Great ETFs to Consider for your RRSP

These balanced funds are a good place to start your research.

Ian Tam, CFA 15 February, 2022 | 3:23AM
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Young Investors

Yesterday, we highlighted a few reasonable suggestions for balanced mutual funds that might fit into your RRSP. These products were highlighted due to their convenient nature. When investing in a balanced fund, the overall mix between stocks and bonds is automatically re-balanced at regular intervals to ensure that they do not drift too far from the stated targets. This is important, because the asset allocation (mix between stocks and bonds) is the key to lining up the amount of risk that you can afford to take on (which is a function of your time horizon and financial situation), with the risk inherent in an investment portfolio. When these two things are matched up correctly, investors are on the ideal track toward reaching their financial goals.

The world of Canadian ETFs has quickly followed suit. As I wrote about earlier, the creation of ‘all-in-one’ ETFs over the last 3 years has made it even easier for the DIY investor to put their assets into a well-diversified portfolio, without the need of going through an advisor. The concept behind these products are similar to their mutual fund counterparts, with a couple of distinct differences.

First, these products trade through an exchange, and as such offer the liquidity advantages of a stock. In other words, investors can sell out of these positions within the day if needed, with transparent prices.

Second, many of these products leverage passive ETFs as their components. The key benefit here is that passive index ETFs come at a lower cost to investors than actively managed products, which translates into more cash in your pocket. These ‘all-in-one’ products, in combination with a low-cost discount brokerage account can be a very good deal for someone looking to start up an RRSP (and who does not need the guidance of an advisor.)

To find reasonable choices in this space, I used Morningstar Direct to screen for allocation ETFs (those that invest in both stocks and bonds) that have a Morningstar Quantitative Rating (MQR) of Gold, Silver, or Bronze. Recall that the MQR is Morningstar’s forward-looking assessment of a fund’s ability to outperform peers after fees. Typically, I would also use the Morningstar star rating as a criteria in the search, however given that many of these products launched within the past three years, many have not built up enough of a track record to qualify to receive a star rating. The star ratings (where given) are shown in the table below but were not used to screen this list.

Exhibit 1

Investors are once again encouraged to first look at the category to which each ETF belongs to determine whether funds in the category are in line with the amount of risk being taken on. As a reminder, Morningstar’s categories reflect the following asset class and geographic exposure, noting that this is a Canada-wide classification scheme. A conservative investor will likely lean toward fixed income balanced categories, while aggressive investors might lean toward equity balanced categories.

Exhibit 2

This article does not constitute financial advice. Investors are always encouraged to conduct their own analysis before purchasing any of the products listed here.


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About Author

Ian Tam, CFA  Investment Specialist at Morningstar Canada. 


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