ETFs have gained popularity among investors due to their ability to offer diversification, sector exposure, and lower fees compared to actively managed mutual funds. They also provide the flexibility of being traded like stocks throughout the day. However, not all ETFs are created equal, and investors must carefully evaluate their options—and avoid high fees that can erode returns over time.
When choosing an ETF, the Management Expense Ratio (MER) is crucial, as even small differences can significantly impact long-term returns. Additionally, examine the ETF’s holdings, historical performance, liquidity, and trading volume.
By conducting thorough due diligence and considering these factors, investors can select ETFs that align with their investment strategy and potentially optimize returns while minimizing costs. We present one ETF you should avoid and a much better alternative to consider in its place.
ISHARES MSCI CANADA INDEX FUND (New York symbol EWC; buy or sell through brokers; ca.ishares.com) holds the stocks in the Morgan Stanley Capital International Canada Index.
The fund has a 0.50% MER and gives you a yield of 2.2%. It began trading for investors on March 12, 1996.
The ETF’s top holdings are Royal Bank, 8.1%; Shopify, 6.5%; TD Bank, 4.5%; Enbridge, 4.4%; Brookfield Corp., 3.7%; CPKC, 3.4%; Bank of Montreal, 3.3%; Canadian Natural Resources, 3.2%; Bank of Nova Scotia, 3.1%; Constellation Software, 2.9%; and CIBC, 2.8%.
If you want to own a Canadian index fund, you should instead buy the largest TSX ETF, the iShares S&P/TSX 60 Index ETF. You’ll pay about a third as much in management fees, while holding essentially the same stocks.
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ETFs: Here’s a better fund that will save you money over time
ISHARES S&P/TSX 60 INDEX 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. This is the largest TSX ETF.
The ETF began trading on September 28, 1999. Investors pay an MER of just 0.18%. The units give you a 2.9% 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, 8.5%; Shopify, 6.9%; TD Bank, 4.7%; Enbridge, 4.7%; Brookfield Corp., 4.1%; CPKC, 3.5%; Bank of Montreal, 3.5%; Canadian Natural Resources, 3.4%; and Bank of Nova Scotia, 3.3%.
Recommendation in Canadian Wealth Advisor: iShares MSCI Canada Index Fund is a sell in favour of a cheaper alternative like the iShares S&P/TSX 60 Index ETF.
