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Best Canadian ETFs 2019

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.

Greetings, you charming, smart Canadian, you. We're always delighted to make the acquaintance of a Canuck who’s interested in passive investing through ETFs. As Justin Trudeau's presence in this video attests, you're in good company.

Which ETFs are the best ones for Canadians to buy?

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 US. Luckily, you don’t have to drive several hours and brave US customs to invest in its companies; US equity ETFs can be purchased from the comfort of your living roomSo 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 US or Canadian economies.

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We’ve assembled the most prominent ETFs that invest in either the Canadian or US 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 US stock markets have some similarities; both, for example, boast with 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's home to many more a much technology and healthcare 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 US and Canadian markets. Before investing, it's important to remember, of course, 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.

ETFs that invest in Canadian companies

The top five ETFs (ordered by assets under management, or AUM) that invest in Canadian companies are listed below.

NAMEISSUERDESCRIPTIONAUM (In billions CAD)MERTSX SYMBOLMARKET CAPITALIZATION OF INDEXED COMPANIES
iShares Core S&P U.S. Total Market Index ETFP/TSX Capped Composite Index ETFBlackRockReplicates performance of the S&P Total Market Index (4.30.07XUUsmall, mid, large
BMO S&P TSX Capped Composite IDX ETFBMO Asset Asset ManagementReplicates performance of the S&P®/TSX® Capped Composite Index4.10.06ZCNsmall, mid, large
Horizons S&P/TSX 60™ INDEX ETFHorizons Exchange Traded FundsReplicates performance of the S&P/TSX 60™ Index1.70.03HXTlarge
Vanguard FTSE Canada All Cap ETFVanguard Investments CanadaTracks the performance of the FTSE Canada All Cap Index1.60.06VCNsmall, mid, large

ETFs that invest in US Companies

The top five ETFs (ordered by assets under management, or AUM) that invest in American companies are listed below.

NAMEISSUERDESCRIPTIONAUM (IN BILLIONS CAD)MERTSX SYMBOLMARKET CAPITALIZATION OF INDEXED COMPANIES
BMO S&P 500 Index ETF (CAD)BMO Asset ManagementSeeks to mimic the performance of the entire stock market by tracking the S&P Total Market Index50.09ZSPlarge
Vanguard S&P 500 Index ETFVanguard Investments CanadaSeeks to track large-capitalization U.S. stocks by mimicking the S&P 500 index1.90.08VFVlarge
U.S. Total Market Index ETFVanguard Investments CanadaSeeks to mimic the performance of the entire stock market by tracking the CRSP US Total Market Index1.40.16VUNsmall, 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 Index1.30.07XUUsmall, 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 declines0.760.08VSPlarge

How to choose the best ETF for your needs

So, what might be 'best' for one person may not be 'best' for another. 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, 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 to pass it 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 term “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, as this article explains, 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 between the two of .09%. What does this mean in dollars? For a small investor, over the short term, not that much. If you're like us, and wouldn't be able to multiply your way out of a wet paper bag, a fee calculator like this one shows that 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 owing to the concept 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 assess 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

If 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 their ETFs at no cost which is certainly as reasonable a price as you'll find 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. Cheapskates will always read the fine print (and 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 direction. Wealthsimple will create for you a personalized, diversified, low-cost investment portfolio featuring all of you favorite companies.

Last Updated November 20, 2019

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