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Top 5 Index ETFs for Canadians (for growth & hold forever!)

Updated: Nov 14, 2022

ETF #1: iShares S&P/TSX 60 Index ETF (XIU.TO)
  • Price: ~CAD $32.31

  • Benchmark Index: S&P/TSX 60 Index (ie. Top 60 largest companies in Canada)

  • Average Returns: The 3 year average is 11.59% with the 1 year average being an anomaly at 28.05%.

  • Dividends: You can also expect some dividend payments of ~2.5%, which is decent ouf ot the index funds mentioned in this post but still below the Dividend ETFs (link here).

  • Management fees are on the low end at around 0.15% compared to mututal funds which charge up to 2%! Though you also can find the US index funds to be even lower at 0.05 to 0.10% but you would also need to trade using USD funds.

  • Top holdings consist of Shopify at 9.34%, followed by many financial sector holdings such as the national banks. You can also see industrial and energy stocks such as the Canadian railways. This explains why the Dividend yield is higher for this Candian ETF compared to the following US ETFs.

ETF #2: iShares NASDAQ 100 Index ETF - CAD-Hedged (XQQ.TO)
  • Price: ~CAD $121.23

  • Benchmark Index: NASDAQ 100 (ie. Top 100 mainly US and some international non-financial companies in the Technology, Consumer Services, and Health Care sector)

  • Average Returns: The 3 year average is superb at 25.60%, with 2020 returns being 45.11% alone! 2018 suffered only minimal downturn at 1.75% compared to other ETFs and stocks that had performed very poorly during 2018.

  • Financial valuation: Compared to XIU.TO above, we can see that the ratios are a lot higher, in which the P/B ratio is almost 4x and the P/E ratio is around 2x! Keep in mind that NASDAQ 100 index had a good run in 2020 and may potentially be overvalued or investors just see a lot of potential in the future market with restrictings easing from the pandemic and in the Technology, Consumver Services, and Health Care Sector. It's almost impossible to predict the market, but a way to minimize risk is to dollar cost average and hold long-term, which has historically shown to net positive returns.

  • Dividends: When buying these growth ETFs, dividend is not usually something one would expect. This ETF is no exception with abysmal dividends of 0.23%.

  • Management fees on the higher end at .35% compared to .15% for XIU.TO. Take into consideration that this ETF is CAD-hedged, which may require more management.

  • Top Holdings consist of mainly top tech and communication companies such as Apple, Microsoft, Amazon, Alphabet, Facebook, etc.

ETF #3: iShares Core S&P 500 Index ETF (CAD- Hedged (XSP.TO)
  • Price: CAD ~$49.20

  • Benchmark Index: S&P 500 Index (ie. Top 500 largest companies in the US) via 97.69% holdings in iShares Core S&P 500 ETF (IVV). You can also invest directly through IVV, but it's in USD and cost $458 per share, with lower managment fees of 0.03% and slighly higher returns as it more closely aligns with the benchmark.

  • Average Returns: The average three return is 13.94% with 2019 being the best year at 29.15%, coming from a 2018 drop of -6.15%. 2021 has also been a superb year at 1 year average of 29.09%.

  • Financial valuation: As mentioned above, the historical average for S&P 500 has been between a P/E of 12 to 15. You can see that currently, the P/E ratio is 34.10x, which is higher than what it has been historically. The P/B of 4.88 is also higher than the average of around 2.9 historically. (Note, following figures are from iShares Core S&P 500 ETF)

  • Dividends are only 1% but keep in mind these ETFS are not mainly for dividends but more growth.

  • Management fee is also one of the lowest at 0.09% which is definitelly on the low end for Canadian dollar ETFs.

  • Top Holdings: XSP.TO is a fund of a fund, so it holds 97.69% in the US dollar iShares Core S&P 500 ETF, which holds mainly stocks in Information Technology, Health Care, Consumer Discretionary, Financials, and Communication. The companies are also very similar to XQQ.TO in that the focus are largely on IT companies, which top stocks such as Apple, Amazon, Microsoft, Alphabet, Tesla, and Facebook overlapping.

