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The best ETFs to hold for retirement

If you know where you want your assets to go, see this list of the best-rated ETFs available in Canada

Ian Tam, CFA 19 February, 2020 | 1:30AM
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This article is part of the Morningstar Retirement Week special report

Earlier this week, we talked about how, before picking funds, it is important to understand the asset class and its corresponding risk/return profile. Just as important as contributing new assets into the tax shelter, is to review your overall asset mix and ensure that the asset mix is still suitable to your risk profile. There is no one-size-fits-all formula for what the right asset allocation should be, but broadly speaking the older your get (and the lower the amount of risk you can take on) the less you have in equities (stocks).

So assuming you have a sense of where you want your assets to go, here is a list of some of the best rated ETFs available in Canada, sorted in no particular order aside from the Morningstar Category (representing the broad asset class that the fund invests in). The funds displayed here must scored at least three stars in the Morningstar Rating overall (a backwards looking report card based on risk-adjusted returns) and at least a Silver medal based on Morningstar’s Analyst (MAR) or Morningstar’s Quantitative Rating (MQR) (our forward looking assessment of a fund’s ability to outperform the category to which it belongs in the future). In the tables below you’ll see the ratings as well as Morningstar’s Risk Rating (lower is better).  

Important Note: This is a great list of ETFs for you to conduct your own research on but does not constitute financial advice. It is always recommended to speak to an advisor or investment professional before investing.

Dividend & Income Equity 
The funds in this category invest in dividend-paying securities which continues to be a popular style of investment in Canada. To qualify, funds most hold at least 70% in domestic Canadian equities.

Name Morningstar Star Rating

MQR

Morningstar Risk Rating

1-yr Returns

3-yr Returns

5-yr Returns

10-yr Returns

iShares S&P/TSX Cdn Div Aristcr ETF Comm (CDZ)

4 Stars

Gold

Average

19.34

7.37

6.11

8.86

Morningstar Direct Data as of Dec 31, 2019

Equity
The funds in this category must invest 90% in Canadian equities that are generally larger in size.

Name

Morningstar Star Rating

MAR/MQR

Morningstar Risk Rating

1-yr Returns

3-yr Returns

5-yr Returns

CI First Asset MSCI Canada Quality ETF (FQC)

5 Stars

Gold

Below Avg

18.17

10.75

 

iShares Edge MSCI Min Vol Canada ETF (XMV)

5 Stars

Silver

Low

19.07

8.16

7.09

Invesco S&P/TSX Composite Low Vol ETF (TLV)

5 Stars

Silver

Low

19.06

8.81

8.07

Morningstar Direct Data as of Dec 31, 2019

Fixed Income
This bond category houses funds with 90% investment grade Canadian dollar bonds, with up to 30% in foreign bonds that are hedged back to Canadian dollars.

Name

Morningstar Star Rating

MAR

Morningstar Risk Rating

1-yr Returns

3-yr Returns

5-yr Returns

10-yr Returns

15-yr Returns

iShares Core Canadian Universe Bond ETF (XBB)

4 Stars

Silver

Above Avg

8.48

4.51

2.64

4.15

4.44

BMO Aggregate Bond ETF (ZAG)

4 Stars

Silver

Above Avg

8.46

4.47

2.67

4.13

 

Morningstar Direct Data as of Dec 31, 2019

Fixed Income Balanced
A close cousin of the Fixed Income category, funds in this category can hold up to 40% in stocks (read: 60% in bonds). At least 70% of the fund must be invested in Canadian stocks or Canadian dollar denominated bonds.
 

Name

Morningstar Star Rating

MQR

Morningstar Risk Rating

1-yr Returns

3-yr Returns

5-yr Returns

10-yr Returns

iShares Diversified Monthly Income ETF (XTR)

5 Stars

Silver

High

10.55

5.18

4.19

6.20

Morningstar Direct Data as of Dec 31, 2019

Global Equity
Funds in this category will give investors exposure to larger cap stocks from around the world. A broad category, as 10-90% of holdings can technically be domiciled in North America. Of note are VXC and XAW which exclude Canadian companies, which can be a good diversifier to a Canadian-only equity portfolio.

Name

Morningstar Star Rating

MAR/MQR

Morningstar Risk Rating

1-yr Returns

3-yr Returns

5-yr Returns

Vanguard FTSE Global All Cap ex Can ETF (VXC)

4 Stars

Gold

Average

15.42

10.86

9.05

CI First Asset MSCI WldLRWgtETFUnHdgComm (RWW.B)

4 Stars

Gold

Low

18.83

11.98

10.03

iShares Core MSCI ACty Wld exCan ETF (XAW)

4 Stars

Gold

Average

15.20

10.88

 

Morningstar Direct Data as of Dec 31, 2019

Global Neutral Balanced
This category of funds contains roughly a 50/50 split between stocks and bonds (ranging from 40-60%) with at least 30% invested outside of Canada.

Name

Morningstar Star Rating

MQR

Morningstar Risk Rating

1-yr Returns

3-yr Returns

5-yr Returns

10-yr Returns

iShares Core Balanced ETF Portfolio (XBAL)

3 Stars

Gold

Below Avg

12.85

6.21

4.76

6.22

Morningstar Direct Data as of Dec 31, 2019

US Equities
The bellwether of last year’s market rally, US equity funds must have 90% of their holdings in US-domiciled stocks.

Name

Morningstar Star Rating

MQR

Morningstar Risk Rating

1-yr Returns

3-yr Returns

5-yr Returns

CI First Asset MSCI USALRWgtETFUnHgdComm (RWU.B)

4 Stars

Gold

Below Avg

25.00

14.84

12.89

Vanguard US Dividend Appreciation ETF (VGG)

4 Stars

Gold

Below Avg

22.87

15.34

12.45

Morningstar Direct Data as of Dec 31, 2019

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About Author

Ian Tam, CFA  is Director of Investment Research at Morningstar Canada. 

 

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