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The Canadian stock market bows to none for early adoption of exchange-traded funds, but it’s only recently that our ETFs have, well, matured.

ETF precursors traded on the Toronto Stock Exchange back in the early 1990s, and the first bond ETFs appeared in Canada 20 years ago. More than 1,000 ETFs are listed on the Toronto Stock Exchange today, a mix of new products shovelled into the market to address one trend or another and tried-and-true funds with a solid track record.

There’s sufficient supply of this latter type of fund to offer a thought to Canadian ETF investors: Instead of putting money into U.S.-listed ETFs, buy domestic.

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ETF industry figures show Canadian retail investors had about $47-billion invested in U.S.-listed ETFs as of Sept. 30, which compares with total Canadian ETF assets of about $260-billion. A lot of the money in U.S. ETFs reflects the market dynamics of years gone by, said Michael Cooke, head of ETFs at Mackenzie Investments.

“Ten years ago, we didn’t have nearly the same breadth of products, and we didn’t have the seasoning and maturity in Canadian-listed products and the cost-effectiveness we now enjoy,” Mr. Cooke said. “In recent years, we’ve seen the Canadian market play a lot of catch-up. It’s a more competitive market, which among other things has pressured fees lower.”

A quick fee comparison: The US$323-billion SPDR S&P 500 ETF Trust has a fee of 0.0945 per cent. You can buy TSX-listed ETFs tracking the S&P 500 with management expense ratios of 0.09 per cent.

The cost of owning SPY and its Canadian counterparts are pretty much the same, but the cost of buying is a different story. When you buy a TSX-listed ETF holding U.S. stocks, your money is converted into U.S. dollars by the ETF company. When buying a U.S.-listed ETF, your broker converts your Canadian dollars into U.S. currency. Which is the better deal?

“Definitely the Canadian-listed product,” Mr. Cooke said. “All currency conversion is done within the fund, it’s done at institutional rates and it’s very cost-effective.”

A hidden cost in ETF investing is the spread between the highest price investors are bidding to buy a stock and the lowest price sellers are asking. If you’re buying an ETF with a sizable bid-ask spread, you might end up paying more than the market price. ETFs with tight spreads help ensure you can buy and sell very close to market price.

SPY’s bid-ask spread one day this week was 2 cents; a few TSX-listed ETFs tracking the S&P 500 had spreads of 1 cent to 3 cents.

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There are still situations where a U.S.-listed ETF will meet your needs best, maybe for a particular sector or geographic region not represented by a Canadian product with a track record of a few years or more. For the most part, though, a Buy Canadian approach makes sense for ETF investing.

-- Rob Carrick, personal finance columnist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

The Rundown

Four TSX stock picks for an expected economic recovery from an index-beating fund manager

It was a long-term bet on Big Tech and a mix of consumer and health care stocks that helped Murray Wealth Group deliver double-digit, benchmark-beating returns last year. Despite the market run-up in recent months, Jamie Murray, portfolio manager and head of research, says his team is forecasting the recovery to continue into this year and next – with some expected volatility – as the global economy recovers from the pandemic amid the widespread vaccine rollout. Here are four Canadian stocks he expects to do well amid the anticipated recovery.

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These Canadian stocks could be the most vulnerable to a short squeeze

Most investors are proud to say they hold only high-quality companies in their portfolio. But it has been low-quality stocks exploding higher in recent weeks. Returns on stocks with the biggest short positions – generally, weaker companies where sophisticated investors are betting on a share price decline – are racing ahead of benchmark performance, potentially indicative of a new market cycle. To help spark some investment ideas, Scott Barlow presents this table showing the recent performance of Canadian companies with the highest short positions.

How to win at the stock market by being lazy

Many of the traders driving the GameStop mania in recent days want to strike it rich and bring down what they view as a corrupt, rigged system along the way. Yes, there is abundant greed and venality on Wall Street. But the reality is that the stock market has also offered a path for ordinary people to build wealth — and more so in the last generation than ever before. You haven’t needed to burn down the system. All you’ve had to do is take the laziest, simplest approach to stock investing imaginable and have a little patience. Neil Irwin of The New York Times explains.

‘Dollar smile’ meets ‘dollar short’ as a greenback bounce threatens the bears

Given the volume of global investment and commercial trade flows that hinge on U.S. dollar strength or weakness, getting the exchange rate correct is one of the most crucial calls a fund manager can make. And right now, an unexpected U.S. dollar bounce and some indications of a broader resurgence are confounding market players who took bearish positions on the currency on a bet that it was headed for a multiyear downtrend. Saikat Chatterjee and Ira Iosebashvili of Reuters report.

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Others (for subscribers)

The week’s most oversold and overbought stocks on the TSX

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

‘The police will visit you’: why GameStonk won’t come to China

Number Cruncher: Eight packaged-food stocks for dividend-hungry investors

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Number Cruncher: The anti-GameStop strategy: 15 TSX stocks that offer reasonable returns over time

Globe Advisor

How F.I.R.E. investors are managing through the pandemic

Why REITs will continue to deliver higher-than-average yields

Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.

Ask Globe Investor

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Question: I am thinking of adding to my portfolio. The stocks that I am looking at are BEP and BEPC. I have done some research on them but, quite frankly, I don’t understand the difference between the two. Can you help me unfold this mystery? – Kathie S.

Answer: For starters, we’re talking about the same business. BEP and BEP.UN are the trading symbols for Brookfield Energy Partners, a limited partnership based in Bermuda. BEPC is the symbol for Brookfield Renewable Corporation. It was spun out of the limited partnership a few months ago to create a trading vehicle that would be eligible for the Canadian dividend tax credit and would attract institutional investors like pension plans that are unable or reluctant to invest in partnerships.

BEP and BEPC hold similar (but not the same) assets, pay the same distribution/dividend, and were expected to trade at about the same price. BEP.UN closed in Toronto on Jan. 22 at $62.70, to yield 2.34 per cent. The same day, BEPC finished at $74.66 to yield 1.97 per cent.

Both entities look expensive at these prices but if you want to invest at this time, I recommend BEP/BEP.UN for its higher yield. – G.P.

--Gordon Pape

What’s up in the days ahead

Ian McGugan looks at the case for one of the few sectors that remains well off its pre-pandemic highs: REITs.

Dollar signs: World market themes for the week ahead

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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