickly compare the best Canadian ETFs with US blue-chip stocks and show you the difference in picking individual great stocks vs. ETFs (Recession-proof stocks)

As you all might know by now, ETFs are a pool of stocks (usually hundreds). Be it an index fund such as the S&P 500 or any other sectorial fund of your choice. In this case, let’s consider some of the best and most well-knownCanadian ETFs – VFV, XUS, VCN, VBAL, and ZSP.

Now, let’s compare each of these ETFs with Microsoft and Apple stocks which are blue-chip market leaders with extremely well-diversified product lineups.

Don’t mind I’m not considering Facebook or Google here coz the majority of their income is from online ads and I’m personally not a great fan of their products or service as I genuinely feel they are not as well diversified as the above two considered.

VFV Vs. ZSP

First of all, over the past year VFV and ZSP, two of the best S&P 500 Index funds have returned 8% each.

As you can see, Microsoft stock clearly dominates the VFV or ZSP or VCN or XUS, or any other S&P 500 Index fund ETFs which are usually considered the best in the market (benchmark).

What I mean to say is, ETFs are great investments, don’t get me wrong, they are well-diversified, your money is so much more secured and safer with ETFs and you won’t lose as much when the market drops. That’s all there.

But, what’s wrong with picking individual stocks such as Microsoft or Apple? Just these two. Time and again these blue-chips have returned double-digit solid gains. The product roadmap and diversification are excellent with recurring revenue.

Forget these two stocks, pick any stock you like in the Canadian or the US stock market and be consistent in your investments. (Please pick blue chips only, as it’s safer and better for the long term:))

Do remember to always check out the Investor Relations Page of the company to understand the business and company fundamentals in detail before making that investment.

When it comes to Microsoft or Apple stocks, these are some of the most well-diversified, best-in-class product companies with recurring revenue models and have been consistent and time-tested for decades. Do not enter the markets with FOMO (Fear of Missing out). Always go long-term.

For example, Apple AirPods revenue alone will be the third-highest revenue-generating in Billions for Apple (wearables), while Microsoft Office 365 is a recurring subscription-based now, and with WFH and Teams, Microsoft keeps dominating the market over and again. Again they keep making sure that they dominate the markets with new interesting defined and excellent product streams to make more money.

Simply head over to their Investor’s relation page, click on the latest quarterly report/slides, and look at how well-diversified their revenue streams are.

Coming back to the market returns, isn’t it just mind-blowing, even with the pandemic around, these two massive tech companies are doing extremely well. That’s how robust their businesses are. Microsoft stock alone has returned almost 5 times what VFV has, that too in the past 5 years alone.

Consider this, even if you start investing $500 or $1000 every month into Microsoft stock alone, you’ll reach a good healthy lump sum portfolio by the end of the next 5 years. Once you have a decent-sized portfolio then you can probably diversify. Now, that’s just one take.

Another question you might probably have is:

Aren’t these stocks expensive compared to the ETF prices? What if the markets crash again?

Yeah, I believe so too, the markets might crash again, The best approach for that would be to invest consistently every month and not put in a lump sum and suffer severe losses.

For example: Say you have $10K, why don’t you invest that systematically every month, making sure even if the market crashes your investments are averaged out? Never even get into the habit of options, it’s just a waste of time and energy. Be consistent, track your goals, and be focused is all I can say.

I’m repeating, don’t go by the crowd, make your own decisions, and do what you feel is right.

But if you ask me, I will definitely recommend you go with the Individual blue-chip stocks. Be it Apple or Microsoft or any Canadian Blue chip such as TD, RBC, CIBC bank, or Fortis compared to any Canadian ETFs or S&P 500 Index funds.

The most important part for you to think over is your financial goals, risk tolerance, and consistency in terms of investing money. Don’t let your emotions drive the investments you make.

Again, this was just a case study on how to pick individual stocks vs. ETFs in the right way. Make sure you don’t just leave the money in the bank account and make it work for you against inflation.

Final Words