If you want to invest in Canadian stocks but don’t know which ones to pick, a Canadian equity ETF is a good alternative to consider.
Canadian equity ETFs only invest in Canadian stocks and, most of the time, target a broad group of stocks.
Analysts are bullish on Canadian stocks, especially now during a rising rate environment. The S&P/TSX Composite Index (the broad Canadian market) is currently paying twice the dividend rate of the S&P 500 Index, a feature that should help it outperform as rates rise.
I will cover the best Canadian equity ETFs in Canada below and go over some of their key features.
Pros and Cons of Canadian Equity ETFs
Canadian equity ETFs offer investors both advantages and disadvantages, like all other investments.
- Canadian stocks typically offer good dividend yields (relative to US stocks)
- Better-positioned to outperform during inflationary periods than the broad US market
- Automatically diversifying your investment over a basket of Canadian stocks
- Concentration across a few main sectors: energy, materials, and financials
- Long-term underperformance relative to broad US equity markets
- Volatile relative to safer asset classes such as fixed income
If you don’t have the time to research or trade a group of Canadian stocks, Canadian equity ETFs are a good way to add the same exposure to your portfolio.
6 Best Canadian Equity ETFs in Canada
1. Horizons S&P/TSX Capped Composite Index ETF
- Ticker: HXCN.TO
- Inception Date: February 5, 2020
- Assets under Management: $1.19 Billion
- Management Expense Ratio: 0.05%
- Management Style: Passive
- Risk Rating: Medium
- Distributions: None
- Distribution Yield: Not applicable
- Stock Price: $32.89
- YTD Return: 0.55%
Horizons offers an S&P/TSX Capped Composite Index ETF that is an excellent option for investors looking to gain exposure to the broad Canadian stock market. The HXCN ETF is part of Horizons’ total return index family of ETFs.
HXCN aims to offer investors a total return that is as close as possible to the S&P/TSX Capped Composite Index through a swap strategy. The swap strategy increases the tax efficiency of the ETF, making it an invaluable addition to non-registered accounts. It does so by eliminating distributions.
HXCN invests in broad large-cap Canadian stocks with a maximum weight of 10% on any one particular holding.
The ETF has a very short performance track record and is a massive fund in terms of assets under management. It does not pay distributions to investors, which may be unattractive for investors that are looking for regular income.
HXCN is offered at an extremely low management expense ratio.
Horizons’ HXN ETF is an excellent option to consider adding to your portfolio and a top choice as a Canadian equity fund.
Blackrock’s iShares suite of ETFs is very well-known globally for low fees. The iShares Core S&P/TSX Capped Composite Index ETF is one of the largest ETFs in Canada in terms of assets. It passively tracks the S&P/TSX Capped Composite Index.
Like other ETFs that track the broad Canadian market, XIC has high allocations to information technology, health care, and consumer discretionary. Most of the ETF’s holdings are large-cap stocks.
XIC has a very long performance track record and is incredibly large in terms of assets under management. The ETF is offered at a very low management expense ratio that is only marginally higher than HXCN’s.
It pays a good quarterly distribution yield which reduces the ETF’s tax efficiency (which is relevant for non-registered accounts). If you are looking for regular distributions from your ETF, iShares’ XIC is a superior pick to HXCN.
As a way to get low-cost, Canadian broad market exposure to stocks, the XIC ETF is another excellent choice to consider.
3. TD Canadian Equity Index ETF
TD is a less-known player in the low-cost ETF space here in Canada but offers an incredibly competitive broad Canadian equity ETF through its TTP ETF.
The fund passively tracks the Solactive Canada Broad Market Index. Solactive is a low-cost index provider, allowing TTP to be offered at an extremely competitive fee.
TD’s TTP ETF has a high concentration in the financial services, energy, and basic materials sectors. It currently has just over 300 total underlying stock holdings.
TTP has a medium-length performance track record and is very large in terms of assets under management. The ETF is offered at an extremely low management expense ratio that is marginally lower than XIC’s.
The ETF pays a good distribution yield to investors on a quarterly basis. Investors are also offered the option of a DRIP (dividend reinvestment plan), which allows them to reinvest dividends back into the fund.
If you are looking for a cost-competitive ETF for broad Canadian market exposure, TD’s TTP ETF is a hidden gem.
4. Vanguard FTSE Canada Index ETF
Vanguard is another low-cost ETF provider known around the world for its comprehensive ETF offering. The Vanguard FTSE Canada Index ETF allows Canadian investors to target the broad Canadian stock market.
