3 Great Canadian Growth ETFs for 2024

These highly-rated strategies capture the momentum of the broad market from Canada.

Ryan Jackson 17 April, 2024 | 4:55AM
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Ryan Jackson: Almost everyone knows the old investing refrain, buy low, sell high. But over the past few years, investors have adopted a new rallying cry, buy high, sell higher. This attitude describes growth stock investing. Instead of hunting for companies at deep discounts, growth funds target stocks whose rich valuations reflect their competitive advantages, sound balance sheets, or other attractive features. Growth stocks have thrived over the past decade. Some of the world's most valuable companies seemed pricey 10 years ago turned out to be real bargains. If growth's tremendous run continues, these three ETFs should make out especially well.

First up for today is iShares Canadian Growth Index ETF, which trades under the ticker XCG. This no-frills index strategy ranks all large and mid-cap Canadian stocks by a composite score that measures their growth and value characteristics. Those that grade out with the best growth metrics make the cut. The fund weights its holdings by market capitalization. A time-tested and cost-efficient approach, that taps into the market's collective wisdom. At about 40 holdings, this fund is rather lean for an index strategy, but it reflects the growthier side of the Canadian market accurately with firms like Shopify (SHOP) and Constellation Software (W9C) top the portfolio.

At the end of March 2024, nearly 90% of the portfolio comprised firms with wide or narrow economic moats. That's about 13 percentage points more than the broad Morningstar Canada Index, and a testament to the caliber of stocks of this portfolio. This fund should fare best when growth is in favour. That has certainly unfolded over the past 10 years when its 6.5% annualized gain beat the Morningstar Canada Index by 1 percentage point per year and ranked within the best decile of its Morningstar category.

Fidelity Canadian Momentum ETF, ticker FCCM, is not a growth strategy by design, but targeting high momentum firms naturally pulls it in that direction. This index fund taps into the momentum factor, which has historically delivered market-beating returns by piling into stocks with the best recent performance. These companies normally command rich valuations, so FCCM and other momentum strategies tend to look growthy and truly embody the buy-high-sell-higher philosophy.

This is a unique momentum strategy, starts by overweighing the best-performing sectors. It fills in those sector buckets with the highest momentum stocks within them, normally landing around 60 holdings in total. This breeds solid momentum exposure, and controlling for size and firm specific risks ensures the momentum remains the focus. Launched in 2020, this fund comes with a relatively short track record, but the results have been good so far. It generated a 7.1% return over the past three years, placing it within the top 30% of its category peers.

And rounding out our list today is BMO S&P 500 ETF, which trades under the ticker ZSP. The S&P 500 index is a market cap weighted benchmark that houses 500 of the largest best companies, including both growth and value stocks alike. Investors know this index for its breadth, not its growth chops. So why include it today? Because after the rise of the MAG7 and other mega cap tech stocks, the U.S. market is richly valued. The S&P 500 traded at 26 times earnings at the end of March 2024, which ranked among the priciest 10% of all months since the turn of the century.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
BMO S&P 500 ETF (CAD)78.97 CAD0.09Rating
Fidelity Canadian Momentum ETF10.73 CAD-0.46Rating
iShares Canadian Growth ETF49.44 CAD0.86Rating

About Author

Ryan Jackson  is a manager research analyst, passive strategies, for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers passive equity strategies.

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