What’s up guys, it’s wiz.
Welcome back to the channel. If you are new, I am a Canadian investor. I cover a whole lot of information about investing in Canada and do research into our Canadian market. I dive into growth investing, dividend investing and Canadian small caps / penny stocks. Today, I will be going over 3 index ETFs for Canadian investors. I know we are seeing a bearish market, and I found most people are turning to defense index ETFs. I will talk about Canada’s three most popular ETFs for tracking the overall market, and I will compare them to each other in a head to head of their fees, their size and their holdings. For new investors, you need to join Wealthsimple Trade if you are looking to start investing and live in Canada. If you use my link in the description to join Wealthsimple, you get 2 free stocks worth up to 4500$ so do not miss out.
Canadian investors taking a passive approach to buying domestic stocks generally default to the tried-and-true S&P/TSX 60 Index, but the market doesn’t end there. Beyond the TSX 60, there are at least another few hundred small- and mid-cap Canadian stocks worth investing in. Vanguard, BlackRock, and BMO provide a set of low-cost, high-liquidity, Canadian-denominated ETFs for tracking the overall Canadian stock market. Buying any of these ETFs will allow you to make a broad bet on domestic stocks. The three tickers up for consideration today are iShares S&P/TSX Capped Composite Index ETF (ticker symbol XIC), Vanguard FTSE Canada All Cap Index ETF (ticker symbol VCN), and BMO S&P/TSX Capped Composite Index ETF (ticker symbol ZCN). Which one is the best option? Well I will put them head to head to figure that out so stay tuned.
I will start off with the fees of the head to head of XIC vs. VCN vs. ZCN. The fee charged by an ETF is expressed as the management expense ratio (otherwise known as the MER). This is the percentage that is deducted from the ETF’s net asset value (otherwise known as the N-A-V or NAV) over time and calculated on an annual basis. For example, an MER of 0.5% means that for every $10,000 invested, the ETF charges a fee of $50 annually. XIC has an MER of 0.05% compared to VCN and ZCN at 0.06%. The difference here is literally $1 on a $10,000 portfolio, which is not worth fretting over. Still, if we had to pick a winner, it would be XIC obviously by a tiny margin, but, honestly, 0.01% is not worth agonizing over.
Next we will be talking about the size of these index ETFs. The size of an ETF is very important. Funds with small assets under management (otherwise known as A-U-M) may have poor liquidity, low trading volume, high bid-ask spreads, and more risk of being delisted due to lack of interest. Which is not something a long term investor is interested in or is looking for. XIC currently has AUM of $10.67 billion, VCN has AUM of $5.064 billion, and ZCN has AUM of $7.71 billion. Although all are highly liquid and more than sufficient for a buy-and-hold investor, XIC is clearly the more popular one at this time with the highest AUM.
Next let’s go over the Holdings of these index ETFs. All three ETFs have nearly identical sector weights, with over 40% of underlying holdings in the financial and energy sectors, which is typical for the Canadian stock market. XIC, VCN, and ZCN share the same top 10 holdings, with stocks like Shopify, Royal Bank of Canada, Toronto-Dominion Bank, Enbridge, Bank of Nova Scotia, Canadian National Railway, and Brookfield Asset Management dominating their indexes. However, there are some differences in the indexes each ETF tracks. While VCN tracks the FTSE Canada All Cap Index, XIC and ZCN track the S&P/TSX Capped Composite Index. These indexes have slight differences that shouldn’t affect performance too much but are still notable. Firstly, XIC and ZCN put caps on the weightings of each underlying stock. This is to prevent any individual stock from getting so large as to dominate the index, which makes complete sense for diversity and balance purposes over the long term. Secondly, XIC and ZCN have more holdings at 241 vs. 183 for VCN.
To end off, I will go over the historical performance of these index ETFs. A cautionary statement before we dive in: past performance is no guarantee of future results, which can and will vary obviously. The portfolio returns presented below are hypothetical and backtested. The returns do not reflect trading costs, transaction fees, or taxes, which can cause drag. All three ETFs had virtually identical performance, with XIC having a very slight edge. I granted this to XIC due to the fact that XIC held more stocks that may have outperformed in the last few years. Over time, this difference is likely to disappear. If I had to pick and choose one ETF to buy and hold, it would be XIC due to a very slightly lower MER, larger AUM, and higher number of holdings. However, if you’re partial to Vanguard or BMO, either VCN or ZCN would be excellent choices as well.
Hope you guys enjoyed this overlook of 3 popular and safe Canadian index ETFs. As mentioned, I would personally go with XIC if I had to pick out of the 3 index ETFs. Please watch my previous videos on Canadian stock recommendations and let me know of any Canadian stocks you want me to look into and give my opinion on. Let me know in the comments, since I really want to expand my knowledge in the Canadian market, and you also expand your own knowledge by asking questions. If you did enjoy this video, leaving a like really helps grow the channel! Thanks for watching, I’ll see you guys in the next video!