In this article, we will review the best Canadian index ETFs. I have only selected the most popular ETFs in Canada with a minimum asset under management of 3 billion dollars. First, we will go over some definitions, the pros and cons of holding an index ETF. After that, we will compare the selected ETFs to help you identify the best ETF in 2024 that meets your expectations. Note: if you are looking for the best index ETFs that replicate the performance of the American stock exchanges, please refer to this article: Best S&P 500 Index ETFs in Canada.
Is an index ETF the best choice for investors?
Index funds are a popular choice for investors due to their simplicity, low cost, and overall solid performance. Here are a few reasons why investors often choose to invest in index funds:
Diversification: Index funds are designed to track a specific market index, such as the S&P 500 or the Dow Jones Industrial Average. This means the fund’s portfolio is diversified and includes stocks from many different companies, spread across various sectors and industries.
Low management fees: Index funds are generally cheaper to manage than actively managed funds, as they require less research and analysis. This results in lower management fees, meaning investors can keep a larger portion of their returns.
Solid performance: Although index funds don’t necessarily beat the market, they tend to closely follow the performance of the index they track. Therefore, investors can benefit from market growth without having to worry about picking the right individual stocks. It’s also worth mentioning that it’s rare for active fund managers to beat the index!
Accessibility: Index funds are easily accessible to investors of all levels, from beginners to experienced investors. They can be purchased through an online broker, a financial advisor, or even directly from the fund management company.
Does a TSX Index fund pay dividend?
Yes they do. Since Index ETFs holds all shares of companies part of the index, if these companies pay dividends then a dividend will be distributed. See below the performance table, the dividend yield is included.
Index definition
The S&P/TSX Capped Composite Index
is a comprehensive measure of the Canadian equities market, encompassing over 200 of Canada’s highest-ranking stocks. This wide-ranging index covers approximately 95% of the nation’s equity market by capitalization. To be included and remain in the Index, constituent securities must meet specific criteria, including minimum requirements for float-adjusted market capitalization and liquidity. To ensure diversification and minimize concentration risk, individual stock weights are limited to a maximum of 10% of the Index’s total float-adjusted market capitalization. These weightings are evaluated and adjusted on a quarterly basis to reflect market changes.
The S&P/TSX 60 Index
focuses on the 60 largest and most influential companies listed on the Toronto Stock Exchange (TSX). By including only the top-tier companies, the S&P/TSX 60 offers investors a snapshot of the health and performance of Canada’s leading corporate entities, spanning various industries.
The FTSE Canada All Cap Index
provides a broad perspective on the Canadian market by including large-, mid-, and small-cap companies. As a market-capitalization-weighted index, it reflects the performance of a wide spectrum of Canadian businesses, offering a comprehensive view of the country’s economic landscape. This inclusivity makes the FTSE Canada All Cap Index a valuable tool for investors seeking exposure to the entire Canadian equity market, from the largest conglomerates to emerging enterprises.
ETFs selected for the analysis
| Name | Actifs | MER |
| Ishares S&P TSX 60 Index – XIU | 11B | 0.18 |
| Ishares Core S&P TSX Capped Comp – XIC | 10.2B | 0.06 |
| BMO S&P TSX Capped Comp – ZCN | 7.6B | 0.06 |
| Horizons S&P/TSX 60™ INDEX – HXT | 2.8B | 0.03 |
| Vanguard FTSE Canada All Cap – VCN | 4.1B | 0.05 |
Best ETF Canada 2024 (Performance)
Updated daily – Best Canada ETF 2024
Given that these are index ETFs, it’s understandable that their performance figures are closely aligned. Index ETFs are designed to mirror the performance of a specific market index, which means their returns are often similar, especially when they track indices within the same market, such as the Canadian equity market. This tight performance range reflects the inherent nature of index ETFs to replicate the movements of their respective indices, resulting in similar growth patterns and returns for investors. The slight variations in their performance can be attributed to differences in their specific index targets, expense ratios, and the efficiency of their tracking mechanisms. This characteristic of index ETFs makes them a favored choice for investors seeking diversified exposure to a particular market segment with the expectation of returns that closely follow the market’s overall performance.
The notable aspect of HXT.TO, an index ETF, lies in its appeal to investors who prioritize capital appreciation over direct dividend payouts. Unlike traditional ETFs that distribute dividends to shareholders, HXT.TO automatically reinvests these dividends back into the fund. This feature is particularly advantageous for investors looking for a compounding effect on their investments without the immediate income from dividends.
Top 10 Best Growth ETF in Canada!
