Every year, it seems that Canadian ETF investors have an increasing number of choices regarding exchange-traded funds(ETFs). In addition to traditional stock index ETFs, investors can opt for an all-in-one asset allocation ETF, or add thematic ETFs to complement their portfolio, like Gold ETFs, Tech ETFs, or even Bitcoin ETFs.
The problem with having so many choices is that it makes selecting the right ETF for your portfolio confusing. To help, I’ve put together this list of the best Canadian ETFs for 2022, starting with the top Canadian stock ETFs:
Best Canadian Index ETFs
A Canadian Index ETF is a fund that invests mainly in the total Canadian market by tracking a major Canadian stock index. While there is an abundance of great ETFs available that fit the bill, here are my top 3 picks for 2022:
1. Vanguard FTSE Canada All Cap Index ETF
Ticker: VCN
MER: .05%
# of Holdings: 185
AUM: $4.47B
What We Like: With an MER of only .05%, VCN offers an ultra-low-cost ETF that’s also highly diversified due to its all-cap exposure to small, medium, and large Canadian corporations.
2. iShares Core S&P/TSX Capped Composite Index ETF
Ticker: XIC
MER: .06%
# of Holdings: 238
AUM: $8.8B
What We Like: Another fund with an ultra-low MER invests in the largest and most liquid Canadian corporations listed on the TSX. Index holdings are capped at a maximum of 10% to prevent an overweighting of any company.
3. Horizons S&P/TSX 60 INDEX ETF
Ticker: HXT
MER: .04%
# of Holdings: 60
AUM: $3.5B
What We Like: This is a much smaller ETF than XIU (see honourable mention below), but it tracks the same index, and it does so at a much lower cost, with a minuscule MER of only .04%. What’s not to like about that?
Honourable Mentions:
- iShares S&P/TSX 60 Index ETF (XIU): Similar to HXT, but higher MER of 0.18%.
- BMO S&P/TSX Capped Composite IDX ETF (ZCN): Good alternative to XIC.
Best US Index ETFs for Canadians
If your ETF portfolio only holds Canadian companies, you’re missing out. While some home-country bias is understandable, the problem with investing only in Canada is that our country represents less than 5% of the global market.
Without exposure to the US and other international markets, you are not only missing out on key opportunities, but your investments are not globally diversified. This can increase the risk level of your overall portfolio. The following US Index exchange-traded funds can be purchased in Canadian dollars and are a welcome addition to any ETF portfolio.
1. iShares Core S&P U.S. Total Market Index ETF
Ticker: XUU
MER: .07%
# of Holdings: 3650
AUM: $2.0B
What We Like: Core long-term holding is the simplest and most affordable way to invest in the totality of the US market. The fund covers large, medium, and small cap companies (over 3500 in total), and features a very low MER of only .07%.
2. Vanguard S&P 500 Index ETF
Ticker: VFV
MER: .09%
# of Holdings: 507
AUM: $6.19B
What We Like: If you only want to hold the largest companies in the US, Vanguard’s S&P 500 Index is a good bet. With an MER of only .09%, this fund offers large-cap, unhedged exposure to the US market.
3. BMO S&P 500 Index ETF
Ticker: ZSP
MER: .09%
# of Holdings: 503
AUM: $9.1B
What We Like: Another large-cap ETF, ZSP tracks the same index as VFV, at a slightly higher MER. However, this is a larger fund with more than $9B in assets under management.
Best CAD-hedged US Index ETF
Vanguard S&P 500 Index ETF (CAD-hedged)
Ticker: VSP
MER: .09%
# of Holdings: 505
AUM: $1.9B
What We Like: Similar to VFV, however, this fund uses derivative instruments to provide currency-hedged exposure to the S&P 500. Our top pick for those who want less exposure to currency risk. At .09%, MER is the same as VFV.
International Index ETFs
When buying an international ETF, you’ll have the option of picking a single fund that covers all global markets or choosing 2 or 3 more targeted international ETFs to achieve full coverage. For example, the first fund on our list, XAW, is a truly global fund that invests in developed and emerging world markets and the US.
VEE, on the other hand, focuses almost exclusively on emerging markets. You should own this fund alongside a developed market alternative, such as iShares Core MSCI EAFE IMI Index ETF.
iShares Core MSCI All Country World ex Canada Index ETF
Ticker: XAW
MER: .22%
# of Holdings: 9443
AUM: $1.6B
What We Like: A true global ETF, XAW receives top marks for its exposure to US and international markets, including developed and emerging markets. The .22% MER is higher than a Canadian or US index ETF, but it’s still a fraction of the cost of an international equity mutual fund.
Honourable Mention:
Vanguard FTSE Global All Cap ex Canada Index ETF (VXC): A nice alternative to XAW, albeit at a slightly higher cost, VXC provides exposure to all global markets, excluding Canada.
Best Emerging Markets ETF
Vanguard FTSE Emerging Markets All Cap Index ETF
Ticker: VEE
MER: .24%
# of Holdings: 5442
AUM: $1.4B
What We Like: A solid choice if you prefer a dedicated emerging markets ETF. The fund is all-cap, with about 65% of holdings in large-cap companies.
