11 Best Index Funds In Canada (Dec 2022): ETFs and Mutual Funds

Looking for an easy way to invest in stocks without having to spend countless hours analyzing the markets?

Index funds attempt to achieve that goal; well-diversified investing at a low cost and minimal time spent.

Below are our picks for some of the best index funds in Canada.

What Is An Index Fund?

An index fund is a financial instrument in which you can invest your money to generate passive income. Many people confuse index funds to be the same as either mutual funds or Exchange-Traded Funds (ETFs).

The truth is, an index fund can be either an ETF or a mutual fund. Index funds are assets that can expose you to a basket of securities belonging to different market segments by tracking specific indexes.

Take any established market index like the S&P 500. A passively managed ETF index fund tracking the S&P 500 Index holds all the 500 constituent securities for the underlying index.

There can also be an actively managed mutual fund that buys and sells stocks in the S&P500, and that would also be considered an index fund.

Before jumping into the list of the best index funds in Canada, it is important to understand how index funds differ from ETFs and mutual funds. If you don’t know the differences, see below the list for the full breakdown of ETFs vs index funds vs mutual funds.

Best ETF Index Funds in Canada

There are several lower-cost index funds to consider in Canada, and I’ll include the top ETF picks for this section:

1. TD US Equity Index ETF

TD Logo
  • Ticker: TPU.TO (Unhedged), THU (Hedged)
  • Inception Date: March 22, 2016
  • Assets under Management: $1.36 billion
  • Management Expense Ratio: 0.08%
  • Listed on: Toronto Stock Exchange
  • Annualized Yield: 1.15%
  • Stock Price: $30.14
  • YTD Return: 0%

The next index ETF also tracks US stocks, this time offered by TD. TPU aims to replicate the performance of the 500 largest companies in the US by market cap, which is virtually the same as the S&P 500 index.

TPU is unhedged, which captures the effect of currency movements between the US and Canadian dollars. THU is the hedged version of the same strategy, available as a separate ETF (THU).   

By investing solely in an index tracking large US companies, your portfolio does not have any small companies.

TD’s ETF also has a fairly low yield. It is a huge fund in terms of assets and has a very low MER.

TPU does not track the S&P 500 index, likely because it is cheaper for TD to have the ETF track the Solactive US LargeCap NR CAD index (which is identical).

2. TD Canadian Equity Index ETF

TD Logo
  • Ticker: TTP.TO
  • Inception Date: March 22, 2016
  • Assets under Management: $970.36 million
  • Management Expense Ratio: 0.05%
  • Listed on: Toronto Stock Exchange
  • Annualized Yield: 2.02%
  • Stock Price: $23.01
  • YTD Return: -0.72%

TTP is another low-cost index ETF, this time tracking the Canadian market. TTP looks to replicate the broad Canadian stock market and follows an index offered by again by Solactive, likely for cost reasons.

TTP has a decent dividend yield which reflects the sector bias of the Canadian stock market. The ETF is very large in size and has a very low MER.

By investing in a Canadian index ETF like TTP, keep in mind that you are not diversifying outside of Canada. You will also be heavily concentrated in sectors such as financials, materials, and energy.

TTP is a great low-cost index ETF because it offers you the diversification of the Canadian stock market at an incredibly low MER.

3. Invesco NASDAQ 100 Index ETF

Invesco Dynamic Biotechnology & Genome
  • Ticker: QQC.TO (Unhedged), QQC.F (Hedged)
  • Inception Date: May 10, 2021
  • Assets under Management: $565.39 million
  • Management Expense Ratio: 0.20%
  • Listed on: Toronto Stock Exchange
  • Annualized Yield: 0.91%
  • Stock Price: $18.77
  • YTD Return: -21.27%

QQC aims to passively replicate the performance of the NASDAQ 100 index. QQC replicates it with currency fluctuations between US dollars and Canadian dollars, impacting your returns. QQC.F hedges away this currency impact.  

 Keep in mind that by investing only in a fund tracking the NASDAQ 100, your risk is concentrated across a few sectors. The NASDAQ 100 is a particularly tech-focused index in the US. 

The ETF has a fairly low yield, which is to be expected given the companies within the underlying index. The majority of the fund’s growth should be through capital appreciation.

QQC is a small ETF with a very short track record. Its MER is actually somewhat high for an index ETF.

4. TD Canadian Aggregate Bond Index ETF

TD Logo
  • Ticker: TDB.TO
  • Inception Date: March 22, 2016
  • Assets under Management: $473.37 million
  • Management Expense Ratio: 0.09%
  • Listed on: Toronto Stock Exchange
  • Annualized Yield: 3.28%
  • Stock Price: $13.41
  • YTD Return: -8.41%

TDB is the only fixed-income index ETF on our list. The ETF tracks the performance of the broad Canadian fixed-income market. It follows another Solactive index – the Solactive Broad Canadian Bond Universe TR Index.

