Posted by Mark on June 15, 2014

Some things change but many things stay the same.  I recall were getting close to 400 Exchange Traded Funds (ETFs) listed on the Toronto Stock Exchange now but you probably only need one. just one, broad market Canadian Equity ETF for your portfolio.  This is especially true if youre a long-term investor seeking to keep things simple.  Reading My Own Advisor you might already know an ETF is like a low-cost version of a mutual fund you can buy and sell like a stock .   If you missed my post about ETFs 101 check it out.

While I believe many Canadian dividend paying stocks are worth owning directly there’s more to Canada’s equity market than just companies that pay dividends.  In fact, you could be missing out (on returns) by only owning dividend paying stocks total return is what matters.   To reap the benefits of market returns less miniscule money management fees today’s post will highlight my top Canadian Equity ETFs, sharing some reasons why I like these products and what to be mindful of as well.

What are the key benefits of investing in these ETFs below?

• With some products you can own most of the Canadian stock market for a rock-bottom fee.
• You get distributions (income) usually on a quarterly payment schedule.
• You can ride the market returns by investing in indexed ETFs, so you dont need to worry about significant market underperformance.

I’ll share a quote about this last point from a famous investor, advice he recently provided to the trustee of his will:

“My advice to the trustee could not be more simple:  Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers .”  -Warren Buffett

Now, check out my top choices below and let me know what you think in a comment below.

I like the fact that securities in this ETF are capped at 10%, meaning, you won’t suffer from any future “Nortel effect” if and when one company tends to rule the Canadian equity market.  This ETF is low-cost, eligible to use in virtually every brokerage account and provides decent distributions.  This guy is a winner.

At the time of writing this post:

• Management Expense Ratio (MER) = 0.05%
• Distribution yield about 3%
• Quarterly payout.
• The top holdings are the big-5 Canadian banks, Canadian National Railway, Suncor, Enbridge and Canadian Natural Resources.

This ETF basically holds some of the biggest and most dependable blue-chip stocks in Canada.  It could be considered a dividend-ETF except it’s methodology doesn’t indicate such. Let’s face it, if the companies XIU holds arent making money, not many companies in Canada are.  At the time of this post, 10-year returns for XIU are over 8% and since 1999, over 7%.  That’s good.  Disclosure:  I own this ETF.

At the time of writing this post:

• MER = 0.18%.
• Distribution yield about 3%.
• Quarterly payout.
• The top holdings are the big-5 Canadian banks, Canadian National Railway, Suncor, Enbridge and Canadian Natural Resources.

Want to own the entire Canadian equity market for the lowest-fee possible?   Get this one and put almost every single professional mutual fund manager to shame.

At the time of writing this post:

• MER = 0.05%.
• Distribution yield about 2.5%.
• Quarterly payout.

This product holds 75 of the biggest companies in Canada, using a methodology that includes among others:  using the median dividend yield of all stocks in the S&P/TSX Composite with non-zero indicated annual dividend yields, and takes the top 75 stocks for its holdings selected with an annual dividend yield above the median.  Based on this structure I could have easily (and probably should have) included XEI in my top Canadian Dividend ETFs post but I reserved a home for it here because of its equity orientation.  Whats to like about XEI?

At the time of writing this post:

• MER = 0.20%.
• Distribution yield over 4%.
• Monthly payout.
• The top holdings are a few Canadian banks and some of our countrys biggest telecommunications companies.

I’ve mentioned this before on this site but Vanguard Canada rocks thanks to their low fees and diversified products.   I don’t see many downsides to this product.  This ETF has 245 holdings and tracks the performance of a broad Canadian equity index which includes the returns of large-, mid- and small-capitalization, publicly traded securities in the Canadian market.  Flip a coin between holding this product and other ETFs above, namely XIC even if the fees for VCN are incrementally more.

At the time of writing this post:

• MER = 0.13%.
• Distribution yield about 1% (newer product).
• Quarterly payout.

VCE has fewer holdings (75) than its broader market cousin, VCN (245) so you pay just a tiny bit less in money management fees.  The methodology is largely focused on larger Canadian stocks.  I think this is another great product.

At the time of writing this post:

• MER = 0.10%.
• Distribution yield over 2%.
• Quarterly payout.

This product by First Asset Management hit the shelves just over two years ago and it’s worth a look.   This ETF holds stocks considered to be of “good value” based on characteristics like low price earnings and low price to cash flow ratios.  The MER for this active management is higher than some of my “best of” ETFs above but you’re paying for outstanding performance of late.  Two year returns for FXM as of April 30, 2014 are over 22% compared to the ETF benchmark of about 12.6%.

At the time of writing this post:

• MER = 0.60%.
• Distribution yield just under 2%.
• Quarterly payout.

In summary I think these products deliver both great value and benefits to Canadian investors.  Many of these products are more diversified than the top Canadian Dividend ETFs I wrote about recently and they cost less, so that’s win-win for investors.  As mentioned above there’s more to the equity market than just dividend paying stocks even though that steady income is nice.  As always, if youre unsure how these or any financial products may fit into your investment plan, talk with a qualified financial professional who can help you make some sound decisions for your financial future.  Theres much more to investing than buying a product.

Do you own any of these products above?  What top Canadian equity ETFs did I miss?  What are your favourites?