What are the Best ETFs in Canada in 2022?

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Andrew Goldman

Andrew Goldman has been writing for over 20 years and investing for the past 10 years. He currently writes about personal finance and investing for Wealthsimple. Andrew's past work has been published in The New York Times Magazine, Bloomberg Businessweek, New York Magazine and Wired. Television appearances include NBC's Today show as well as Fox News. Andrew holds a Bachelor of Arts (English) from the University of Texas. He and his wife Robin live in Westport, Connecticut with their two boys and a Bedlington terrier. In his spare time, he hosts “The Originals" podcast.

Newbie investors may consider investing in those ETFs created to harness the growth of two of our favorite economies: our own homegrown Canadian one, as well as that of our slightly unruly neighbor to the south, the United States. Luckily, you don’t have to drive several hours and brave U.S. customs to invest in its companies; U.S. equity ETFs can be purchased from the comfort of your living room. So when we say Canadian ETFs here, we’re talking about a sample of ETFs available in Canada that allow you to invest in either the Canadian or U.S. economies.

We’ve assembled the most prominent ETFs that invest in either the Canadian or U.S. stock markets — nothing fancy here like ETFs that short the market or concentrate only in certain sectors. What do we mean by “prominent”? Simply those ETFs that have the greatest assets under management.

So why choose one or the other? Good question. The Canadian and U.S. stock markets have some similarities. Both, for example, boast lots of gigantic financial services companies. But because of Canada’s vast natural resources, the Toronto Stock Exchange tends to be home to a lot more energy, mining, and mineral stocks, whereas the New York Stock Exchange is home to more technology and health care companies.

ETFs often have very low, or no, minimums for investment. And considering the fact that diversification, as explained in this article, happens to be one of the best strategies for maximizing gains while minimizing losses, it may well be worth considering buying yourself some exposure to both the Canadian and U.S. markets. And there’s one more obligatory thing we should say: before investing, it’s important to remember that any investment in stocks is speculative and past results aren’t necessarily predictive of future returns.

Consider kicking the tires of the below ETFs. You’ll find that the most significant difference between them is which index they seek to mimic through their stock holdings. We’ll order them by size, with the ETFs with the highest assets under management (AUMs) on top.

The biggest ETFs that invest in Canadian companies

iShares Core S&P/TSX Capped Composite Index ETFBlackRockReplicates performance of the S&P Total Market Index$40.07XICsmall, mid, large
BMO S&P/TSX Capped Composite Index ETFBMO Global Asset ManagementReplicates performance of the S&P®/TSX® Capped Composite Index$40.06ZCNsmall, mid, large
Horizons S&P/TSX 60™ Index ETFHorizons Exchange Traded FundsReplicates performance of the S&P/TSX 60™ Index$20.03HXTlarge
Vanguard FTSE Canada All Cap ETFVanguard Investments CanadaTracks the performance of the FTSE Canada All Cap Index$20.06VCNsmall, mid, large

The biggest ETFs that invest in U.S. companies

BMO S&P 500 Index ETF (CAD)BMO Global Asset ManagementSeeks to mimic the performance of the entire stock market by tracking the S&P Total Market Index$50.09ZSPlarge
Vanguard S&P 500 Index ETFVanguard Investments CanadaSeeks to track large-capitalization U.S. stocks by mimicking the S&P 500 Index$20.08VFVlarge
U.S. Total Market Index ETFVanguard Investments CanadaSeeks to mimic the performance of the entire stock market by tracking the CRSP U.S. Total Market Index$10.16VUNsmall, mid, large
iShares Core S&P U.S. Total Market Index ETFBlackRockSeeks to mimic the performance of the entire stock market by tracking the S&P Total Market Index$10.07XUUsmall, mid, large
Vanguard S&P 500 Index ETF (CAD-hedged)Vanguard Investments CanadaSeeks to track large-capitalization U.S. stocks by mimicking the S&P 500 Index and employing currency hedging to protect you from losses if the U.S. dollar declines$10.08VSPlarge

How to choose the best ETF for your needs

In order to figure out which ETF is best for you, we have a question: are you hoping to invest in an ETF for the long haul? For years, even decades (perhaps with the help of a low-fee robo-advisor like Wealthsimple), in hopes of benefiting from the historically consistent long-term rise of the market? Or, are you hoping to pop in and out of the market, putting next month’s rent in an ETF that might earn you a few bucks before you need it back to pass along to your landlord?

This was a trick question! Only those in the first group have any business putting money in ETFs or, for that matter, any speculative investment. Second-groupers should instead seek the safety of a good savings product like this one and then go to this handy stock investing primer to bone up on the phrase “risk tolerance” and how it will affect your investment time horizon.

Long-haul investors will want to consider a fund’s management expense ratio, since fees are directly predictive of returns in a very simple way: the higher the fees, the lousier the returns. The ETFs above all boast very low management expense ratios compared to the not-uncommon 1%-2% MERs commonly found in actively managed mutual funds.

But while they all may be relatively low, some of those featured are lower than others. The biggest difference you’ll see is between BlackRock’s iShares Core S&P U.S. Total Market Index ETF (.07% MER) and Vanguard’s U.S. Total Market Index ETF (.16% MER) — a difference of .09%. What does this mean in dollars? For a small investor, over the short term, not that much. Someone holding a $10,000 investment in an ETF with a .07% MER will pay $7.00 in a year, versus $16.00 for the .16% expense ratio. Over a decade, the BlackRock investor would save $124.34 in fees.

But lost fees mean lost earnings too, thanks to the idea of compound returns. Imagine a larger investment of $100,000 invested over a 30-year period earning a historically reasonable 7% a year. Not only would the BlackRock ETF cost you $8,501.47 less in fees than Vanguard’s, the earnings on the accounts would differ by $19,816.76 — certainly nothing to sneeze at. So why are we even including the Vanguard ETF? Vanguard’s fees are low across the board, and if you’re keeping other investments there, it may make both financial and practical sense to locate all your investments in one place. Do the math!

How to buy an ETF

Once you’ve located the absolute best ETF for your particular needs, it’s time to put some money down and make the charming little bugger your own.

Keep in mind the first rule of buying ETFs: you must pay attention to trading costs. Management fees are certainly important, but a .09% difference in MERs between two accounts becomes a lot less impressive if you have to pay a $50 trading commission to buy an ETF. You can go directly to Vanguard to buy its ETFs at no cost, which is certainly a price you won’t beat anywhere else. Online trading platforms’ per trade fees will vary, but if you hunt around online, you’ll be able to find tons who charge under $10 per trade. Be sure to read the fine print. (Young cheapskates often grow up to be middle-aged millionaires.)

If you’re looking for a side of friendly advice with your ETF, just holler in our general directionWealthsimple will create for you a personalized, diversified, low-cost investment portfolio featuring all of you favorite companies.

Last Updated May 3, 2022

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