Do-it-yourself (DIY) investors in Canada these days suffer from an overabundance of choices. There are more than 1,299 exchange-traded funds (ETFs) from 42 providers now listed on Canadian exchanges, making the task of constructing a simple “couch potato” portfolio that’ll likely do just as well as the investing pros more daunting than it has ever been.
The best-performing ETFs in Canada had a year
Never fear—the MoneySense expert panel is back with our 11th annual list of Best ETFs for Canadian DIY investors to put together an affordable, diversified portfolio. The fact that we’re now in our second decade discerning the best funds on offer is a clue that the ETF industry is no longer a “kid.” It’s a force to be reckoned with in financial services, with $328 billion in assets under management in Canada as of Feb. 28, 2023, according to National Bank Financial. (The bank’s methodology excludes “ETFs of ETFs” that serve to double-count some assets.)
And all that after one of the worst market performance years in the ETF’s existence in Canada! Assets under management actually declined slightly over the course of 2022, due to the combination of wealth destruction in both the stock and bond markets and tepid net inflows from investors. Self-directed investors in Canada had few places to hide with the rare one-two punch of correlated losses in both equities and fixed income.
Fortunately, as evidenced so far in 2023, the normalization of interest rates and bond yields over the past year-plus has restored the diversification benefits between the two asset classes. This time, when stock markets went down, bond prices increased, which gives us confidence that decently diversified ETF investors will fare better this year and into 2024.
And affordable diversification is really what ETFs are all about, right?
How to pick the best ETFs for Canadian investors–our methodology
As in past years, we’ve divided our selections into five categories that we think are really all you need to manage your own investment portfolio. On the equity side, we have separate categories for Canadian, U.S. and international stocks. Another category covers the best fixed-income options, which include bond funds but also money-market funds that have become popular over the past year thanks to rising interest rates and their lack of volatility. For investors who’d rather not get into the weeds of portfolio construction and rebalancing, we have a category of “one decision” (known in the industry as all-in-one or asset allocation) ETFs that cover all the bases.
And just for argument’s sake, we challenged our panellists to name more exotic “desert island” picks than usual; ETFs that don’t make it through our mainstream filters and are still worth a look. These are listed in a sixth bonus category.
This year is different for our ETF picks
If you’ve been following our Best ETF picks over the years, you may have noticed a pattern. The whole point of owning ETFs, in our view, is that they’re on the side of the little guy. Those with nest eggs worth millions of dollars can access lower fees for advice and active management, though many still choose ETFs to construct their portfolio nonetheless.