Best ETFs in Canada – Building wealth via ETF investing

While I write a lot of articles about dividend growth investing, in reality, we are hybrid investors. We invest in both individual dividend stocks and index ETFs. 

Generally speaking, I believe most Canadian investors, especially new investors, are better off investing in passive broad market Exchange Traded Funds (ETFs). Once they have a sizable portfolio consisting of ETFs, they can consider adding some individual dividend stocks if they wish.

So what are some best ETFs in Canada to hold for the long term? I’ve decided to go through different categories of low-cost ETFs and come up with a list. 

Building wealth via ETF investing

Why did I make the bold statement that I believe most Canadian investors are better off investing in passive broad market ETFs? Well, there are many reasons behind my claim:

  • Passive broad market ETFs have extremely low MER
  • ETFs are traded on the stock market so they can be easily purchased with a discount broker like Wealthsimple or Questrade. This is very different from mutual funds.
  • Broad market ETFs provide instant diversification. Unlike investing in individual stocks, you’re not putting all your eggs in one basket.
  • Since investors are investing in the broad market, like the entire S&P 500 or the entire TSX, Investing in ETFs prevents investors from second-guessing whether they made the right selection.

Over the years, the ETF market has changed dramatically. The days of ETFs that track only broad market indices are long gone. Instead, there are many active ETFs (think Cathie Wood’s ARK funds) and sector-specific ETFs available.

Furthermore, ETFs aren’t just for stocks, there are ETFs that hold bonds, commodities, currencies, and even cryptocurrencies. It can certainly get very confusing when you start looking at which ETF to invest in.

To reduce any confusion, my selection of the best ETFs in Canada will be focused on equity ETFs.

Best All-In-One ETFs in Canada

I’ve come to like and appreciate these all-in-one ETFs over the last few years, so much so that we hold XEQT for both of our kids’ RESP.

Why do I like these all-in-one ETFs so much? 

Simplification.

Rather than having to rebalance the stock and bond exposures regularly myself, the fund managers will do that for me. This saves a lot of time and headaches. I simply buy one of the all-in-one ETFs, hold it, and buy some more over time.

Talk about an easy investing strategy! 

What I really appreciate about these all-in-one ETFs is that I can pick one that fits my risk tolerance and the ETFs own international assets, giving you both asset and geographical diversification.

Here are the best all-in-one ETFs to hold and my reasons:

TickerFund nameReasons 
HGROHorizon Growth TRI ETFTotal return swaps for tax-efficiency
VEQTVanguard All-Equity ETF 100% in stocks. Long term growth.
VGROVanguard Growth ETF For growth focused investors
XEQTiShares All-Equity ETF100% in stocks. Long term growth. 
XGROiShares Growth ETFFor growth focused investors

For younger investors, I’d go with VEQT, XEQT, or HGRO. We decided to go with XEQT for our kids because XEQT has slightly more exposure to the US. For investors that currently don’t reside in Canada, and therefore face a lot of tax complications, HGRO might be a better choice over VEQT and XEQT.

For investors that don’t feel as comfortable investing 100% in stocks, I’d go with either VGRO or XGRO which hold 80% equities and 20% bonds. The two are very similar and you can’t go wrong with either one. 

For the more conservative investors, I would not consider holding the more balanced approach of 60% equities and 40% bonds. Given that interest rates will continue to rise in the near future and that bonds have an inverse relationship with interest rates, it simply doesn’t make too much sense to invest in bonds right now. This is why I didn’t list the likes of XBAL and VBAL in the above table.

Some readers may ask why I ignored all-in-one funds from BMO. It’s simply because I prefer Vanguard and iShares products over BMO, at least for the all-in-one ETF category.

2. Best Canadian Equity ETFs

Being Canadians, I understand why investors want to invest in our own market. We used to hold VCN, the Vanguard FTSE Canada All Cap Index ETF, in our dividend portfolio. However, after reviewing the top 15 or so VCN holdings, we found out that we hold most of them already via individual stocks. So we decided to close out our VCN position. One thing to remember is that for any investor, it is always wise to reduce duplications as it obviously lessens the degree of diversification of a portfolio.

