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Rating the top Canadian ETFs

How you judge your investing results as a user of exchange-traded funds will depend in large part on what Canadian-market ETF you use. There are 10 that will give a broad exposure to the Canadian stock market and there's a huge gap of 20 percentage points between the best and worst performers for the year to date. Here's a close-up look at your choices.

ETF Ticker MER Top Three Top Three YTD % 3-Yr Total Div. Avg. Daily
(TSX) (%) Sectors (%) Stocks (%) Gain % Gain Yld % Vol. (Oct.)
Claymore Cdn CRQ 0.65Financials - 47.5RBC - 8.5397.12.5932,591
Fundamental Index Energy - 19.4TCK.B - 7.8
Materials - 12.4TD - 6.3
This ETF uses a fundamental indexing approach, which means it weights stocks according to a variety of factors, including revenues, dividends, book value and cash flow. The net effect is to give higher weightings to undervalued stocks than traditional indexes, where stocks are weighted by their market capitalization (shares outstanding times share price). CRQ is re-balanced once per year, most recently in March. This allowed the fund to increase weightings of harder-hit stocks such as financials, and to benefit from their huge rebound. Net result: the best returns in its peer group this year.
iShares CDN Value Index XCV 0.5Financials - 62.2BNS - 1035.8 n/a3.9613,657
Energy - 13.9RBC - 9.7
Telecom - 7.3TD - 9.5
The term value here means an emphasis on stocks that are undervalued by investors. Value investing has done very poorly over the past couple of years, but the performance of this ETF suggests it's on the upswing again. Historically, value outperforms the growth style of investing, which emphasizes companies with high rates of profit and revenue growth. Note the overwhelming emphasis on financials here. As goes this sector, so goes this ETF.
iShares CDN Jantzi XEN 0.5Financials - 40.6RBC - 11.532.3 n/a2.34577
Social Index Energy - 23.8SU - 8.2
Materials - 12.4TD - 8.1
Socially responsible investors, here's your ETF. Think of this fund's holdings as collection of big blue-chip stocks that have passed through a screening process focusing on environmental, social and governance criteria. The underlying Jantzi Social Index is modelled on the S&P/TSX 60 index, which it has solidly outperformed this year. Over the past five years, the JSI has underperformed the S&P/TSX 60, but not enough to compromise its value as a way for socially responsible investors to cover the Canadian market. Warning: days go by when this ETF doesn't trade a lick. Do SRI investors even know it exists?
iShares CDN Dividend XDV 0.5Financials - 70.1NA - 8.728.2-12.44.0674,928
Index Utilities - 7.2BMO - 8
Telecom - 7.2CM - 7.5
It's hard to see the point of this poorly diversified ETF - if you like financials, try the iShares CDN Financial Sector Index Fund (XFN) or the Claymore Equal Weight Banc and Lifeco ETF (CEW). If you want a diversified package of dividend-paying blue chips, look at the iShares CDN LargeCap 60 Index Fund (XIU), which is described below.
iShares CDN Composite XIC 0.25Financials - 31.4RBC - 6.428.1-22.85356,939
Index Fund Energy - 27.1SU - 4.6
Materials - 18.9TD - 4.6
The classic way for an index investor to attack the Canadian market thanks to the breadth it offers through its 200-plus holdings. The down side is the fact that it's 77-per-cent weighted to financials and commodity stocks. That's the Canadian market for you. Even the differently constructed Claymore Canadian Fundamental Index ETF shows this skew.
iShares CDN LargeCap XIU 0.17Financials - 32.9RBC - 8.1261.82.5916,561,322
60 Index Energy - 27.6SU - 5.8
Materials - 18.4TD- 5.7
Far and away the most popular Canadian-market ETF, with daily trading volumes that often lead the list of the most active TSX stocks. About 70 per cent of this ETF's shareholders are institutional investors who prize liquidity - active trading - above almost anything else. But this ETF also offers the second-lowest MER of any equity ETF in the Canadian market. XIU has lagged the more diversified XIC lately, but its longer-term results are a little better.
Claymore S&P/TSX CDZ 0.6Financials - 47YLO.UN - 3.324.4-115.6931,131
Cdn Dividend Cons Disc - 9.6AGF.B - 3.0
Energy - 9.5FCR - 2.9
Tracks the S&P/TSX Canadian Dividend Aristocrats Index, which includes stocks and income trusts that have raised dividends or distributions annually for at least five straight years. The presence of Yellow Pages Income Fund in the portfolio highlights the fallibility of this approach (YLO cut its monthly payout earlier this year). What you do get is a dividend yield that, at 5.7 per cent, is roughly double most of the competitors listed here, plus less exposure to financials than in the competing iShares fund.
ETF Ticker MER Top Three Top Three YTD % 3-Yr Total Div. Avg. Daily
(TSX) (%) Sectors (%) Stocks (%) Gain % Gain Yld % Vol. (Oct.)
iShares CDN Growth XCG 0.5Energy - 34SU - 10.119.2 n/a0.991,887
Index Materials - 33.6ECA - 8.6
Industrials - 8.3ABX - 7.6
Finally, an ETF that isn't over-run with financial stocks. In fact, financials account for a piddling 5.5 per cent of this fund, a point that helps explain its comparatively poor returns in 2009. The heavy concentration in resource, industrial and tech stocks suggests this fund would do well in a booming economy. Note that it outperformed its value ETF counterpart handily before the economy tanked.
Horizons AlphaPro HAX 0.7*Financials - 31.7RBC - 8.2 n/a n/a n/a1,310
Managed S&P/TSX 60 Energy - 26.1SU - 7.3
Gold - 17.2TD - 6.2
And now for something completely different. This is an actively managed ETF, which sets it apart from the traditional index-tracking ETFs that otherwise populate this list. The approach here is to take the S&P/TSX 60 and then tinker with the weightings of individual stocks and sectors in such a way as to beat the index. This fund hit the market in January, so there's no meaningful performance data to look at. Thus far, the index is ahead.
BMO Dow Jones ZCN** 0.16Financials - 35.1RBC - 8 n/a n/a2.4410,167
Canada 60 Index Energy - 27.7SU - 5.7
Materials - 18.3SU - 5.6
The newest and cheapest Canadian market ETF uses an index that is about 81-per-cent weighted to the Big Three: financials, energy and materials. The MER of 0.16 per cent looks great for long-term investors, but anyone who values liquidity should take care. On a couple of recent days, this ETF traded just 300 shares in total. Note the similarities to XIU in terms of holdings. The Top 10 stocks for both are virtually identical in name and proportion.
Notes: Average daily trading volumes are for the month to date and are meant to provide an indication of liquidity. Dividend yields are approximations in some cases. Recent dividend cuts may affect future yields. Three-year returns are cumulative. All price and volume data is to Oct. 8 *performance fees apply as well **new ticker, effective Oct. 13; BCA until that date


ETFs that the experts choose

We asked some money managers who use ETFs to tell us their go-to fund for the Canadian stock market. The virtually unanimous reply: the iShares CDN LargeCap 60 Index Fund (XIU-T), which tracks the S&P/TSX 60 index. Here are their comments on this ETF

Jeff Black, Crestridge Asset Management:

"Few large-cap active equity managers have outperformed the S&P/TSX 60 over the long term on a consistent and reliable basis."

Adrian Mastracci

of KCM Wealth Management

(Uses XIU, with a sprinkling of CRQ) "They represent some of the biggest Canadian companies and are core holdings."

Tyler Mordy of Hahn Investment Stewards

"Low cost, highly liquid and broadly diversified."

Rob Carrick

© 2007 The Globe and Mail. All rights reserved.

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