Since TDB is a bond index ETF, it pays a good annualized yield on a monthly basis. This is fairly common for fixed-income mutual funds and ETFs.

TDB is a large ETF in terms of assets and is offered at a very inexpensive MER.

As a bond index ETF, TDB is considered lower risk than the stock index ETFs also covered on our list. If you have a low-risk tolerance, it is likely a more appropriate index ETF for your portfolio.

A fixed-income index fund can also be used in conjunction with a stock index ETF to create a balanced portfolio.

5. TD International Equity Index ETF

TD Logo
  • Ticker: TPE.TO
  • Inception Date: March 22, 2016
  • Assets under Management: $903.59 million
  • Management Expense Ratio: 0.20%
  • Listed on: Toronto Stock Exchange
  • Annualized Yield: 3.35%
  • Stock Price: $18.67
  • YTD Return: -7.05%

TPE, also offered by TD, covers the international equity category. The ETF invests in mid-cap and large-cap companies internationally, which means that the allocation to North America is low or zero.

TPE is not currency hedged. Fluctuations between the value of the Canadian dollar and other international currencies will affect your total return.

The international equity category is important to consider because it diversifies your portfolio outside of North America. Most professionally-constructed portfolios will have a significant allocation to global asset classes.

TPE has a great yield and comes with a slightly higher MER than most index funds on our list. Keep in mind that international and global funds tend to have higher costs.

6. Horizons Europe 50 Index ETF

horizons logo
  • Ticker: HXX.TO
  • Inception Date: December 6, 2016
  • Assets under Management: $72.42 million
  • Management Expense Ratio: 0.17%
  • Listed on: Toronto Stock Exchange
  • Annualized Yield: 0%
  • Stock Price: $37.69
  • YTD Return: -6.96%

HXX is an index ETF offered by Horizons that is geographically focused on Europe. It passively tracks the Solactive Europe 50 Rolling Future Index TR.

This index contains the 50 largest companies in the Eurozone, which are sector leaders.

HXX is not currency hedged. Currency fluctuations between the Canadian dollar and foreign currencies will impact your total return.

As a low-cost index fund focusing on the Eurozone specifically, HXX is a great option for investors that are looking to invest in this region. The ETF is fairly small in size and has a high MER.

Since HXX only invests in 50 underlying holdings, you may want to consider adding other index funds to your portfolio to diversify properly.

The Eurozone has also historically underperformed North American markets in recent history.

7. CIBC Global Bond ex-Canada Index ETF

Canadian Imperial Bank of Commerce
  • Ticker: CGBI.TO
  • Inception Date: September 16, 2021
  • Assets under Management: $294.46 million
  • Management Expense Ratio: 0.19%
  • Listed on: Toronto Stock Exchange
  • Annualized Yield: 1.70%
  • Stock Price: $16.99
  • YTD Return: -10.27%

CGBI is another low-cost index ETF offered by CIBC.  This index fund gives you access to global bonds outside of Canada, which is a great tool for building a well-diversified portfolio.

The ETF tracks the Morningstar Global ex-Canada Core Bond Hedged CAD Index. 

For fixed-income investors, combining CGBI with a Canadian fixed-income index fund like TDB will create a geographically well-diversified bond portfolio.  

CGBI is currency-hedged, so fluctuations between the Canadian dollar and other global currencies will not impact your returns.

The ETF is large and comes at a fairly high MER. As we mentioned before, funds that have a global mandate tend to come with a higher fee.

CGBI pays a decent yield on a monthly basis, which is fairly standard for fixed-income funds. The ETF does have a very short-term performance track record, having been launched recently.

The Best Mutual Fund Index Funds In Canada

Index funds have been a popular investment tool for many Canadians due to their comprehensive but low-cost exposure to different market segments and relatively stress-free approach to investing. Here’s a list of some great picks for the best mutual fund ones in Canada.

8. TD Canadian Index – e (TDB900)

  • Total Assets Under Management: $2.12 billion
  • MER: 0.28%
  • Dividend Yield: 2.24%
  • Turnover Ratio: 6.10%

TD Canadian Index Fund (TDB900) is an index fund that emulates, to the extent possible, the performance of the Solactive Canada Broad Market Index, net of expenses.

The constituent securities for the underlying market index tracked by TDB900 comprise well-established Canadian companies trading on the TSX. TDB900 is one of the largest index funds available to trade for Canadians.

9. CIBC Canadian Index (CIB300)

  • Total Assets Under Management: $1.316 billion
  • MER: 1.14%
  • Dividend Yield: 1.69%
  • Turnover Ratio: 12.43%

CIBC Canadian Index Fund (CIB300) is an index fund that emulates, to the extent possible, the performance of the S&P/TSX Composite Index, net of expenses. The S&P/TSX Composite Index is the primary benchmark index for the Canadian stock market.

The constituent securities for the underlying market index tracked by CIB300 mostly comprise well-established Canadian companies in the financial sector, and it focuses on some crucial industrial sectors.