However, if you’re not holding individual stocks, holding one of these best Canadian equity ETFs is a great way to build your wealth passively.

Here’s my pick for the best Canadian equity ETFs:

TickerFund nameReasons 
VCNVanguard TFSE Canada All Cap Index ETFHolds 185 Canadian stocks, 80% in large cap, 13% in medium cap, and the rest in small cap.
XICiShares Core S&P/TSX Capped Composite Index ETF237 holdings at 0.06% MER.
XIUiShares S&P/TSX 60 Index ETFDividend focused
ZCNBOM S&P/TSX Capped Composite Index ETFLow MER, more holdings than XIC (238)

Since we used to hold VCN, you probably know my preference already. Yup, if you want to hold a broad Canadian ETF, I think VCN is a great choice because of the slightly lower MER of 0.05% compared to XIC and ZCN’s 0.06%. 

But looking at the big picture, the 0.01% MER difference isn’t huge. To put things into perspective, a $500,000 portfolio means you’d be paying $50 more by holding XIC or ZCN over VCN. This certainly isn’t enough money to split hairs – or to think too long over.

XIU was listed as one of the top Canadian dividend ETFs so for dividend-focused investors that are OK with the ETF holding only about 60 holdings, XIU is a solid Canadian equity ETF to hold and build wealth. 

3. Best US Equity ETFs

There are many global international companies that are listed in the US stock market, therefore, Canadian investors might want to tap into the US market by owning some US equity ETFs.

Here’s my pick for the best US equity ETFs:

TickerFund nameReasons 
VFVVanguard S&P 500 Index ETFTracks the S&P 500
VUNVanguard US Total Market Index ETFInvests in the entire US market
XUSiShares Core S&P 500 Index ETFTracks the S&P 500

VFV and XUS are very similar as both track the S&P 500 index. VFV’s MER is 0.01% lower than XUS. But at such a low difference, I wouldn’t worry about it too much. 

VUN holds over 4,000 stocks. If there’s one broad market ETF for the US market, VUN is it!

You might have noticed that I picked VFV, the unhedged version over the CAD-hedged version, VSP. Similarly, I picked VUN the unhedged version over the CAD-hedged version, VUS. Why do I prefer non-hedged ETFs over hedged ones? Because I believe over the long term, there are not many differences between hedged vs. unhedged. So why pay the extra fees? Now if you’re investing for the short term, then hedging might provide a slight edge over hedging.

When it comes to owning US equity ETFs, one must consider tax efficiency, more specifically, the US withholding tax on dividends. When you invest in Canadian listed US equity ETFs, these ETFs will be subjected to the 15% withholding tax on any dividends received if held in a non-registered account. So any distributions that you receive already have the 15% taken away. You may be able to recover the withholding tax in the form of foreign tax credits… If you hold one of these US equity ETFs in either RRSP or TFSA, you’re out of luck.

Therefore, in some cases, it’s usually better to hold US-listed ETFs that track the US equity market. For example, VTI, the Vanguard Total US Market Index ETF, traded in US dollars, is a very popular ETF in the US. 

4. Best International Equity ETFs

Home bias is a real factor to consider for Canadian investors looking to build wealth through equities. As good as the TSX is, it is heavily made up of the financial and energy sectors. To have proper asset diversification, Canadian investors must consider international equities. Virtually all the research indicates that Canadian investors have a very strong home bias.

We just examined the US market in the earlier section. Despite the significant US market size, it does not contain all the companies in the world. Some global companies like Toyota, Samsung, BYD, and Meituan are not traded on the US exchanges. Therefore, for diversification purposes, it makes sense to own international equity ETFs. Here are the best international equity ETFs:

TickerFund nameReasons 
VXCVanguard FTSE All-World ex Canada Index ETF11,344 international stocks at low MER
XAWiShares Core MSCI AC World ex Canada Index ETFSlightly lower US exposure than VXC

We used to own VXC and switched to XAW due to XAW’s lower MER fees. But Vanguard has done a lot of work on VXC over the years and now VXC’s MER is 0.01% lower than XAW. 

