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Students can get access to “free money” from government grants by saving through a registered education savings plans. (DARRYL DYCK/THE CANADIAN PRESS)
Students can get access to “free money” from government grants by saving through a registered education savings plans. (DARRYL DYCK/THE CANADIAN PRESS)

savings

The best ETF options for RESPs Add to ...

Exchange-traded funds can offer compelling investments when building an educational nest egg.

The big attraction is that ETFs, which are typically sold through discount and full-service brokers, charge low annual fees. Thinking about fees is important because they can eat away at the precious returns, especially in an environment of low interest rates and highly unpredictable stock markets. By saving through a registered education savings plan (RESP), students also get access to “free money” from government grants. The Canada Education Savings Grant, for instance, is worth 20 per cent of each dollar contributed to a maximum of $2,500, or a total of $500 a year.

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We asked several experts to suggest conservative and aggressive ETFs for a diversified portfolio. The iShares S&P/TSX Canadian Dividend Aristocrats ETF was top of mind for three of them.

John Gabriel, ETF strategist, Morningstar Inc.

-iShares S&P/TSX Canadian Dividend Aristocrats ETF (CDZ-TSX) (conservative)

This ETF, which tracks companies whose dividends have grown consistently for at least five years, has a “good mix of yield and growth,” Mr. Gabriel said. The ETF, which has a small-cap tilt, has handily outperformed the broader Canadian market, he added.

-WisdomTree Emerging Markets Small-Cap Dividend ETF (DGS-NYSE) (aggressive)

This ETF, which holds about 550 high-yielding small-cap securities, is an attractive long-term investment given that the companies are in developing markets, he said. “Higher anticipated growth rates in emerging markets should drive strong performance for this fund relative to developed market equities.”

Vikash Jain, portfolio manager, archerETF Portfolio Management

-iShares S&P/TSX Canadian Dividend Aristocrats ETF (CDZ-TSX) (conservative)

This ETF, which tracks 58 Canadian dividend growers, has outperformed the widely followed S&P/TSX 60 Index by nearly 30 per cent cumulatively over four and half years, Mr. Jain said. “That’s pretty powerful” in addition to the fact that the dividend-focused ETF is less volatile, he added.

-iShares S&P 500 Canadian hedged ETF (XSP-TSX) (aggressive)

This ETF, which tracks companies in the S&P 500 index, is attractive because its U.S. stocks trade at the lower end of their historical range due to Europe’s financial woes and a weak U.S. economy, he said. From 1990 to June 30, the U.S. market has outperformed the Canadian market, he added.

Deborah Frame, vice-president of investments, Cougar Global Investments

-iShares S&P/TSX Canadian Dividend Aristocrats ETF (CDZ-TSX) (conservative)

This ETF tracks companies that inspire more confidence that they can grow their dividends over time, said Ms. Frame. The ETF has also outperformed the competing iShares Dow Jones Canada Select Dividend ETF over one, three and five years.

-iShares Dow Jones Canada Select Dividend (XDV-TSX) (aggressive)

This ETF, which holds 30 companies, is dominated by Canada’s big banks. It charges a slightly lower fee than the iShares S&P/TSX Canadian Dividend Aristocrats ETF, but has the potential to outperform if its concentration in Canadian banks does well, she noted.

Pat Chiefalo, ETF analyst at National Bank Financial

-BMO Short Corporate Bond ETF (ZCS-TSX) (conservative)

This ETF, which holds 155 short-duration corporate bonds, is a “good compromise” in an environment of low yields and volatility from riskier equity assets, he said. The BMO ETF has a “good record of consistent performance relative to competing ETFs,” he added.

-Vanguard U.S. Total Market ETF (VTI-NYSE) (aggressive)

The ETF is one of the most inexpensive ways to gain access to more than 3,000 U.S. securities for a rock-bottom 0.06-per-cent fee, he said. The ETF counts names like Apple, Exxon and IBM among its top holdings.

 

Top ETF picks for RESPs

Fund Category Symbol MER
BMO Short Corporate Bond Index ETF Cdn Short Term Fixed Income ZCS-T 0.34
iShares Dow Jones Cda Sel Div Idx Cdn Dividend and Income Equity XDV-T 0.55
iShares S&P 500 Index (CAD-Hgd) U.S. Equity XSP-T 0.24
iShares S&P/TSX Cdn Div Arist Com Cdn Dividend and Income Equity CDZ-T 0.67
Vanguard Total Stock Market ETF* Large Blend VTI-N 0.06
WisdomTree EM SmallCap Div ETF* Emerging Markets DGS-T 0.64

* U.S. dollars. Source: Lipper; ETF providers

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