ETFs to Consider for Your RRSP

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Ian Tam, CFA 23 February, 2021 | 2:51AM
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Yesterday, I wrote about some mutual funds choices for your RRSP. Today we turn our attention to exchange traded funds, or ETFs.

The world of ETFs in Canada has evolved quickly. What was once a handful of indexed products is now a universe of over 1000 vehicles from Canadian-domiciled fund manufacturers. Suffice to say, not all ETFs are created equal. Though the choices can seem overwhelming, there are 3 main types of ETFs in Canada:

1. Passive or Indexed ETFs: These are the most well-known school of ETFs, low cost and designed to track an index. These lower costs can impact your investment substantially over time when compounded, especially in an RRSP account which is designed to largely be left alone until you retire.

2. Strategic Beta ETFs: These straddle the line between active and passive. These products leverage quantitative investment techniques to remove much of the human element in investing, with the intent to gain exposure to a specific fundamental factor such as growth, value, quality, momentum, risk or dividends. Like passive investments, they typically charge lower fees than active managers but still provide an active tilt toward a specific investment style.

3. Actively Managed ETFs: These products are like mutual funds, where a manager (a human being) is making decisions either in picking individual securities, or in making broader asset allocation decisions.

Across these three types of ETFs, I used Morningstar Direct to screen for those in the largest categories in Canada by both the Morningstar Rating (a.k.a. “star rating”) or Morningstar Quantitative Rating or Morningstar Analyst Rating.

Passive or Indexed ETFs 

Name

Ticker

MER (%)

Morningstar Star Rating

Morningstar Analyst Rating

1-yr Return

3-yr Return

5-yr Return

Vanguard FTSE Canada ETF

VCE

0.06

4

Gold

1.81

6.08

9.22

Vanguard FTSE Canada All Cap ETF

VCN

0.06

4

Gold

2.93

5.55

9.10

BMO S&P/TSX Capped Composite ETF

ZCN

0.06

4

Silver

3.58

6.17

9.52

Vanguard FTSE Global All Cap ex Can ETF

VXC

0.26

4

Gold

14.30

9.03

11.19

iShares Core MSCI ACty Wld exCan ETF

XAW

0.22

4

Gold

12.49

8.56

10.96

iShares MSCI World ETF

XWD

0.47

4

Silver

9.77

8.82

10.36

Vanguard S&P 500 ETF

VFV

0.09

4

Gold

12.81

12.69

13.63

iShares Core S&P 500 ETF

XUS

0.10

4

Gold

12.81

12.71

13.49

Vanguard US Total Market ETF

VUN

0.16

4

Gold

16.16

13.40

14.14

iShares Core S&P US Total Mkt ETF

XUU

0.07

4

Gold

14.48

12.79

13.67

Vanguard Canadian Aggregate Bond ETF

VAB

0.09

4

Silver

4.28

5.32

3.66

iShares Core Canadian Universe Bond ETF

XBB

0.10

4

Silver

4.31

5.41

3.73

Source: Morningstar Direct, Data as of January 31, 2021


The broad majority of medalist rated ETFs listed here have very low fees. This said, remember to first look at the category to which each ETF belongs before deciding on an individual investment. 

Strategic Beta ETFs:

 

Name

Ticker

Strategic Beta Focus

MER (%)

Morningstar Star Rating

MQR

1-yr Return

3-yr Return

5-yr Return

iShares Canadian Growth ETF

XCG

Growth

0.55

4

Gold

4.01

10.88

9.19

Vanguard US Dividend Apprec ETF CAD-H

VGH

Dividend

0.30

4

Gold

8.73

8.51

12.94

BMO MSCI USA High Quality ETF

ZUQ

Quality

0.33

4

Silver

14.55

16.15

15.45

Manulife Multifactor US Lrg Cap ETF UnH

MULC.B

Multi-Factor

0.39

4

Silver

12.01

11.64

 

Source: Morningstar Direct, Data as of January 31, 2021

Although the Strategic Beta ETFs all qualify under the screening criteria (either Silver/Gold and 4/5 star rated), as it happens each has a different focus area. XCG for example focuses on growth companies, while VGH focuses on dividend paying stocks.

Actively Managed ETF:
 

Name

Ticker

MER (%)

Morningstar Star Rating

MQR

1-yr Return

3-yr Return

5-yr Return

Vanguard Growth ETF Portfolio

VGRO

0.25

4

Silver

9.78

7.60

 

iShares Core Growth ETF Portfolio

XGRO

0.20

4

Silver

10.00

6.64

9.45

Vanguard Conservative ETF Portfolio

VCNS

0.25

4

Silver

6.96

6.36

 

Vanguard Balanced ETF Portfolio

VBAL

0.25

4

Silver

8.50

7.01

 

iShares Core Balanced ETF Portfolio

XBAL

0.20

4

Silver

8.68

7.57

7.72

Horizons Active Global Dividend ETF Comm

HAZ

0.79

4

Silver

0.74

6.00

7.36

Vanguard Global Momentum Factor ETF CAD

VMO

0.38

4

Silver

22.64

11.24

 

iShares Conservative ST Strategic FI ETF

XSC

0.45

4

Silver

2.68

3.13

3.39

Source: Morningstar Direct, Data as of January 31, 2021

Finally, we have our actively managed ETFs. Of note are VGRO, XGRO, VCNS, VBAL, and XBAL which are each essentially balanced funds, investing in a mix of stocks and bonds. For the most part, the underlying securities used in these ultra-low cost ETFs are other indexed ETFs. However the manager has discretion on when to re-balance and which funds to use. Combined with a discount brokerage account, these particular ETFs are a great deal for the DIY investor who wishes to have broad exposure with a single ticker at a very low cost.

This article does not constitute financial advice. It is always recommended to speak with a financial advisor or investment professional before purchasing any of the products listed here.

 

 

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About Author

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

 

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