Building a nest egg with ETFs has become easier thanks to an explosion of these offerings. Investors can buy Canadian or U.S.-listed exchange-traded funds for a registered retirement savings plan through a full-service or discount broker.
As the March 1 RRSP deadline nears, we asked four ETF experts for their top picks among these low-fee funds for conservative and aggressive investors.
John Gabriel, ETF strategist, Morningstar Inc.
iShares DEX HYBrid Bond (XHB-TSX)
This ETF, which charges a fee of 0.50 per cent, gives exposure to nearly 300 Canadian high-yield corporate bonds across different sectors, maturities and credit quality. "By reaching lower down in the credit-rating spectrum, the fund provides investors an opportunity to boost yield in a low interest rate environment," he said. It's better to own this ETF in an RRSP because distributions are otherwise taxed as income.
This ETF tracks high-dividend yielding, emerging markets stocks. "RRSPs are a great place to hold high-yielding foreign stocks since their dividends are taxed as ordinary income," Mr. Gabriel said. Emerging markets should continue to report better earnings and dividend growth compared with the developed world, he said. Since its 2007 launch, the ETF has gained an annualized 7 per cent versus 1 per cent for the MSCI Emerging Markets Index.
Deborah Frame, vice-president of investments, Cougar Global Investments
iShares S&P/TSX Equity Income (XEI-TSX)
This ETF, which yields about 4.7 per cent, tracks an index focused on Canadian securities that provide dividend income. Sixty per cent of the ETF is in financial and energy stocks. For individuals, it makes "makes sense" to own this ETF in an RRSP in the current low-interest rate environment, Ms. Frame said. The fund's fee of 0.62 per cent is higher than a bond ETF, but that is more than offset by the higher yield, she added.
iShares MSCI Pacific ex-Japan (EPP-NYSE)
The ETF, which invests in stocks in Pacific Rim countries, will benefit from China's slowing, but still strong economy – while avoiding Japan's stagnant market. The fund is heavily weighted in Australia, with about a 63-per-cent exposure, as well as markets such as Hong Kong and Singapore, she said. The ETF's top holdings include names like BHP Billiton Ltd. and Commonwealth Bank of Australia.
Tyler Mordy, co-chief investment officer, Hahn Investment Stewards
BMO Equal Weight Utilities (ZUT-TSX)
This ETF tracks Canadian companies involved in power production, electric-utility generation, as well as oil and gas storage and transportation. Each name is weighted equally. "This ETF provides an attractive yield in a classically defensive sector," Mr. Mordy said. "We anticipate equity markets to be range-bound for some time so dividend yield will be an important source of total return, as it has been in recent years."
SPDR S&P Biotech (XBI-NYSE)
This ETF tracks an index tilted to U.S. small- to mid-cap biotechnology stocks. The sector will benefit from the need for improved health care by an aging population, and takeovers by large pharmaceutical companies to access developers of new drugs, he said. Multinationals will also see growing demand for drugs from emerging markets where health insurance will become more common, he added.
Pat Chiefalo, ETF analyst at National Bank Financial
BMO S&P/TSX Laddered Preferred Share (ZPR-TSX)
This ETF tracks an index that effectively creates an interest-rate ladder by following Canadian rate-reset preferred shares that are equally weighted in term "buckets." "It is structured to mitigate the potential effects of a rising rate environment," Mr. Chiefalo said. "This is a conservative dividend-paying ETF that has low-price volatility… It has an estimated 12-month yield of 4.4 per cent."
The ETF, which tracks about 100 dividend-paying stocks in developed markets outside of North America, has a lot of its exposure to Australia, Britain, France and Italy. The fund, which has a dividend yield of 5 per cent, provides a quarterly distribution, but there is potential for capital gains too, he said. The fund would work well in the foreign-content portion of an RRSP portfolio, he added.