Morningstar
ETF Insight

The Best Canadian ETFs for RRSPs in 2024

Canadian investors should consider these top exchange-traded funds for their retirement savings accounts.

Danielle LeClair 13 February, 2024 | 2:13AM
Facebook Twitter LinkedIn
Font-Size

Designed Image

Recently, I wrote about how a recent study by Morningstar on home bias in Canadian portfolios mirrored my urge to take a break from Canada and head out on an international vacation (update: Mexico is in the lead) while also influencing my suggestions for where to allocate your RRSP dollars. 

To recap, the study determined that Canadians tend to have more of their investments allocated to Canadian securities than what is represented in most standard global indices. It also indicated that particularly in equity portfolios, this has hurt performance over the last 15 years.

While my previous recommendations focused on mutual funds, today I wanted to focus on ETFs. ETFs are popular vehicles in Canada for a variety of reasons, but the most prominent tends to be that they are relatively cheaper than mutual funds, on average. The average management expense ratio (MER) for an ETF in the Global Equity category sits at just 0.82% and is 0.26% cheaper than the average MER for a fee-based mutual fund in the same category which sits at 1.08%. The rise of actively managed ETFs has also fueled more interest from investors – and asset managers are obliging! Over 40% of ETFs launched in 2023 were listed as actively managed products.

How to Find the Best ETFs for Your RRSP

For those investors looking to add non-Canadian equity exposure using an ETF vehicle, I used a screen to find equity ETFs that have stood our relative to their peers with very little exposure to Canada. The criteria I considered include:

Funds must also have earned either a Bronze, Silver or Gold Morningstar Medalist Rating. These ratings are assessments of a fund’s ability to outperform peers in the future and are based on analysis of the people managing the fund, the process that they use and the parent company distributing the fund.

Funds that received a 4 or 5-star Morningstar rating. Morningstar’s Star Ratings provide context on how a fund has performed in the past relative to its category peers, on a risk-adjusted basis, after fees. It is an insightful data point as our data has suggested that funds that have earned a 5-star rating will outperform funds that have earned a 1-star rating.

Finally, I’ve only selecting funds with close to market weight exposure to Canadian equities. Market weight was determined by using the Canadian percentage allocation in the Morningstar Global Markets Index as of January 31st, 2024, which was 2.9%.

Here’s the list:

The list includes some familiar players in the passively managed space such as Vanguard, iShares and Horizons, and also two actively managed ETFs: Horizons Global Sustainability Leaders ETF ETHI and Fidelity Sustainable World ETF FCSW. The presence of ESG-oriented strategies was not an intentional criteria but their inclusion is a reminder that investors should be mindful of their investment objectives, values and overall portfolio diversification before making any new allocations to their RRSP.

TAGS
Facebook Twitter LinkedIn
Font-Size

About Author

Danielle LeClair  Danielle LeClair is Director of Manager Research for Morningstar Canada

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility

The Morningstar Star Rating for Stocks is assigned based on an analyst's estimate of a stocks fair value. It is projection/opinion and not a statement of fact. Morningstar assigns star ratings based on an analyst’s estimate of a stock's fair value. Four components drive the Star Rating: (1) our assessment of the firm’s economic moat, (2) our estimate of the stock’s fair value, (3) our uncertainty around that fair value estimate and (4) the current market price. This process culminates in a single-point star rating that is updated daily. A 5-star represents a belief that the stock is a good value at its current price; a 1-star stock isn't. If our base-case assumptions are true the market price will converge on our fair value estimate over time, generally within three years. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Morningstar Star Rating for Stocks, please visit here

Quantitative Fair Value Estimate represents Morningstar’s estimate of the per share dollar amount that a company’s equity is worth today. The Quantitative Fair Value Estimate is based on a statistical model derived from the Fair Value Estimate Morningstar’s equity analysts assign to companies which includes a financial forecast of the company. The Quantitative Fair Value Estimate is calculated daily. It is a projection/opinion and not a statement of fact. Investments in securities are subject to market and other risks. Past performance of a security may or may not be sustained in future and is no indication of future performance. For detail information about the Quantiative Fair Value Estimate, please visit here

The Morningstar Medalist Rating is the summary expression of Morningstar’s forward-looking analysis of investment strategies as offered via specific vehicles using a rating scale of Gold, Silver, Bronze, Neutral, and Negative. The Medalist Ratings indicate which investments Morningstar believes are likely to outperform a relevant index or peer group average on a risk-adjusted basis over time. Investment products are evaluated on three key pillars (People, Parent, and Process) which, when coupled with a fee assessment, forms the basis for Morningstar’s conviction in those products’ investment merits and determines the Medalist Rating they’re assigned. Pillar ratings take the form of Low, Below Average, Average, Above Average, and High. Pillars may be evaluated via an analyst’s qualitative assessment (either directly to a vehicle the analyst covers or indirectly when the pillar ratings of a covered vehicle are mapped to a related uncovered vehicle) or using algorithmic techniques. Vehicles are sorted by their expected performance into rating groups defined by their Morningstar Category and their active or passive status. When analysts directly cover a vehicle, they assign the three pillar ratings based on their qualitative assessment, subject to the oversight of the Analyst Rating Committee, and monitor and reevaluate them at least every 14 months. When the vehicles are covered either indirectly by analysts or by algorithm, the ratings are assigned monthly. For more detailed information about these ratings, including their methodology, please go to here

The Morningstar Medalist Ratings are not statements of fact, nor are they credit or risk ratings. The Morningstar Medalist Rating (i) should not be used as the sole basis in evaluating an investment product, (ii) involves unknown risks and uncertainties which may cause expectations not to occur or to differ significantly from what was expected, (iii) are not guaranteed to be based on complete or accurate assumptions or models when determined algorithmically, (iv) involve the risk that the return target will not be met due to such things as unforeseen changes in changes in management, technology, economic development, interest rate development, operating and/or material costs, competitive pressure, supervisory law, exchange rate, tax rates, exchange rate changes, and/or changes in political and social conditions, and (v) should not be considered an offer or solicitation to buy or sell the investment product. A change in the fundamental factors underlying the Morningstar Medalist Rating can mean that the rating is subsequently no longer accurate.

For information on the historical Morningstar Medalist Rating for any managed investment Morningstar covers, please contact your local Morningstar office.

For more detailed information about conflicts of interest, including EU MAR disclosures, please see the “Morningstar Medalist Rating Analyst Conflict of Interest & Other Disclosures for EMEA”here

Select Your Site Edition To make sure the site is relevant to you, we need to know if you’re an individual investor or a financial professional.