Honourable Mention:
iShares Core MSCI EAFE IMI Index ETF(XEF): For those wanting to target their international exposure, XEF includes developed nations in Europe and Asia and Australia.
Best Bond ETFs
Many Canadian investors are under-weighted in the income component of their portfolios. This means that they may be exposed to levels of volatility that exceed their risk tolerance and are unsuitable given their investment objective. The following bond ETFs make achieving the right asset mix in your portfolio easy.
1. BMO Aggregate Bond Index ETF
Ticker: ZAG
MER: .09%
# of Holdings: 1431
AUM: $5.9B
What We Like: A low-cost, broad index fund that tracks the FTSE Canada UniverseXM Bond Index, and holds federal, provincial, and corporate bonds. This fund will reduce portfolio volatility and generate income over the medium to long term.
2. Vanguard Canadian Aggregate Bond Index ETF
Ticker: VAB
MER: .09%
# of Holdings: 1141
AUM: $3.1B
What We Like: An alternative to ZAG, VAB holds over 1000 high-quality government and corporate bonds but tracks the Bloomberg Barclays Global Aggregate Canadian Float Adjusted Bond Index. It is very low cost with an MER of only .09%
Best Short Term Bond ETF
iShares Core Canadian Short Term Bond Index ETF
Ticker: XSB
MER: .10%
# of Holdings: 536
AUM: $3.2B
What We Like: Simple, low-cost way to get broad exposure to high-quality short-term bonds. The fund tracks the FTSE Canada Short Term Overall Bond Index.
Best Canadian Dividend ETFs
Canadian investors love earning passive income from dividend stocks. And who can blame them; some of Canada’s most reliable dividend-paying companies are also it’s most profitable – think RBC, TD Bank, Telus, Brookfield Asset Management, and BCE. The challenge is building a dividend portfolio that’s large enough to achieve proper diversification through individual stocks. The alternative is to buy dividend ETFs.
There are several solid dividend ETFs to choose from, but for this list, we’re going with iShares S&P/TSX Canadian Dividend Aristocrats Index ETF, which seeks to seeks to replicate the net performance of the S&P/TSX Canadian Dividend Aristocrat Index. In other words, for a stock to be included in this ETFs holdings, it must have increased its dividend for at least five years. The fund’s MER is 0.66%.
iShares S&P/TSX Canadian Dividend Aristocrats Index ETF
Ticker: CDZ
MER: .66%
# of Holdings: 94
AUM: $1.03B
What We Like: 100% of funds holdings are Canadian Dividend Aristocrats
Best Preferred Share ETF
If you’re looking to add a fixed-income component to your portfolio, you might consider a preferred share ETF. As you may know, preferred shares offer preferential dividend payments but lack voting rights. While preferred shares are not purely a fixed-income security, investors often treat them as such. However, preferred share ETFs should not be considered a substitute for regular stock ETFs. While their values can rise and fall with the market, you won’t realize the full growth potential when markets rise.
The BMO Laddered Preferred Share Index ETF is a solid choice in this category. It offers a very attractive dividend yield of close to 5%, which is rare for an exchange-traded fund. It has more than $2B in assets under management and offers a great deal of stability to Canadian investors who add this to their portfolio.
BMO Laddered Preferred Share Index ETF
Ticker: ZPR
MER: .50%
# of Holdings: 191
AUM: $2.2B
What We Like: Very attractive dividend yield of 4.77%.
Best Canadian REIT ETF
Real Estate Income Trusts (REITs) allow investors to invest in real estate without the capital requirement of purchasing a physical property or the hassles of being a landlord. You can buy REITs individually, similar to a stock, or inside an ETF. REIT ETFs offer simplicity and diversification for a low fee. When choosing REIT ETFs, I recommend that you prioritize well-diversified funds with low MERs. Our best Canadian REIT ETF ticks all of those boxes.
Vanguard FTSE Canadian Capped REIT ETF
Ticker: VRE
MER: 0.35%
# of Holdings: 16
AUM: $285M
What we like: There are larger REITs with more holdings, but VRE offers enough diversification and liquidity to satisfy most investors. Its low MER of 0.35% sets it apart, the lowest in this class of ETFs.
Best Gold ETF
Gold ETFs differ from total market ETFs in focusing on one sector: gold. This makes them more volatile than broad market ETFs that track the TSX/S&P 500 index. In Canada, there are several gold ETFs to pick from, but if you’re only buying one, we recommend the iShares S&P/TSX Global Gold Index ETF.
iShares S&P/TSX Global Gold Index ETF
Ticker: XGD
MER: .61%
# of Holdings: 47
AUM: $992M
What we like: Low MER with global diversification (US, South Africa, Peru).
Best Bitcoin ETF
Cryptocurrencies have had a rough go as of late, with Bitcoin dropping more than 60% alone so far in 2022. But if you believe there is a future for the world’s most popular crypto coin, it may still have a place in your portfolio. Beginning in 2021, you can now purchase bitcoin in an ETF form. The advantages of Bitcoin ETFs lie in their simplicity – you can purchase them inside your online broker account – and their security. All Bitcoin ETFs store their crypto offline in cold storage, making it a safe way to own digital currency.
