Top 5 Best ETFs in Canada to Invest In for 2022 and Beyond

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Exchange-Traded Funds or ETFs in Canada are steadily gaining popularity among Canadian investors over the past few years. These operate just like mutual funds, but unlike the latter, ETFs can be purchased or sold on a stock exchange just like stocks. They have the benefits of diversification like mutual funds but are also highly liquid like stocks. 

As thousands of ETF options are available now in the market, it becomes difficult to decide which Canadian ETFs you should buy. To make this process easier for investors, we have compiled a list of some of the best ETFs in Canada.

What are ETFs?

ETFs are nothing but stock baskets that track an underlying index. They are one of the most convenient means to access financial markets as they let investors build low-cost portfolios with diversification across asset fronts and countries. This diversification approach across a broad market helps investors maximize the gains while simultaneously reducing losses.

They can be purchased on margin, and you can also short ETFs. Unlike mutual funds, their prices are updated throughout the day, and you can even trade futures and options on them. They have become so popular that since their launch in 1993, they had grown to a $7.3 trillion market in the US by the end of 2021. As demands become more efficient, ETFs will continue to grow more popular.

Best ETFs in Canada

Here is a list of Canadian ETFs that investors can consider investing their money in:

1. Vanguard Balanced ETF Portfolio (VBAL)

The Vanguard Balanced ETF may be one of the best investment options for long-term investors. The best thing about this fantastic ETF is that it seeks long-term capital growth while providing a moderate income level to its investors.

Its balanced portfolio, consisting of 60% equities and 40% bonds and allowing access to broad-based equity and fixed income markets, is perfect for investing during market uncertainty. Due to this appropriate mix between the bond and stock constituents, almost 90% of the portfolio’s variability gets driven away, making this ETF a perfect one for investors with a moderate risk profile.

However, investors should also note that the portfolio mix is rebalanced or reconstituted from time to time as per the discretion of the fund’s sub-advisor.

2. Vanguard Growth ETF Portfolio (VGRO)

Investors looking for a growth-centric all-in-one ETF portfolio can consider the Vanguard Growth ETF Portfolio. This ETF has been designed keeping in mind the needs of investors seeking long-term capital growth. VGRO’s portfolio is compiled as ideal for investors who don’t want to get bothered by dealing with or managing a large number of discrete holdings.

Further, as its name implies, this ETF provides more equity exposure than bonds. For instance, as per December 2021 figures, VGRO had a ratio of 4:1 equity-to-fixed income asset allocation, thereby exposing the investors to 13,526 stocks and 17,779 bonds. As a result, the volatility rate of VGRO is low to medium. If you invest in it, you are likely to witness a greater level of volatility compared to ETFs in Canada that primarily focus on bonds.

Moreover, this also implies while there might be a few more risk factors, VGRO provides a more long-term growth exposure and thus higher income.

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3. BMO S&P/TSX Capped Composite Index ETF (ZCN)

ZCN is a Canadian Capped Composite Index ETF that has been specifically designed to replicate the performance of the S&P/TSX Capped Composite Index to the maximum extent possible after netting off all the associated expenses. This ETF is, therefore, equity-based and consists of over 241 stocks, 95% of which belong to the Canadian equity market.

Precisely, it invests in and holds the constituent securities of the index in the same proportion as can be noticed in the index. As of now, its portfolio has over 200 top-ranked Canadian stocks. Moreover, the best thing about the constituent securities it invests in is that it must pass the minimum float-adjusted and liquidity screens threshold.

As a result, this ETF will be perfect for investors with a medium risk tolerance level, seeking growth, and requiring exposure to diversified Canadian equities. 

4. Vanguard FTSE Canada All Cap ETF (VCN)

The VCN ETF tracks the performance of a broad Canadian equity index measuring the returns of large, mid, and small-cap publicly traded Canadian securities to the maximum extent possible after adjusting all the associated expenses.

Currently, it has been tracking the performance of the FTSE Canada All Cap Domestic Index. So, if you are an investor who requires exposure to large, mid, and small-cap Canadian companies, you might find this ETF appropriate. Due to its efficient, cost-effective index management techniques, VCN has a very low MER of 0.06% and holds as many as 181 Canadian securities.

Moreover, it employs a passively managed, full-replication strategy, which makes it much more secure and also aids in providing broad exposure.

5. BMO Canadian Dividend ETF (ZDV)

The BMO Canadian Dividend ETF is for investors searching for growth and income solutions. It provides a sustainable income opportunity and a lower level of volatility compared to the broader market. It will let its investors supplement their losses while they wait for the overall market to recover.

This means investors will continue to receive money at a yield of 4.28%, which is pretty good considering the current market condition. ZDV’s portfolio consists of a yield-weighted portfolio of Canadian dividend-paying stocks.

It follows a rules-based methodology considering the three-year dividend growth rate, yield, and payout ratio while investing in Canadian equities. Moreover, the securities in which investments are made are also scrutinized by applying a liquidity screen process.

All the ETFs in Canada mentioned above have their perks and issues and have been sailing through the market pretty well over the recent volatile period. Therefore, they can be some solid ETF options for you to choose from.

However, before putting your money in, you should perform due diligence and make sure you understand what you are investing in. They are an excellent way for investors to gain exposure to sectors without going all into one stock. Therefore, setting the right expectations is necessary before building a portfolio.

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