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Exchange-traded funds can offer an easy, inexpensive way to gain stock market exposure, but there’s a dizzying array to choose from.
To help investors find ETFs focused on Canadian stocks, we’ve screened 59 ETFs in Morningstar’s Canadian Equity category for those with either Gold or Silver Medalist Ratings. A Gold rating means we believe a fund has the greatest chance of outperforming its category over the long term, while a Silver rating means we believe it will outperform its relevant performance benchmark and/or peer group.
For this story, we highlight the best six Canadian stock ETFs as evaluated by Morningstar analysts:
Vanguard FTSE Canada All Cap ETF VCNVanguard FTSE Canada ETF VCEBMO S&P/TSX Capped Composite ETF ZCNiShares MSCI Minimum Volatility Canada ETF XMViShares Core S&P/TSX Capped Composite ETF XICiShares S&P/TSX 60 ETF XIU
Screening for the Best Canadian Stock ETFs
We screened Canadian equity funds for ETFs with Gold or Silver Medalist Ratings that are 100% assigned by Morningstar analysts (rather than indirectly or quantitatively assigned). All six ETFs that made it through the screen are index funds. Two track versions of the FTSE Canada Index, two track the S&P/TSX Composite Index, and two track other indexes.
Here’s a closer look at the ETFs. A table with their recent performance is at the end of this article.
Vanguard FTSE Canada All Cap ETF
Morningstar Medalist Rating: GoldMorningstar Rating: ★★★★
The Vanguard FTSE Canada All-Cap ETF tracks a market-cap-weighted index of Canadian stocks across company sizes. It holds 159 stocks, with an average size of C$54 billion for its holdings. “Vanguard FTSE Canada All Cap ETF offers broad exposure to the Canadian stock market at a low price, a simple formula that few have been able to beat in the long run,” says Ryan Jackson, manager research analyst, passive strategies for Morningstar.
Vanguard FTSE Canada ETF
Morningstar Medalist Rating: GoldMorningstar Rating: ★★★★★
Vanguard FTSE Canada ETF holds a market-cap weighted index focusing on large- and mid-cap stocks. It holds 49 holdings and with the stocks it holds averaging a market cap of C$80 billion. “Vanguard FTSE Canada ETF offers market-cap-weighted exposure to the Canadian large- and mid-cap stock market at a low price, a simple formula that should be hard to beat in the long run,” explains Jackson.
iShares MSCI Minimum Volatility Canada
Morningstar Medalist Rating: SilverMorningstar Rating: ★★★★
This strategic beta fund follows an index based on a mathematical model that creates the lowest-volatility portfolio it can using stocks from the MSCI Canada Index while remaining within certain restrictions.
“These restrictions hold sector weightings within 5 percentage points of their parent index allocation. Stocks cannot exceed their parent index weighting by 1.5 percentage points or 20 times, whichever is lower,” says Jackson. “The index also limits one-way turnover to 10% at each semiannual rebalance and controls exposure to nontargeted risk factors to prevent an incidental value or growth bias or meaningful factor tilt.” Overall, he describes the fund as “a well-designed low-volatility strategy whose ability to weather drawdowns should continue to drive a stellar risk/reward profile.”
BMO S&P/TSX Capped Composite ETF
Morningstar Medalist Rating: SilverMorningstar Rating: ★★★★
iShares Core S&P/TSX Capped Composite ETF
Morningstar Medalist Rating: SilverMorningstar Rating: ★★★★
These ETFs track the S&P/TSX Capped Composite Index, which follows the benchmark S&P/TSX Composite Index while trying to increase diversification by limiting any individual stock to a 10% weighting. Jackson describes both as offering “broad exposure to the Canadian stock market at a low price—a simple formula that few have been able to beat in the long run.”
iShares S&P/TSX 60 ETF
Morningstar Medalist Rating: SilverMorningstar Rating: ★★★★
This fund tracks the S&P/TSX 60 Index, which focuses on large-cap Canadian stocks. “iShares TSX/S&P 60 ETF offers market-cap-weighted exposure to the Canadian large- and mid-cap market at a low price,” says Jackson. “That simple formula breeds a top-heavy portfolio, but it should be hard to beat long term.”
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.