Top 5 Canadian ETFs for Volatile Markets

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ETFs are wonderful investment vehicles wherein you can hold positions across asset classes through just one fund. You can also have sector-specific exposures like crypto currencies, cannabis or REITs.

With the current COVID-19 pandemic induced volatility in the markets, ETF investors need a fool-proof strategy in place to reap maximum benefits. These tactics must focus on proper asset-allocation and risk management. In such uncertain times, investors must be particular about limiting their exposure to just one or two sectors like the financials or domestic energy. A well-diversified portfolio at this point should include Bond ETFs as well as those with International exposure.

In unpredictable market situations, this is the best game plan to reduce losses and maximise returns. One should also look at the expanse of assets under management while choosing a particular ETF.

The ETF landscape in Canada looks encouraging. Latest report by the National Bank of Canada Financial Markets revealed a total inflow of $22.4 billion into Canadian ETFs through the first half of 2020. The risk appetite of investors even amid this pandemic is remarkable, as Equity ETFs accounted for 60% of the inflows in June. In the period between January to June, Index Funds as well as sector and thematic ETFs performed well.

We have compiled 5 Canadian ETFs that investors may consider in these volatile markets to maximise their gains.

iShares Core S&P U.S. Total Market Index ETFP/TSX Capped Composite Index ETF

Issued by Blackrock, this ETF invests in US stocks with an objective to replicate the performance of the S&P®/TSX® Capped Composite Index at a low cost. Over the 5 years, the ETF returned 4.46%, while the 3 year returns stood at 3.94%. The ETF is well-diversified with exposure in Financials, Materials, Industrials and Information Technology. The ETFs Management Expense Ratio (MER) is 0.06% while the Assets Under Management stand at $6.4 billion. Not just the sectors, but this ETF is also well-diversified in terms of market capitalization. It offers broad exposure to the US large, mid and micro-cap companies in the US.

Vanguard FTSE Canada All Cap Index ETF

This ETF is from the house of Vanguard Investments Canada and it tracks the performance of the FTSE Canada All Cap Index. The Vanguard FTSE Canada ETF is particularly suitable for volatile times as it offers exposure across large, medium and small publicly-traded Canadian companies at minimal fees. This fund is passively managed and includes a full-replication technique. It also employs cost-efficient index management strategy.

The Asset Under Management for this ETF is $2.3 billion, while its MER stands at 0.03%. The Vanguard FTSE Canada ETF has been performing well as its 5- year stands at 3.99%, while the 3-year return was 3.33%. The holdings are spread across sectors like financials, basic materials, industrials, oil & gas as well as technology.

BMO S&P 500 Index ETF (CAD)

For investors to ride this volatile tide, it is important to harness the best of the domestic as well as international markets. Therefore investors may consider adding ETFs to their portfolios which focus on the US markets. The S&P 500 index has some of the best performing US stocks listed on it. Moreover, the Canadian investors can miss out of the massive returns offered by the large cap tech bellwethers Apple, Microsoft and Alphabet, which are difficult to find back home.

One such ETF that offers a good exposure to the S&P 500 index is the BMO S&P 500 Index ETF (CAD). Managed by the BMO Asset Management, this fund has $8.3 billion worth of assets. The BMO S&P 500 Index ETF has exposure across sensitive, cyclical and defensive stocks. The maximum holdings are in the technology sector followed by healthcare and financial services. The fund returned 12.12% over 5 years, while its 3 year return stood at 11.98%.


Terry Shaunessy, President and Portfolio Manager at Shaunessy Investment Counsel, Calgary pointed out that to mitigate risks, it is important to choose an ETF that focusses on developed as well as emerging markets. ACWI Ishares MSCI ETF is a fund that does just that. Half of the portfolio holdings are concentrated in the US markets while rest of it includes large and mid-cap companies in the UK, Japan, China and France.

As of June 30, the 5-year return of the fund was 6.71%, while over 3 years it returned 6.37%. This ETF manages an asset universe worth $11.55 billion. The core idea behind this fund is to seek long-term growth across geographies while diversifying the risks.

iShares Core Canadian Short-Term Bond Index ETF (XSB)

As the uncertainty in the markets increases, more retail investors are flocking to fixed income ETFs. Amid fears of global instability, bond ETFs offer a mix of liquidity, diversification of asset class and safety net for investors. While choosing bond ETFs, experts say that it is best to stick to Canadian bonds with a rating of BBB or higher. This is because overseas bonds could be impacted by currency fluctuations and political instability.

iShares Core Canadian Short-Term Bond Index ETF, managed by Blackrock, is a bond ETF worth considering. It offers exposure to Canadian investment grade bonds with a maturity ranging 1-5 years and replicates the performance of FTSE Canada Short Term Overall Bond Index™. The objective of this ETF is to distribute monthly cash with low interest rate risk. The holdings include bonds with high credit quality. Nearly 50% of the holdings have AAA rating, 26% has AA rating. The core exposure of this ETF is in Federal bonds with maturity between 3-5 years.


If you are looking for more information on sustainable ETF’s, read The Best Sustainable ETFs To Have In Your Portfolio

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