The Purpose Bitcoin ETF (BTCC) is our top choice for 2022. In addition to being the world’s first Bitcoin ETF – it was launched in February 2021 – it holds actual Bitcoin, and is TFSA and RRSP eligible. It’s $664M in assets under management makes it the largest Canadian Bitcoin ETF. Its MER is 1.00%.
Purpose Bitcoin ETF
Ticker: BTCC
MER: 1.00%
# of Holdings:
AUM: $664M
What we like: Canada’s first-ever Bitcoin ETF is also its largest.
Best Tech ETF
Recent history has taught us just how volatile the technology sector can be – here in Canada and abroad. Tech stocks like Apple and Shopify soared during the COVID pandemic, only to come crashing down in 2022. If you want to add tech to your portfolio, the extreme volatility can make it incredibly difficult to pick individual stocks. The easiest way is to buy a tech ETF, to achieve instant exposure and adequate diversification.
Our top choice is iShares Capped Information Tech ETF (XIT). XIT seeks to replicate the performance of the S&P/TSX Capped Information Technology Index. It’s one of Canada’s most popular tech ETFs and one of the only ones dedicated to Canadian tech stocks. Its top 10 holdings include Constellation Software, Shopify, Blackberry, and Lightspeed Commerce. The MER is 0.61%.
iShares Capped Information Tech ETF
Ticker: XIT
MER: 0.61%
# of Holdings: 25
AUM: $388M
What we like: Dedicated to Canadian tech stocks, competitive MER.
Best Canadian ESG ETF
Our top pick for Canadian ESG ETF is iShares ESG Advanced MSCI Canada Index ETF. The fund holds small, medium, and large-cap companies with a high ESG score, as rated by MSCI. According to Blackrock Canada, XCSR “has been designed to provide investors with exposure to the performance of an environmental, social and governance (ESG)-oriented index selected at the discretion of BlackRock.” A glance at the fund’s top ten holdings looks like a who’s who of the Big Banks, but there are over 160 companies included in the fund.
iShares ESG Advanced MSCI Canada Index ETF (XCSR)
Ticker: XCSR
MER: 0.16%
# of Holdings: 164
AUM: $127M
What we like: Exposure to small, medium, and large-cap ESG stocks with a low MER.
Best Asset Allocation ETF (All-In-One)
Asset allocation exchange-traded funds, or all-in-ones, hold several ETFs instead of individual stocks, and the overall holdings cover both income and growth asset classes. Because of their added complexity, the MER of an all-in-one is higher than a typical Candian stock index ETF, but not when compared to a balanced mutual fund MER of over 2%.
Vanguard Asset Allocation ETF Family
Asset allocation ETFs are offered as a family of funds, making it challenging to come up with a top pick. For example, Vanguard has five different funds, all of which hold the same underlying ETFs with different weightings. The exception is the 100% stock fund (VEQT), which does not have a bond component. I’ve listed them below to illustrate better how these work:
- Vanguard Conservative Income ETF Portfolio – VCIP – 20% stock, 80% bonds
- Vanguard Conservative ETF Portfolio – VCNS – 40% stock, 60% bonds
- Vanguard Balanced ETF Portfolio – VBAL – 60% stock, 40% bonds
- Vanguard Growth ETF Portfolio – VGRO – 80% stock, 20% bonds
- Vanguard All-Equity ETF Portfolio – VEQT – 100% stock
What I like about the Vanguard asset allocation ETFs is that they cover the full asset allocation range.
Where Can I Buy ETFs?
The best way to add ETFs to your portfolio is to purchase them through an online discount brokerage. There are at least a dozen online brokers in Canada, but our top pick, and the one I use personally, is Questrade.
Questrade is the perfect broker for buying ETFs because it offers free ETF purchases. Because ETFs trade like stocks, most brokers charge a trading fee of up to $9.95 every time you place a trade.
With low MERs and no commissions, there’s no excuse to buy traditional mutual funds instead of ETFs. You can open a Questrade account online and place your first trade as soon as you fund your account.
Final Thoughts on the Best ETFs in Canada
With more than 25 funds included in our list of the best Canadian ETFs, you may still be wondering how to settle on two or three for your portfolio.
If you prefer to keep things simple, you can get away with buying one asset allocation ETF and leave it at that. For example, the Vanguard Balanced ETF Portfolio (VBAL) will give you an asset mix of 60% stock and 40% bonds, along with global diversification, because it holds no fewer than 4 Vanguard international ETFs.
If you prefer to build your own ETF portfolio, consider a Canadian stock index ETF, like VCN or XIC, a bond index for the income component, and one of the all-country international index ETFs, such as XAW or VXC, for global exposure. Try not to overanalyze – the most important thing is not whether you buy Vanguard or iShares, but that you get started investing. And, as always, consult a qualified advisor to ensure you invest properly.
