Canadian Blue Chips Dominate These Two Canadian ETFs

These two Canadian ETFs track Canada’s best-established indexes and provide low-fee exposure to widely traded blue chip stocks.

When you invest in ETFs, simpler is generally better. And each of these two Canadian ETFs provides a straightforward approach to investing in a selection of Canada’s top stocks.

These two Canadian ETFs hold mostly blue chip stocks traded on the Canadian exchange. Each of them tracks the performance of major stock market indexes as opposed to narrower ones focused on resources or themes, such as alternative energy or biotech.

In addition, the low management fees of these Canadian ETFs give them a cost advantage over most mutual funds.

What are the top Canadian blue-chip ETFs to consider investing in?

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.
The ETF began trading on September 28, 1999. Investors pay an MER of just 0.18%. The units give you a 3.0% 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, 7.4%; TD Bank, 5.6%; Shopify, 5.0%; Canadian Natural, 4.4%; CPKC, 4.3%; Enbridge, 4.0%; CN Rail, 4.0%; Bank of Montreal, 3.7%; and Bank of Nova Scotia, 3.2%.

ISHARES S&P/TSX 60 INDEX ETF is a buy.

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ISHARES CANADIAN SELECT DIVIDEND INDEX ETF is a buy. The ETF (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 4.2%.

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.

This ETF is more actively managed than the iShares S&P/TSX 60 Index ETF. As a result, it charges a higher MER.

The fund’s top holdings are Canadian Tire at 8.6%; Bank of Montreal, 8.4%; Royal Bank, 7.3%; National Bank, 5.8%; Bank of Nova Scotia, 5.7%; TD Bank, 5.3%; TC Energy, 5.0%; CIBC, 5.0%; and BCE, 4.6%.

iShares Canadian Select Dividend Index ETF is a buy.

What are the different types of Canadian ETFs available?

Canadian ETFs include equity (tracking stocks), fixed-income (bonds), commodity, sector-specific, dividend-focused, and international market funds, with each type offering different risk levels and investment objectives.
Broad Market Equity ETFs: Track major Canadian indices like the S&P/TSX Composite Index, providing exposure to the overall Canadian stock market performance.

Sector-Specific ETFs: Focus on specific industries like energy, banking, mining, and technology, allowing targeted investment in Canada’s strongest sectors.

Fixed Income ETFs: Include government bonds, corporate bonds, and money market securities, offering steady income and lower risk compared to equity ETFs.

Dividend ETFs: Concentrate on Canadian companies with strong dividend payment histories, popular among income-seeking investors.

International ETFs: Allow Canadians to invest in foreign markets while trading on Canadian exchanges in Canadian dollars, reducing currency exchange costs.

ESG/SRI ETFs: Focus on companies meeting environmental, social, and governance criteria, addressing growing interest in sustainable investing.

Smart Beta ETFs: Use alternative weighting strategies beyond traditional market capitalization, aiming for better risk-adjusted returns.

Commodity ETFs: Track natural resources like gold, silver, or oil, either through direct ownership or futures contracts.

Real Estate ETFs: Invest in Canadian REITs and real estate companies, providing exposure to the property market without direct ownership.

Currency Hedged ETFs: Protect against currency fluctuations when investing in international markets, though they typically have higher fees.

Will you invest in these Canadian ETFs? Why or why not?

For our views on making the most of your investments in ETFs, read When to buy an ETF for maximum return.

For our recent report on investing in gold and silver through ETFs, read Top ETFs for precious metal exposure.

This article was originally published in March 2022 and is regularly updated.

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Scott Clayton

Scott is an associate editor at TSI Network. He is the lead reporter and analyst for Dividend Advisor, Power Growth Investor and Canadian Wealth Advisor and a member of the Investment Planning Committee. Scott began his investment and financial career working with Pat McKeough at The Investment Reporter in the 1980s. Subsequently, he worked at the Financial Post Corporation Service for 10 years. He joined TSI Network in 1998. He is a Bachelor of Economics graduate of York University, and he also has an M.B.A. from the Schulich School of Business.

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Blue Chip Stocks

Blue chip stocks are big, well-established, dividend-paying corporations with strong business prospects. These are companies that also have sound management that should be able to make the right moves to keep competing successfully in a changing marketplace.

Dividend Stocks

Dividend stocks make cash payouts that serve as a way for companies to share the wealth they’ve accumulated. These payouts are drawn from earnings and cash flow and paid to the shareholders of the company. Typically, these dividends are paid quarterly, although they may be paid annually or even monthly as well.

Value Stocks

What are value stocks?

One of the sweetest and most profitable pleasures of successful investing is to buy high-quality “value stocks” (or stocks that are reasonably priced, if not cheap, in relation to its sales, earnings or assets), then hold on to them as mainstream investors recognize the value and push up the share price.

Growth Stocks

Growth stocks are companies that are likely to have sales and earnings growth well above market average. Frequently they pay few, if any, dividends. Instead they typically reinvest any extra cash flow to promote further growth. Chosen wisely—according to Pat McKeough’s advice—high-quality growth-oriented stocks can be worthwhile additions to most well-diversified portfolios.

ETFs

What are ETFs?

ETF is an acronym for exchange traded fund.. These exchange traded funds are used to track indexes as closely as possible, since investors cannot actually buy an index outright.

How To Invest

Pat McKeough has been making investing for beginners simple—and profitable—by helping investors make big gains for more than 25 years. His advice to beginning investors is the same as it is for all investors: buy high-quality, mostly dividend paying stocks (or ETFs that hold these stocks) and evenly spread your investments over the five main economic sectors (Resources, Manufacturing, Finance, Utilities and Consumer). Pat also believes investors should avoid stocks in the broker/media limelight and focus on those with hidden or little-noticed assets.

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Wealth management is the practice of putting your savings to work so that it continues to grow over your lifetime and will also benefit your heirs. Wealth management encompasses many different areas of investing like long term investment planning and retirement planning.

AI Investing

Artificial intelligence (AI) is essentially the merging of today’s big computing with big data. This has resulted in breakthroughs in everything from creating machines to recognize faces with more accuracy than a human, to the development of chatbots able to collect, organize and simplify all the Internet has to say on any topic.

Spinoffs

One of the ways a company can try to unlock its own hidden value is by creating a separate company out of a corporate subsidiary. The parent company can either sell stock in the new company to the public, or spin it off—hand the stock out to its own investors.

Penny Stocks

A penny stock in general trades for under five dollars a share, and as the name implies, sometimes for pennies. Most of the time they’re young companies, or start-ups in speculative markets like mining or technology.

Mining Stocks

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Energy Stocks

What are energy stocks?

Businesses that work in the extraction, refining and delivery of energy sources such as natural gas, oil, uranium and coal, are considered energy stocks.