In this column, which appears every two weeks, we give you concrete ideas for investing.
You have decided to manage your investments yourself. This is a resolution that is easier to keep than many others! But how can we avoid drowning in the sea of funds available on the market?
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There are currently more than 3,400 mutual funds and more than 1,300 exchange traded funds (ETFs) in Canada.
“I think there are too many,” said Ian Gascon, president of Placements Idema, a management firm that primarily uses ETFs.
“It is clear that this complicates the work and analysis for someone who has less experience and wants to build a portfolio on their own,” he adds.
Ian Gascon photo from LinkedIn
In 2013, there were barely 300 ETFs in Canada, National Bank Financial recently recalled. However, the sector's growth has slowed. Last year, 164 new FNCs opened but 122 closed – a record.
In the first 11 months of 2023, Canadians invested $34 million in ETFs and withdrew $52 billion from mutual funds. The assets held in ETFs now amount to $400 billion. This sum may seem high, but it represents barely 20% of the assets invested in mutual funds, which exceed $1,800 billion.
So how do you navigate the plethora of ETFs? Here are some of the most popular products across major asset classes. Keep in mind that you typically only need a few index ETFs – or even just one – to build a balanced portfolio.
Canadian stocks
It is the oldest ETF in Canada: iShares S&P/TSX 60 (Symbol: XIU). His assets are $12 billion, but annual fees are high: 0.18%. The other major Canadian stock ETFs are iShares' XIC and BMO's ZCN, both of which track the broader Toronto Stock Exchange index. Their fees are attractive: 0.06%.
US stocks
With more than $12 billion in assets, BMO's ZSP fund is the largest Canadian ETF tracking the major American S&P 500 index. This is closely followed by Vanguard's VFV ($10.2 billion in assets) and iShares XSP ($8.9 million). The latter has the peculiarity that it is hedged, which offers some protection against exchange rate fluctuations. The fees for these three funds are 0.09%.
Stocks outside North America
To cover the rest of the world, we typically use an EAFE (Europe, Australasia and Far East) ETF and an emerging markets ETF. The most popular in Canada are iShares XEF (EAFE) and Vanguard VEE (emerging markets). Their fees are 0.22% and 0.25% respectively.
Commitments
The most popular bond ETFs consist of a basket of investment-grade debt securities issued by governments, crown corporations, municipalities and corporations. iShares' XBB ($6.9 billion in assets) and BMO's ZAG ($6.7 billion) are the largest. Their fees are 0.1% and 0.09% respectively.
High interests
High-yield bank account ETFs have become very popular since interest rates rose and currently offer a yield of around 5%. They are not protected by deposit insurance, but are still considered very safe. The most important are the CI company CSAV ($8.7 billion in assets), the PSA of Purpose ($5.7 billion) and the CASH of Horizons ($4.3 billion).
All in one
These ETFs are hard to beat for investors who want to spend as little time as possible managing their portfolio. They are geographically diversified and automatically rebalance. Vanguard and BlackRock (iShares) offer the most popular ranges. You can choose between the following profiles: conservative (80% bonds/20% stocks); balanced (40% bonds/60% stocks); Growth (20% bonds/80% stocks) and 100% stocks. Fees for these funds are 0.2% at BlackRock and 0.24% at Vanguard.
Crypto
The United States just approved its first cryptocurrency ETFs, but these products have been around in Canada since 2021. The most popular are Purpose's BTCC ($2.2 billion in assets) and CI's BTCX.B ( 541 million US dollars). Their fees are quite high: 1% and 0.8% respectively.
Note: Detailed information about each ETF can be found on the providers' websites, Morningstar.ca and fundlibrary.com.