Comparison volatility – Best ETF Canada 2024
| Name | Beta 5 yrs |
| Ishares S&P TSX 60 Index – XIU | 0.92 |
| Ishares Core S&P TSX Capped Comp – XIC | 0.98 |
| BMO S&P TSX Capped Comp – ZCN | 0.98 |
| Horizons S&P/TSX 60™ INDEX – HXT | 0.99 |
| Vanguard FTSE Canada All Cap – VCN | 0.99 |
Pros and Cons of Index ETFs
Pros:
-Low MER: Because Index ETFs are a passive style of investment, they do not require an active manager. This is why the cost to operate an Index ETF is cheaper than say an Actively managed ETF. Low MER means you will benefit more from the returns the funds makes;
-Investing in a index fund has proven to be a great strategy in the long term (if you have more than 5 years horizon).
Cons:
-Index ETFs are volatile since they are tied directly to the performance of a stock exchange. Exchanges tend to rally quickly on a glimpse of good economic news but also fall sharply when investors are pessimistic about the near term. This is why it’s important when you buy an index ETF to keep it for the long run and not short term.
-Some investors prefer to have control over their investments and cherry pick stocks. Obviously, this is not possible under an index fund which basically holds all stocks part of the index without any pre-selection process.
Ishares S&P TSX 60 Index ETF (XIU.TO)
iShares S&P/TSX 60 Index ETF as its’ name implies, it’s a fund that invests in 60 largest companies that are members of the TSX. It’s the most popular ETF in Canada with 10 Billion dollars in Assets. This ETF is representative of the Canadian economy which is dominated by the Energy and Financial sector as you can see below n the sector allocation table.
The number of holdings for the ETF is 60. It has the highest MER in the list but this did not really impact its long term performance in comparison with the other funds.
XIU Holdings
| Name | Weight % |
|---|---|
| ROYAL BANK OF CANADA | 7.94 |
| SHOPIFY SUBORDINATE VOTING INC CLA | 7.37 |
| TORONTO DOMINION | 7.07 |
| BANK OF NOVA SCOTIA | 4.35 |
| ENBRIDGE INC | 4.28 |
| CANADIAN NATIONAL RAILWAY | 4.22 |
| BROOKFIELD ASSET MANAGEMENT INC CL | 3.76 |
| BANK OF MONTREAL | 3.68 |
| CANADIAN IMPERIAL BANK OF COMMERCE | 2.87 |
| CANADIAN PACIFIC RAILWAY LTD | 2.86 |
XIC Sector allocation
| Sector | Weight % |
| Financials | 35.90 |
| Energy | 14.30 |
| Materials | 10.70 |
| Information Technology | 10.69 |
| Industrials | 9.89 |
| Communication | 5.84 |
| Consumer Discretionary | 4.16 |
| Consumer Staples | 3.61 |
| Utilities | 3.16 |
| Health Care | 0.84 |
Ishares Core S&P TSX Capped Comp ETF (XIC.TO)
Seeks long-term capital growth by replicating the performance of the S&P®/TSX® Capped Composite Index, net of expenses. While XIU has 60 holdings in total, XIC is much larger with 219 Canadian companies. In terms of performance both XIU and XIC are quite close. XIC has a lower MER 0.06% in comparison to XIU at 0.18%. This fund is dominated by Energy and Financial companies which is the same case for XIU.
XIC Ishares Core S&P TSX Capped Comp ETF Holdings
| Name | Weight % |
| ROYAL BANK OF CANADA | 6,24 |
| SHOPIFY SUBORDINATE VOTING INC CLA | 5,79 |
| TORONTO DOMINION | 5,55 |
| BANK OF NOVA SCOTIA | 3,42 |
| ENBRIDGE INC | 3,36 |
| CANADIAN NATIONAL RAILWAY | 3,31 |
| BROOKFIELD ASSET MANAGEMENT INC CL | 2,95 |
| BANK OF MONTREAL | 2,89 |
| CANADIAN IMPERIAL BANK OF COMMERCE | 2,26 |
| CANADIAN PACIFIC RAILWAY LTD | 2,24 |
XIC Ishares Core S&P TSX Capped Comp ETF Sector allocation
| Secteur | Poids % |
| Finance | 31,61 |
| Énergie | 13,07 |
| Matières | 12,58 |
| Valeurs industrielles | 11,44 |
| Technologie de l’information | 9,55 |
| COMMUNICATION | 4,93 |
| Services publics | 4,54 |
| Consommation discrétionnaire | 3,92 |
| Biens de consommation de base | 3,60 |
| Immobilier | 3,15 |
BMO S&P TSX Capped Comp ETF (ZCN.TO)
ZCN is the third contender in this list of Best Index ETFs in Canada. The BMO S&P/TSX Capped Composite Index ETF (ZCN) has been designed to replicate, to the extent possible, the performance of the S&P/TSX Capped Composite Index (Index), net of expenses. Both ZCN and XIC are quite similar. They both track the S&P/TSX Capped Composite index.
