Gold-rated ETF options in the Canadian Equity category

Vanguard FTSE Canada Index is a top choice, but it leaves out small-cap stocks.

Robert Miehm 13 March, 2018 | 5:00PM
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Rob Miehm: If you are considering a larger cap-oriented ETF from the Canadian Equity category, Vanguard FTSE Canada Index ETF may be an option for you. Vanguard FTSE Canada Index ETF -- symbol VCE -- is an ETF in the Canadian Equity category that tracks the FTSE Canada index. The Morningstar Analyst Rating on this ETF is Gold, using a Gold, Silver, Bronze, Neutral and Negative scale.

There are many Canadian benchmark indexes that ETFs in the Canadian Equity category could choose to track, but Before I move on there is a distinction that needs to be made between a couple of them -- specifically, the FTSE Canada Index and the S&P/TSX Composite Index.

In terms of capitalization, the former index holds stocks that are large and mid-cap sized while the latter tracks stocks that have large, mid and small cap sizes. Smaller cap sizes are typically associated with the potential for greater risk. So, this ETF that tracks the FTSE Canada index will have large and mid-cap stocks in it, whereas an ETF that tracks the S&P/TSX Composite Index will hold large, mid and smaller cap stocks in it.

The stock weights within the ETF are market-cap weighted, which means that the largest companies will have the higher weights within the fund. In fact, as of January 2018, the largest 10 holdings in this ETF accounted for just over 50% of the entire ETF, which holds 64 stocks. Financials represent the largest sector weighting in this ETF, sitting at about 45% of the fund.

Fees for the ETF are 0.05%, which is among the lowest in the Canadian Equity category. The ETF also has a reported tracking error of 3 basis points which, again, is among the lowest in the category.

So, in summary, the Vanguard FTSE Canada Index ETF could be an option for you if you are looking for Canadian exposure to the large and mid-cap space, but be wary of the sector weightings, especially in financials.

An alternative for larger cap Canadian exposure with low tracking error could be the iShares S&P/TSX 60 (XIU), a Silver-rated ETF with an MER of 0.18%. And, if you are looking for some variety in terms cap exposure, some options could be BMO S&P/TSX Capped Composite (ZCN), ishares Core S&P/TSX Capped Composite (XIC) and Vanguard FTSE Canada All Cap (VCN). All are Gold-rated ETFs with low costs and low tracking error.

For Morningstar Investment Management, I'm Rob Miehm.

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Robert Miehm

Robert Miehm  Robert Miehm is a senior investment analyst with Morningstar Investment Management.

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