These two blue chip ETFs hold mostly large-capitalization, widely traded stocks on the Canadian exchange. Both funds mirror, or track, the performance of major stock market indexes as opposed to narrower ones focused on resources or themes, such as solar power or biotech.
Blue chip ETFs stand in contrast to many trendy funds. Promoters of many of those newer ETFs are in the business to make money from the products they provide. This is a legitimate objective, but sometimes promoters aim to capitalize on short-term fads to appeal to investors, a key consideration in active vs passive investing. These products can deliver poor results in the long term.
Of course, even with these blue chip ETFs you pay brokerage commissions to buy and sell, but their low management fees give them a cost advantage over most mutual funds.
ISHARES S&P/TSX 60 INDEX ETF is a buy. The ETF (Toronto symbol XIU; buy or sell through brokers; ca.ishares.com) is a good low-fee way for you to buy the top companies listed on the TSX. Specifically, the fund’s holdings represent the S&P/TSX 60 Index. It focuses on the 60 largest, most heavily traded stocks on the exchange.
ETFs: iShares S&P/TSX 60 Index ETF has a low 0.18% MER
The ETF began trading on September 28, 1999. Investors pay an MER of just 0.18%. The units give you a 3.1% yield.
The S&P/TSX 60 Index mostly consists of high-quality companies. However, it must ensure that all sectors are represented, so it holds a few companies we would not include.
The quality of the ETF’s holdings should drive your future gains: its top stocks are Royal Bank, 7.7%; TD Bank, 6.4%; Shopify, 5.0%; Enbridge, 4.2%; CPKC, 4.0%; CN Rail, 4.0%; Bank of Montreal, 3.9%; Canadian Natural, 3.9%; and Bank of Nova Scotia, 3.1%. When considering active vs passive investing, the iShares S&P/TSX 60 Index ETF represents a classic passive approach.
Recommendation in Canadian Wealth Advisor: iShares S&P/TSX 60 Index ETF is a buy.
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ISHARES CANADIAN SELECT DIVIDEND INDEX ETF is a buy. The fund (Toronto symbol XDV; buy or sell through brokers; ca.ishares.com) holds 30 of the highest-yield Canadian stocks. The ETF also considers dividend growth and payout ratios to make its selections.
The weight of any one stock is limited to 10% of the fund’s assets. Its MER is 0.55%. The ETF, which began trading on September 28, 1999, yields a high 4.1%.
Most market indexes are set up for investors so that the stocks in the index are those with the highest market capitalization and are also the most widely traded. However, the iShares Canadian Select Dividend Index ETF focuses on the 30 stocks that it sees as having the highest dividend yields; it also considers their prospects for dividend growth and the sustainability of their dividend payouts.
That means this ETF represents an interesting middle ground in the active vs passive investing spectrum. As a result, you pay a higher MER.
The fund’s top holdings are Bank of Montreal at 7.9%; Canadian Tire, 7.6%; Royal Bank, 6.9%; Bank of Nova Scotia, 5.1%; National Bank, 5.0%; TD Bank, 5.0%; CIBC, 4.8%; TC Energy, 4.7%; and BCE, 4.4%.
In summary, this analysis examines two distinct ETF offerings in the Canadian market, each representing different investment philosophies and strategies. The iShares S&P/TSX 60 Index ETF (XIU) offers broad exposure to Canada’s largest companies through a passive investment approach, with a notably low MER of 0.18%. Its diversified holdings across major sectors and blue-chip companies make it an attractive core holding for long-term investors seeking market-representative returns.
In contrast, the iShares Canadian Select Dividend Index ETF (XDV) employs a more targeted strategy, focusing on 30 high-yield Canadian stocks with strong dividend characteristics. With a higher MER of 0.55%, it offers a more specialized approach for income-focused investors. The fund’s methodology, which considers dividend growth and payout ratios, provides a middle ground between purely passive and active management.
Both ETFs serve distinct investment objectives: XIU offers broad market exposure with minimal costs, while XDV caters to income-seeking investors willing to pay higher fees for a more focused strategy. For investors building a diversified portfolio, understanding these differences is crucial in aligning their investment choices with their financial goals and risk tolerance.
Recommendation in Canadian Wealth Advisor: iShares Canadian Select Dividend is a buy.
For our view on one way in which blue chip ETFs can be particularly helpful, read How to choose the best investments for children.
For our advice on two funds that can help you incorporate precious metals in your portfolio, read These two ETFs focus on precious metals.
What do you consider a high MER for an ETF?
This article was originally published in 2016 and is regularly updated.