ETF #4: iShares S&P U.S. Small-Cap Index ETF - CAD-Hedged (XSMH.TO)
  • Price: CAD ~$28.44

  • Benchmark Index: S&P SmallCap 600 Index (ie. 600 smaller US companies) via 97.57% holdings in iShares Core S&PSmall-Cap ETF (IJR). You can also invest directly through IJR, but it's in USD and cost ~$111 per share, with lower managment fees of 0.06% and slighly better returns as it more closely aligns with the benchmark.

  • Average Returns: This CAD-hedged ETF is relatively new (while the IJR has been around for a while) and only has 1 year average annual results of 56.26%, which is outstanding with 2020 returns of 7.14%. When referring the the IJR ETF, the 3 year average return was 9.4%. Note: Keep in mind the Small Cap stocks are a lot more volatile compared to the Large Cap stocks, with larger swings on the upside and downside. However, if you are investing in the long--term, it is not unreasonable to predict some of these Small Cap companies growing into Large Cap companies, with long-term expectations of upside (though this is just my personal opinion).

  • Financial valuation Compared to the S&P 500 Index ETF above, both ratios are lower at P/B of 2.21 (vs. 4.88) and P/E ratio of 21.70 (vs. 34.10), which may indicate that the Small Cap stocks have relatively "healthier" valuation compared to the Large Caps, but this ratios are only one of many factors to consider when evaluating a company.

  • Dividends: Dividend yields are also abysmal at 0.49% but there must have been a recent dividend distribution or increase in dividends as it jumped to 1.97%.. Keep in mind we are targeting these ETFs more for growth rather than for dividends.

  • Management Fees are 0.20% which is not the lowest, but keep in mind that this ETF is CAD-hedged so there is more management involved compared to the equivalent ETF in USD which doesn't require hedging.

  • Top Holdings: XSMH.TO is a fund of a fund, so it holds 97.57% in the US dollar iShares Core S&PSmall-Cap ETF (IJR), which holds mainly stocks in Financlas, Industrials, Consumer Discretiionary, IT, Healthcare, Real Estate, Energy, etc. Refer to Breakdown below.

ETF #5: iShares Core MSCI Emerging Markets ETF (IEMG.TO)
  • Price: ~USD $64 (where there is a CAD currency one called iShares Core MSCI Emerging Markets IMI Index ETF (XEC.TO), the performance is inferior as the CAD dollar is not hedged, not to mention a higher management fee of 0.25% vs.11% shown below).

  • Benchmark Index: MSCI Emerging Markets Investable Market Index (captures large, mid and small cap representation across 27 emerging markets countries; covers 99% of free float-adjusted market capitlization in each country with 3,235 consituents)

  • Average Returns: The 3 year average annual return is 8.82%, which is probably the lowest out of the bunch. That being said, the reason the other ETFs performed so well was because they were heavily US market focused, which has a really good run the past few years. Keep in mind these ETFs are ones to hold forever, so who is to say the US will always be a dominant market? There are still ample opportunities in the emerging markets like China, Taiwan, India, South Korea, and Brazil, which have yet to be fully realized (though this is just my personal opinion).

  • Financial Valuation: Compared to the S&P 500 Index ETF above, both ratios are the lowest out of this group of ETFs at P/B of 2.05 (vs. 4.88) and P/E ratio of 18.90 (vs. 34.10), which may indicate that the Emerging market stocks are potentially undervalued, but then again, ratios are only one of many factors to consider when evaluating a company.

  • Dividends: Surprisingly, dividend yields are also decent at the 1.8~1.9% mark, which beats all the US market ETFs.

  • Management Fee are relatively low at 0.11% so you are able to get more returns after netting expenses!

  • Top Holding consist of IT, Finanacials, Concumer Discretionary, Commuication, Materials, Industrials, etc from emerging market countries, with company such as Taiwan Semiconductor, Alibaba, Samsung, etc. This ETF provides diversification for markets outside of the US so you are able to capture potential future growth of these fast growing companies.

Bonus: iShares Core Balanced ETF Portfolio (XBAL)

If you are risk averse and lazy to invest in multiple ETFs, your safest bet out of this group of ETFs is probably this balanced ETF which has hold around 36% in fixed income and 63% in equity. Though, earning fixed income via bonds is not the best return on your money now a days with interest rates so low, it will provide the greatest stability when markets go for a downturn.

On the otherhand, you are still invested majority in equity, primarily in the S&P Total US Stock market, Canadian S&P/TSX, as well as other developed nations via iShares MSCI EAFE IMI index.


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