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A guide to the best Canadian ETFs
Jirapong Manustrong, GagliardiPhotography / Shutterstock
Fact Checked: Amy Tokic
Updated: November 28, 2023
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We adhere to strict standards of editorial integrity to help you make decisions with confidence. Please be aware this post may contain links to products from our partners. We may receive a commission for products or services you sign up for through partner links.
If Canadian investors thought 2023 was rocky, early 2024 isn’t likely to be calmer.
Economists continue to warn that a recession could hit later this year or early next year. And while it’s likely to be a mild one, according to analysts such as Sal D’Angelo, head of product for Vanguard Canada, it’s certainly causing some Canadians to panic about their investments.
That’s why analysts such as D’Angelo recommend going back to basics ahead of a recession, especially when it comes to exchange-traded funds (ETF).
Best Canadian ETFs
1. BMO Monthly Income ETF (ZMI)
2. TD Q Canadian Dividend ETF (TQCD)
3. iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV)
4. Vanguard Global Aggregate Bond Index ETF (VGAB)
5. iShares Core Canadian Universe Bond ETF (XBB)
6. TD Canadian Aggregate Bond Index ETF (TDB)
7. Vanguard FTSE Developed All Cap ex North America Index ETF (VIU)
8. TD International Equity Index ETF (TPE)
9. BMO Low Volatility Canadian Equity ETF (ZLB)
10. iShares MSCI Minimum Volatility USA Index ETF (XMU)
Since becoming available in 2011, Canadian investors looking to gain access to the market have opted for ETFs. They’ve allowed investors to build low-cost portfolios diversified in both assets and countries.
According to a January 2023 Mackenzie Investments survey, Canadians collectively invested $35 billion in ETFs in 2022. In total, there are now $314 billion in ETFs.
We’ve gathered a list of the best ETFs in Canada to consider ahead of a looming recession, mild or not. If you make a move, choose a trading platform with low fees, such as CIBC's Investor's Edge.
These ETFs are designated for Canadian investors at different stages of life, whether you are kicking off your career or nearing retirement.
CIBC Investor's Edge offers:
- $6.95 per online trade for ETFs for Regular Investors*
- Wide range of account types and investment options including ETFs
- Quotes and investment research
CIBC Investor's Edge is the discount brokerage of CIBC, one of the largest banks in Canada.
It offers a low, flat commission of $6.95 per online trade for stocks and ETFs for Regular Investors*
The platform is best suited for investors looking for low trading fees in a big bank brokerage environment.
How to evaluate Canadian ETFs
When evaluating the best Canadian ETFs (Exchange-Traded Funds), it's important to consider a range of factors to ensure that the ETF aligns with your investment goals, risk tolerance, and financial strategy.
Here are the top three aspects to consider:
- Expense Ratio and Fees: Similar to evaluating online brokers, the cost is a critical factor for ETFs. The expense ratio, which is the annual fee expressed as a percentage of the fund's average assets, directly impacts your returns. Lower expense ratios are generally preferable, as high fees can significantly erode long-term investment gains. Additionally, look out for other fees such as trading costs or any management fees that might be associated with the ETF.
- Portfolio Composition and Diversification: Understanding what is inside the ETF is crucial. Assess the sectors, industries, and geographic regions the ETF invests in, and ensure they align with your investment goals and risk tolerance. Diversification is key in reducing risk; hence, an ETF that holds a wide variety of assets (stocks across different sectors, bonds, international securities, etc.) can help spread risk. For sector-specific or thematic ETFs, ensure that the focus aligns with your investment thesis.
- Performance Track Record and Fund Size: Look at the historical performance of the ETF over different time horizons, such as 1-year, 3-year, and 5-year periods. While past performance is not indicative of future results, it can provide insights into how the fund has navigated different market conditions. Additionally, consider the fund size (assets under management). Larger ETFs often have better liquidity, making it easier to buy and sell shares. However, smaller ETFs may offer unique opportunities but could come with higher risk.
Best Canadian ETFs: Composition
| ETF Name | Ticker | Expense Ratio % | Dividend Yield FWD | Total Holdings | Stocks Exposure | Bonds Exposure |
|---|---|---|---|---|---|---|
| BMO Monthly Income ETF | ZMI | 0.39% | 5.32% | 9 | 57.59% | 34.76% |
| TD Q Canadian Dividend ETF | TQCD | 0.40% | 4.11% | 62 | 99.66% | 0% |
| iShares Core MSCI Canadian Quality Dividend Index ETF | XDIV | 0.11% | 4.68% | 20 | 99.60% | 0% |
| Vanguard Global Aggregate Bond Index ETF | VGAB | 0.20% | 6.79 | 3 | 0% | 99.13% |
| iShares Core Canadian Universe Bond ETF | XBB | 0.10% | 3.12% | 1,506 | 0% | 99.14% |
| TD Canadian Aggregate Bond Index ETF | TDB | 0.00% | 4.83% | 1,329 | 0% | 99.15% |
| Vanguard FTSE Developed All Cap ex North America Index ETF | VIU | 0.00% | 2.90% | 3,903 | 99.81% | 0% |
| TD International Equity Index ETF | TPE | 0.19% | 2.50% | 941 | 99.67% | 0% |
| BMO Low Volatility Canadian Equity ETF | ZLB | 0.35% | 2.87% | 46 | 99.77% | 0.12% |
| iShares MSCI Minimum Volatility USA Index ETF | XMU | 0.00% | 1.36% | 164 | 99.80% | 0% |
BMO Monthly Income ETF (ZMI)
Canadians are wading through a lot of uncertainty, which is why there has been so much interest in fixed income ETFs, says Erin Allen, vice president for ETF online distribution for BMO Global Asset Management.
