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Rob Carrick's 2018 ETF Buyer's Guide: Best Canadian equity funds

Some of the best bargains in the investing universe can be found in the ETFs that track Canada's stock market.

There are funds listed in the Canadian equity fund instalment of the 2018 Globe and Mail ETF Buyer's Guide with management expense ratios as low as 0.03 to 0.06 per cent. The largest Canadian equity mutual funds have an average fee of about 2 per cent. Remember that comparison if you're concerned about the impact fees have on your returns.

In addition to covering fees, this ETF Guide (the first of six instalments exploring major ETF themes over the next couple of months) helps both novice and experienced investors by providing data on performance, holdings, dividends and more. The Guide includes only established funds, which means a five-year track record at least and a recent daily average trading volume of at least 5,000 shares. The idea is to help you avoid unproven or unpopular funds that may be hard to sell when you're ready. If there are not many investors trading an ETF, there's potential for buyers to have to pay a premium to market price when buying, and accept a below-market price when selling.

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All but the most cautious investors will want to have some exposure to the Canadian stock market in their portfolio. How much? A rough rule would be to take the part of a portfolio devoted to stocks and divide it equally between Canadian, U.S. and international stocks. No worries if you want to add a bit more emphasis on Canada, but don't overlook the rest of the world.

An ETF is a low-fee version of a mutual fund that trades like a stock. The traditional ETF tracks major stock and bond indexes, while others follow specific screening strategies or have a manager who picks stocks. To invest in ETFs, you need a brokerage account. For help on that, consult the ranking of online brokers we will publish on Feb. 17.

Assets: Shown to indicate how a fund has resonated with investors. A $1-billion fund is considered huge, while $100-million is serious heft.

Management expense ratio (MER): The main cost of owning an ETF on an ongoing basis; as with virtually all funds, published returns are shown on an after-fee basis.

Trading expense ratio (TER): The cost of trading commissions racked up by the managers of an ETF as they run the portfolio. Add the TER to the MER for a fuller picture of a fund's cost. Note: Many ETFs do so little trading that their TERs round down to zero.

Dividend yield: Canadian equity ETFs are loaded with dividend-paying stocks. The dividends received by the ETF are usually paid out to investors on a monthly or quarterly basis. The yields shown here are supplied by and based on recent actual payouts.

Top three sector weightings: Financial stocks dominate our stock market, but some Canadian equity ETFs are deeper into the sector than others.

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Returns: ETF companies typically show total returns, which reflect changes in the stocks they hold as well as dividends.

Inception date: The older an ETF is, the more likely it is that you can look back at a history of returns through good markets and bad.

Notes: Market data as of Feb. 5, 2018. Average daily trading volume is for the previous 30 days. *Fund returns are annualized to Jan. 31.

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