ZCN BMO S&P TSX Capped Comp ETF Holdings
| Weight (%) | Name |
|---|---|
| 6.23% | ROYAL BANK OF CANADA |
| 5.79% | SHOPIFY INC |
| 5.55% | TORONTO-DOMINION BANK/THE |
| 3.42% | BANK OF NOVA SCOTIA/THE |
| 3.36% | ENBRIDGE INC |
| 3.31% | CANADIAN NATIONAL RAILWAY CO |
| 2.95% | BROOKFIELD ASSET MANAGEMENT INC |
| 2.89% | BANK OF MONTREAL |
| 2.26% | CANADIAN IMPERIAL BANK OF COMMERCE |
| 2.24% | CANADIAN PACIFIC RAILWAY LTD |
ZCN BMO S&P TSX Capped Comp ETF Sector allocation
| Sector | Weight (%) |
|---|---|
| Financials | 31.84 |
| Energy | 12.50 |
| Materials | 12.85 |
| Industrials | 11.72 |
| Information Technology | 9.54 |
| Communication | 4.89 |
| Utilities | 4.52 |
| Consumer Discretionary | 4.00 |
| Consumer Staples | 3.65 |
| Real Estate | 3.11 |
Vanguard FTSE Canada All Cap ETF (VCN)
Vanguard FTSE Canada All Cap Index ETF seeks to track the performance of a broad Canadian equity index that measures the investment return of large-, mid- and small-capitalization, publicly traded securities in the Canadian market.
VCN Vanguard FTSE Canada All Cap ETF Holdings
| Name | Weight |
|---|---|
| Royal Bank of Canada(RY) | 6.37% |
| Shopify Inc. Class A(SHOP) | 6.13% |
| Toronto-Dominion Bank(TD) | 5.82% |
| Enbridge Inc.(ENB) | 3.66% |
| Bank of Nova Scotia(BNS) | 3.60% |
| Canadian National Railway Co.(CNR) | 3.59% |
| Brookfield Asset Management Inc. Class A(BAM.A) | 2.84% |
| Bank of Montreal(BMO) | 2.83% |
| Canadian Pacific Railway Ltd.(CP) | 2.37% |
| TC Energy Corp.(TRP) | 2.26% |
Horizons S&P/TSX 60™ INDEX – HXT
HXT has the same strategy as XIU, ie to replicate the S & P / TSX 60 index which is made up of the 60 largest Canadian companies.
HXT Holdings
| Name | Weight |
|---|---|
| SHOPIFY INC | 8.99% |
| ROYAL BANK OF CANADA | 7.86% |
| TORONTO-DOMINION BANK/THE | 6.95% |
| ENBRIDGE INC | 4.42% |
| BANK OF NOVA SCOTIA/THE | 4.30% |
| CANADIAN NATIONAL RAILWAY CO | 4.07% |
| BROOKFIELD ASSET MANAGEMENT INC | 3.90% |
| BANK OF MONTREAL | 3.61% |
| CANADIAN PACIFIC RAILWAY LTD | 2.79% |
| CANADIAN IMPERIAL BANK OF COMMERCE | 2.78% |
HXT sector allocation
Financials (35.50%)
Energy (14.13%)
Information Technology (12.49%)
Materials (10.00%)Industrials (9.72%)
Communication Services (5.80%)
Consumer Discretionary (4.06%)
Consumer Staples (3.57%)
Utilities (3.14%)
Health Care (0.81%)
Real Estate (0.77%)
VCN Vanguard FTSE Canada All Cap ETF Sector allocation
| Sector | Fund |
|---|---|
| Financials | 33.5% |
| Energy | 13.2% |
| Basic Materials | 11.3% |
| Technology | 10.1% |
| Industrials | 9.4% |
| Consumer Discretionary | 6.3% |
| Utilities | 5.8% |
| Telecommunications | 4.8% |
| Real Estate | 2.3% |
| Consumer Staples | 2.2% |
| Health Care | 1.1% |
Issuers websites – Best ETF Canada 2024
See below links to issuers’ website:
Disclaimer
The data on this website is for your information only. It does not constitute investment advice, or advice on tax or legal matters. Any information provided on this website does not constitute investment advice or investment recommendation nor does it constitute an offer to buy or sell or a solicitation of an offer to buy or sell shares or units in any of the investment funds or other financial instruments described on this website. Should you have any doubts about the meaning of the information provided herein, please contact your financial advisor or any other independent professional advisor.