10. RBC Canadian Index Fund (RBF556)

  • Total Assets Under Management: $1.164 billion
  • MER: 0.66%
  • Dividend Yield: 2.11%
  • Turnover Ratio: 7.77%

RBC Canadian Index Fund (RBF556) is an index fund that emulates, to the extent possible, the S&P/TSX Capped Composite Total Return Index, net of expenses.

The constituent securities for the S&P/TSX Capped Composite Total Return Index primarily comprise equity securities of Canadian companies across various sectors of the economy.

Some of the top investments for the fund include the Royal Bank of Canada, Canadian National Railways, and the Toronto-Dominion Bank.

11. Scotia Canadian Index Fund (BNS181)

  • Total Assets Under Management: $373.38 million
  • MER: 0.77%
  • Dividend Yield: 1.74%
  • Turnover Ratio: 6.30%

Scotia Canadian Index Fund (BNS1814) is an index fund that emulates, to the extent possible, the S&P/TSX Composite Index net of expenses. The constituent securities for the S&P/TSX Composite Index include all the companies trading on the Canadian stock market.

When you invest in BNS181, you are essentially diversifying your investment capital allocated to the fund into the entire Canadian stock market. The underlying index primarily invests in the financial industry, including Toronto-Dominion Bank and the Royal Bank of Canada.

Pros And Cons Of Index Funds

Index funds have several qualities that make them an attractive asset to consider if you are a first-time investor who doesn’t have a lot of time on your hands and is cautious about investing your money. Of course, not every financial instrument is perfect for every aspiring investor.

Index funds offer plenty of benefits, but they come with their drawbacks. This section of my guide to the best index funds in Canada will discuss the pros and cons of index funds to give you the information you need to make a better decision on whether index funds are a suitable investment for you.

Pros
  • Diversification: You can get easy access to hundreds or even thousands of stocks with very little effort.
  • Ease of use: With index funds, you can invest in a market that you are interested in without having to pick any stocks yourself
  • Much less time spent investing: By setting and forgetting your investment to an index fund, you can cut down on the time needed to invest drastically.
  • Lower fees: If using ETF index funds, you can construct a portfolio for very cheap.
Cons
  • Limited Flexibility: Some investors might appreciate the qualities of index funds that make them ideal long-term investments. But if you are an investor who wants to have more control over what companies you hold in your portfolio, these funds do not give you the flexibility you might prefer.
  • High fees: If using a mutual fund, the high fees can be very detrimental to your returns in the long run, which is the main reason why we mostly recommend ETFs over mutual funds.

Index Fund vs. ETF vs. Mutual Funds

Differentiating between index funds, ETFs, and mutual funds come down to understanding a few key concepts in the investment world. It’s a confusing topic but hopefully this will shed some light on the matter.

Passive vs Active Funds

Either a mutual fund or an ETF can be actively-managed or passively managed. A passively-managed ETF or mutual fund aims to replicate the performance of its underlying index.

An actively-managed ETF or mutual fund aims to outperform its underlying index by relying on the portfolio manager’s skill.

ETFs vs Mutual Funds

Before discussing ETFs and mutual funds, it’s important to understand that an index fund can be either an ETF or a mutual fund.

An ETF is simply how a basket of stocks or investment securities is packaged. An ETF trades like a stock on a stock exchange and can be traded throughout the day when markets are open. ETFs generally have lower MERs than mutual funds.

A mutual fund is a different type of investment wrapper. Mutual funds do not trade on an exchange and do not have intra-day liquidity.

One benefit of mutual funds is that you don’t have to go through a bid-ask spread to purchase them.

How To Buy Index Funds in Canada

You can purchase index funds in Canada through most Canadian brokerage platforms that offer index funds, stock, and ETF trading. My top choices are Wealthsimple Trade and Questrade.

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To learn more, check out my full breakdown of the best trading platforms in Canada here.

Conclusion

Finding and investing in the best index funds in Canada can provide your portfolio with considerable returns if you are a new investor with a medium to low-risk tolerance, have the investment capital, prefer a passive investing style, and plan to buy and hold the assets in your portfolio for the long run.

There are certain drawbacks of investing in index funds that might not make them a suitable investment for you to consider for your portfolio based on your financial goals.

Suppose that you are interested in creating a portfolio of low-cost financial instruments that can provide you with a decent monthly income. In that case, choosing dividend ETFs might be more suitable for you.

You should check out my list of the best monthly dividend ETFs in Canada if you want to earn regular passive income.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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4 thoughts on “11 Best Index Funds In Canada (Dec 2022): ETFs and Mutual Funds”

  1. Hi,
    I find your articles very useful, thanks for sharing.
    I have a question on the part where to buy Index funds. I use Wealthsimple Trade and it only allows ETFs not Index funds. Do I need to contact the above banks directly to get their Index fund?
    Thanks

    Reply

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