VCE passively tracks the FTSE Canadian Domestic Index and focuses on investing mainly in the largest Canadian stocks by market cap. The strategy is more concentrated than the first three ETFs on my list, investing in roughly 50 large Canadian stocks.
The VCE ETF has financials, energy, and basic materials as the fund’s top three sectors. The top ten investments (by weight) make up just under 50% of the fund’s overall investments.
VCE has a long performance track record and is yet another very large ETF in terms of assets under management. Like the other low-cost ETFs on my list, VCE is offered at a very low and competitive management expense ratio.
The Vanguard FTSE Canada Index ETF pays distributions to investors on a quarterly basis and offers a good distribution yield.
VCE is a good Canadian equity ETF to consider if you are looking for a more concentrated mandate that focuses only on very large Canadian stocks.
iShares offers another broad Canadian equity ETF – XIU. XIU is the oldest ETF in the world, having started to trade all the way back in 1990.
XIU aims to replicate the performance of the S&P/TSX 60 Index. Since the fund only invests in 60 of the largest Canadian stocks, it is much more concentrated than some of the other alternatives on my list (as well as more heavily skewed towards the largest Canadian stocks by market cap).
The ETF’s top three sectors are financials, energy, and industrials. The top ten underlying stock holdings currently make up over 40% of the fund.
XIU has one of the longest ETF performance track records in the world and is the largest Canadian ETF by assets under management. Although the fund is extremely old and popular, it trades at a very high management expense ratio relative to its peers.
Similar to most of its peers, the XIU ETF pays distributions to investors on a quarterly basis and offers a good dividend yield.
Although XIU is the most popular ETF in Canada, I do not recommend it as a top choice because of its relatively high MER.
6. Horizons S&P/TSX 60 Index ETF
- Ticker: HXT.TO
- Inception Date: September 14, 2010
- Assets under Management: $3.73 Billion
- Management Expense Ratio: 0.04%
- Management Style: Passive
- Risk Rating: Medium
- Distributions: None
- Distribution Yield: Not applicable
- Stock Price: $52.56
- YTD Return: 0.52%
A superior option if you are looking to invest in the S&P/TSX 60 Index is offered by Horizons through the HXT ETF. HXT passively tracks the index using a total return swap, which increases tax efficiency and eliminates distributions.
The HXT ETF again only invests in 60 of the largest Canadian stocks, making it more concentrated than more broadly-invested peers on my list. Canadian small and mid-cap stocks are entirely excluded by the strategy, as they are filtered out by the S&P/TSX 60 Index.
Similar to XIU, the ETF’s top three sectors are financials, energy, and industrial services, with the top ten stocks currently making up more than 40% of the total fund.
HXT has a very long performance track record and is a massive ETF in terms of assets under management. Relative to the XIU ETF, HXT comes with a significantly shorter track record and with much lower assets, but both track an identical index.
The HXT truly shines when considering its management expense ratio. Currently offered at the lowest MER on my list, HXT is almost four times less expensive than the XIU.
Since the ETF does not pay distributions, it may not be an attractive option for investors that are looking for constant distributions being paid out.
As a more concentrated approach to investing in Canadian stocks, HXT is an excellent option as a Canadian equity ETF.
Are Canadian Equity ETFs Worth the Fees?
Passive Canadian equity ETFs are an excellent option to consider for simple Canadian stock exposure. Since they are offered at extremely low fees, they are well worth what they charge investors.
If you are looking to invest in Canadian stocks within a non-registered account, Horizons’ total return ETFs on my list offer substantial tax advantages at incredibly low fees. This tax efficiency would not be possible by buying the underlying stocks directly (since the ETF uses a swap strategy).
For several basis points in fees (in most cases), the above Canadian equity ETFs can save you the trouble of trading each individual stock.
Unless you are looking to make precise investments across several Canadian stocks that you are highly confident in, Canadian equity ETFs are a must-have in a lot of investor portfolios.
How to Buy the Best Canadian Equity ETFs
The cheapest way to buy ETFs is from discount brokers. My top choices in Canada are:
- 105 commission-free ETFs to buy and sell
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To learn more, check out my full breakdown of the best trading platforms in Canada.
Conclusion
If you are unsure of how to begin investing in Canadian equities, doing so through one or more Canadian equity ETFs is an excellent option to consider.
Being offered at some of the lowest ETF fees in Canada, Canadian equity ETFs can save investors a lot of time and trouble.
If you are looking for a more comprehensive list of ETFs to consider investing in, be sure to read my guide on the best ETFs in Canada. This guide covers a wide range of asset classes outside of Canadian equities.
