In this post, we will go over the Best Index ETFs in Canada. I selected only popular ETFs with a minimum asset under management of 1 Billion dollars. We will first define what an index ETF is, discuss popular Canadian indexes and go over the pros and cons of this strategy.
What’s an ETF?
refer to our previous post: Everything you need to know about ETFs
What’s an Index ETF
There are several types of Exchange traded funds. Index ETFs are the king of the hill. In fact, the first ever ETF introduced to a North American Exchange was an index ETF. Index ETFs offer exposure to a large number of securities and sometimes to the whole market at a very low cost. Their main goal is to acquire, on your behalf, all the securities that constitute a specific index in order to achieve the same return of the tracked index minus the fees.
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
S&P/TSX Capped Composite Index (Index)
includes over 200 top-ranked Canadian stocks, representing approximately 95% of the Canadian equity market. Constituent securities must pass minimum float-adjusted and liquidity screens to qualify and maintain membership in the Index. Index weights are capped at 10% of the Index’s float-adjusted market capitalization and are reviewed quarterly.
S&P/TSX 60
An index constituted of the 60 largest companies in the Toronto Stock Exchange
FTSE Canada All Cap
The FTSE Canada All Cap Domestic Index is a market-capitalization-weighted index representing the performance of Canadian large-, mid- and small-capitalization companies. As of Feb 28th, this index had 178 member stocks.
ETFs selected for the analysis
| Name | AUM in M | MER |
| Ishares S&P TSX 60 Index – XIU | 10,730 | 0.18 |
| Ishares Core S&P TSX Capped Comp – XIC | 8,610 | 0.06 |
| BMO S&P TSX Capped Comp – ZCN | 6,510 | 0.06 |
| Horizons S&P/TSX 60™ INDEX – HXT | 2,730 | 0.03 |
| Vanguard FTSE Canada All Cap – VCN | 3,990 | 0.06 |
Best ETF Canada 2023 (MER, Div yield, Performance)
Updated daily – Best Canada ETF 2023
XIU has the highest Management Expense Ratio on the list, but this does not appear to have an impact on its long-term performance;
The dividend yields for XIU, XIC, ZCN and VCN are quite similar, with a small lead for ZCN. Horizons’ HXT does not distribute dividends;
XIU and HXT have the best long-term performance (over 5 years) with an annualized performance of over 11%.
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Comparison volatility – Best ETF Canada 2023
| Name | Beta 5 yrs | Morningstar rating |
| Ishares S&P TSX 60 Index – XIU | 0.92 | 5 Stars |
| Ishares Core S&P TSX Capped Comp – XIC | 0.98 | 4 Stars |
| BMO S&P TSX Capped Comp – ZCN | 0.98 | 4 Stars |
| Horizons S&P/TSX 60™ INDEX – HXT | 0.99 | 5 stars |
| Vanguard FTSE Canada All Cap – VCN | 0.99 | 4 stars |
XIU has the lowest volatility among our 4 contenders. This is probably due the fact that its’ holdings are exclusively large Canadian companies. Large companies tend to be more stable than the overall market. The other ETFs have a beta of 1 which is not surprising since they track a more global market index.
Personally, I consider XIU to be the best index ETF to track the performance of the Canadian market for the following reasons:
– High performance with lower volatility;
– An attractive dividend yield.
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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 is constituted with the 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%. XIC 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 2023
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.