Are you looking to diversify your portfolio by paying the least cost? Exchange-Traded Funds (ETFs) can be the perfect option for you. Check out the best ETFs available to Canadian investors in 2022.
What Do You Mean by ETFs?
ETF stands for Exchange-Traded Funds. These funds invest in a particular basket of securities and work the same way as mutual funds. However, ETFs are more liquid as they trade actively on the stock market.
- ETFs aim to cover several investors, as it invests in everything from stocks to metals to even a stock market index.
- Hence, whether you are a conservative investor or an aggressive one, you will always find an ETF that matches and suits your risk appetite.
- An ETF lets you own the underlying assets proportionately. For example, if you buy an S&P 500 ETF stock unit, you own all the stocks tracked by the “index S&P 500.”
- Hence, you get to enjoy asset ownership, which is not the case in Exchange Traded Notes (ETNs)
What Are the Best ETFs in 2022?
The exchange-traded funds are simply a hit in the Canadian markets. If they collected $41 billion in 2020, which was a record collecting of $43 billion in 2021 by surpassing the 2020s record collection. This speaks volumes about the popularity and liquidity enjoyed by the ETFs in Canada.
Further note all ETFs vary in their investment strategy, and hence, they also generate varying returns. It makes it necessary for every Canadian ETF investor to analyse and shortlist some of the best ETFs, consistently doing well and generating stellar returns.
Below is a list of some of the best ETFs that are available for investment in 2022:
1. BMO Aggregate Bond Index ETF (ZAG)
If you are a conservative investor looking to invest in fixed income instruments, then a BMO Aggregate Bond Index ETF can be the best bet.
This ETF replicates the performance of the FTSE Canada Universe XM Bond Index, which comprises all the investment-grade bonds, both from the corporate sector and the government sector. Usually, the maturity term for these bonds is over one year.
The default risk associated with this ETF is barely minimum because:
- The market professionals regularly review and manage all the investments
- This ETF invests in all the bonds which have at least a BBB rating
- The portfolio rebalances daily based on the asset allocation targets
2. iShares Core S&P US Total Market Index ETF (XUU)
We consider equity a safe asset class that generates steady returns over the years. Most Canadians prefer to invest in US stocks via the ETF route.
The iShares Core S&P US Total Market Index ETF (XUU) represents the US stocks. The CRSP US Total Market Index lists them. Professionally managed ETF well-depicted by its stellar performance.
Have a look at the returns generated by this ETF as against the benchmark return through the chart below:
It is clear from the graph above that the returns generated by the iShares Core S&P US Total Market Index ETF have outperformed the benchmark returns.
3. Vanguard Balanced ETF Portfolio (VBAL)
If you are a moderate investor and a fan of hybrid investment plans, which invest in debt and equity, then this ETF can be a perfect choice.
A Vanguard Balanced ETF Portfolio invests in both stocks (60%) and fixed-income securities (40%). A perfect weightage of asset allocation allows the investors to enjoy the benefits of high-performance equity by assuming limited risk.
It is a high-quality investment product and professionally managed ETFs by the market experts of Vanguard. Below is a chart depicting the total returns generated by this ETF in the past years:
How to Choose the Best ETF?
The choice of the best ETF is indeed challenging, primarily because there are so many related products with subtle differences that make it tough to select the best ones. Also, every investor is different and prefers to single out ETFs using their own financial goals and perception.
Hence, we have given you the three most relevant and preferred parameters. It will help you select an ETF precisely. These are:
|Lowest Tracking Error
|• Most ETFs track their underlying asset. For example, a Gold ETF tracks the prices of Gold, an index ETF tracks a specific market index, etc.
• The best ETFs are the ones that accurately mirror the returns of the asset/ index, which they are tracking.
• This shows that the ETF is professionally managed
|• While choosing an ETF, you should always go for those ETFs that have many holdings.
• Such ETFs represent the market more broadly and invest in small-cap and mid-cap stocks as well.
• You also enjoy better returns as these ETFs are appropriately diversified
|• MER stands for Management Expense Ratio and represents the fees that are required to be paid by the unitholders.
• You should always go for those ETFs that have the lowest MER.