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Rob Carrick's 2018 ETF Buyer's Guide: Best U.S. equity funds

The Canadian investor's most glaring investor error of the past five years would arguably have been to underplay or ignore the U.S. stock market.

Stock-wise, we got smoked by the U.S. market. With its heavy weighting in surging technology stocks, the S&P 500 index delivered an annualized five-year total return of 20.5 per cent in Canadian dollars to Dec. 31, while the S&P/TSX Composite Index made 8.6 per cent. The U.S. market looked shaky in early 2018, but it's a proven way to diversify a Canadian market dominated by banks, oil companies and miners.

The third instalment of the 2018 Globe and Mail ETF Buyers' Guide is devoted to TSX-listed ETFs that give you exposure to the broad U.S. market in a single stroke. ETFs exclusively tracking the tech-dominated Nasdaq market don't make the cut. Funds qualified for inclusion here if they had a track record going back at least five years, and had an average daily trading volume of 5,000 shares over the past 30 days. That's sufficient to indicate a fund has at least something of a following and is not an orphan.

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When buying a TSX-listed ETF, you'll often have to choose between versions with and without currency hedging. Hedging means you get the returns of the underlying portfolio, with no distortions caused by currency fluctuations. Your U.S. returns won't be undermined when our dollar rises, nor will they be enhanced when the dollar falls.

Unhedged funds are often more popular – they beat hedged funds when our dollar is falling and underperform when the dollar rises. Hedged ETFs performed better over the 12 months to the end of February, but currency swings are highly unpredictable. Some investment pros believe there's no point in hedging if you have a long time horizon.

Assets: Shown to give you a sense of how interested other investors are in a fund; the smallest funds may be candidates for delisting.

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; add the TER to the MER for a fuller picture of a fund's cost. Most of the U.S. equity ETFs included here don't do enough trading to generate much of a TER.

Dividend yield: Mainstream indexes can be a good source of dividend income; shown here are yields based on recent payouts.

Distribution frequency: If you're primarily focused on dividend income, note that few U.S. equity ETFs make monthly dividend payments. Many other types of ETFs do pay monthly.

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Sector weightings: Included to help you verify how well a U.S. equity ETF will diversify your Canadian holdings with exposure to sectors such as tech and health care.

Notes: Market data as of March 6. Average daily trading volume is for the previous 30 days. *Fund returns are annualized to Feb. 28.

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