The BMO Monthly Income ETF has a fixed income that comes from bonds, dividend ETFs and covered call ETFs, adding in corporate bonds as well.
Invest in ETFsTD Q Canadian Dividend ETF (TQCD)
For those worried about fixed income, the TD Q Canadian Dividend ETF might be an excellent option.
With a distribution yield at 3.87% at the time of writing, the ETF focuses on companies that provide dividend growth, as well as long-term profitability. It invests primarily in Canada, with a mix of sectors including financial services, energy, basic materials, industrial services and telecoms.
Jonathan Needham, Vice President of ETF Distribution for TD Asset Management anticipates that this Canadian-focused ETF may outperform other dividend equities in 2023.
Invest in ETFsiShares Core MSCI Canadian Quality Dividend Index ETF (XDIV)
Due to inflation, 2023 was particularly hard on retirees who need fixed income as part of their regular income stream.
Investors in this scenario could turn to the iShares Core MSCI Canadian Quality Dividend Index ETF, which offers a defensive position and consistent income.
“We see investors pivot to a more defensive stance,” said Helen Hayes, head of iShares Canada at BlackRock.
Invest in ETFsVanguard Global Aggregate Bond Index ETF (VGAB)
Now of course if you’re considering fixed income, we need to talk about bond ETFs. Bonds had a bad year in 2023, as interest rates climbed. But experts across the board are saying that “bonds are back,” especially with a long-term investment strategy in mind.
If you are in it for the long haul, Vanguard Global Aggregate Bond Index ETF is a good option. With a benchmark of 25,000 bonds, the ETF covers whole global bonds, with an average maturity of 10 years.
D’Angelo sees the benefit of using a long-term investment strategy this year.
“None of our views are tactical in nature, with more of a 10-year outlook,” D’Angelo said. “Having said that, what we’ll propose will work really well next year as we’re forecasting a recession.”
Buy ETFsiShares Core Canadian Universe Bond ETF (XBB)
A potential recession creates more risk for investors. That’s why another timely recommendation for 2024 is iShares Core Canadian Universe Bond ETF. Here you get an ETF with a Silver rating for its diversified exposure to Canadian bonds.
Bryan Armour, Director of Passive Strategies Research, North America at Morningstar likes this option for those who have a portfolio full of stocks. That’s because this ETF has an overweight holding of government bonds, which can help balance your portfolio.
Buy ETFsTD Canadian Aggregate Bond Index ETF (TDB)
With so many unknowns on the horizon many investors are looking to stick with a defensive investment strategy in 2023. The TD Canadian Aggregate Bond Index ETF will have you covered with 70% investment in government bonds and 30% in corporate bonds. You can look into this ETF using a low cost trading platform today.
The ETF is both conservative and defensive for those wanting to gain back control of their portfolio in the next year.
“With equity markets revised lower it’s a good time to be defensive and capture a good yield if you will,” Needham says.
Buy ETFsVanguard FTSE Developed All Cap Ex North America Index ETF (VIU)
Experts also anticipate that the global market should do well coming out of a recession next year.
The Vanguard FTSE Developed All Cap ex North America Index ETF (VIU) is a solid option, giving you global exposure with 58% in Europe, 40% Pacific and 0.70 in the Middle East.
Buy ETFsTD International Equity Index ETF (TPE)
Canadian investors tend to have a home bias, which is why it can be important to look outside the North American market to broaden your portfolio.
Armour agrees with D’Angelo that the broader market is a great place to be coming out of a recession.
TD International Equity Index ETF is an affordable option that’s made up of 97% international equity.
Invest in ETFsBMO Low Volatility Canadian Equity ETF (ZLB)
For those wanting to add even more conservative protection to their portfolio, the BMO Low Volatility Canadian Equity ETF is a stable option. While you likely won’t see it soar, it probably won’t crash either.
In a rocky market, low volatility is a natural place to look and this ETF gives access to blue-chip companies with relatively steady performance.
“This lower volatility approach to investing is going to be a good theme to run with in 2023 with the market uncertainty,” Needham says.
Invest in ETFsiShares MSCI Minimum Volatility USA Index ETF (XMU)
This challenging environment during the next year is exactly why you might consider a low volatility option. iShares MSCI Minimum Volatility USA Index ETF covers steady sectors such as utilities.
Safety is key going into a recession, Hayes says. Especially after the interest rates and inflation we’ve seen through 2022.
“When we look at the post-pandemic world and all the inflationary shock at the moment…the rate has moved from 0.25% to 4.5% in the span of four months…and the result of that is a sell off,” Hayes says. “Investors should be prepared for a positive real rate environment.”
Buy ETFs
Test your Canadian ETF knowledge
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Best Canadian ETFs summary
Even with the possibility of a recession looming, now is not the time to panic. Check in with your financial advisor to see whether these ETFs are a good fit for your portfolio and align with your goals.
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