Whichever you decide to hold, I don’t think you can go wrong with VXC or XAW. They’re both winners in my eyes. 

5. Best Emerging Markets Equity ETFs

The emerging markets can be quite tricky, so my recommendation is to hold them through either the all-in-one ETFs or the international ETFs. However, if you decide that you must own an emerging markets equity ETF, here’s my pick:

TickerFund nameReasons 
VEEVanguard FTSE Emerging Markets All Cap Index ETFTracks 5,435 stocks with key focus in China, India, and Taiwan markets
XECiShares Core MSCI Emerging Market IMI Index ETFExposure to large and mid-sized companies. Key exposure in China, Taiwan, and South Korea markets.
ZEMBMO MSCI Emerging Markets Index ETFPotentially more tax efficient by holding EEM, a US-listed ETF

Summary: Best ETFs in Canada – Building wealth via ETF investing

Wow, that was a lot of ETFs wasn’t it? Given the growing popularity of ETFs in recent years, it can be confusing navigating the ETF world and picking out ETFs that suit your investing needs and strategy. I hope my summary of the best long term ETFs in Canada will come in handy, especially for newish investors. 

In summary, if you like a simple straightforward no-frills investment strategy, then investing in one of the all-in-one ETFs is a good idea. 

If you don’t mind rebalancing regularly, then a combination of Canadian, US, and emerging markets ETFs may be a good idea.

Now if you’re like us that own both Canadian and US dividend stocks, then owning an international ETF to increase global diversification makes a lot of sense.

Happy investing and building wealth!

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13 thoughts on “Best ETFs in Canada – Building wealth via ETF investing”

  1. Hello

    Your thoughts on ZEB? We are new to this. I’m trying to sort out what to put in our TFSA’s moving forward.

    Thank you

    Reply
  2. Great information. It’s important to note that if you were to build a diversified portfolio with non-all-in-one ETF’s (group 2, 3, 4, and 5), for group 4 (international), you might want to get VIU instead of VXC, as VXC also includes US holdings. If you pick from group 3 and group 4 you will be double dipping into the US and may overweight it. VXC in fact consists of 62% US holdings.

    I hold XIC (Canada), XUU (US), VIU (International), VEE (Emerging), and VAB (Bonds).

    Reply
  3. I was under the assumption that there is a tax advantage to holding US Equity ETF’s in an RRSP (elimination of 15% withholding tax on US dividends received)? Am I wrong on this?

    Reply
  4. Hi Bob,

    Thanks for the information, I would like to get your view on ZLB?

    also is parking cash for a short term in HISA etf a good idea?

    Reply
    • Not as familiar with ZLB but looks like the ETF holds more “stable” stocks in the utility and consumer staples sectors. It only holds 49 stocks and they’re all in Canada so it may not as diversified as other ETFs I have pointed out.

      Where to park cash for the short term would really depend on how you define short term. If it’s less than 1 year, might be better to park the cash in a GIC or high savings account. HISA ETF may also work, you’ll have to evaluate the risk. 🙂

      Reply
  5. Hi Bob,
    Thanks for this info. on ETFs. I think there is a small typo. though. In this sentence: “Now if you’re investing for the short term, then hedging might provide a slight edge over hedging.”

    I believe a “not” is missing, as the sentence should read “…then hedging might provide a slight edge over not hedging.”

    Thanks,

    Dan

    Reply
  6. Hi Bob,
    Happy New Year! Thank you for the excellent information on ETF’s. I always look forward to your updates to check against our portfolio. In my RRSP, I’m invested in IVV for S&P 500 exposure. I can’t remember why I didn’t invest in XUS, given that it’s in Canadian dollars. Do you see any downside to staying invested in IVV?
    Many thanks, Laura

    Reply
    • Happy new year to you too Laura. IF you already have a sizable invested in IVV might not make sense to switch. The only disadvantage IVV might have is that it’s in USD so you have to convert CAD to USD and take the hit on currency exchange.

      Reply

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