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What are we looking for?

Passive funds outperforming their categories this year.

The screen

According to Morningstar’s data, there are now 1,410 ETFs that trade on Canadian exchanges. Less than half (or 513) of these funds are passively managed, highlighting the fact that the Canadian ETF space has evolved far past the basic market-cap-weighted approach for investors to gain broad market exposure. However, the original case for using ETFs is still very much a valid one, despite the arrival of more sophisticated products.

Case in point, of those 513 passive ETFs, 226 of them have beaten their category average (an average of all ETFs and mutual funds, regardless of whether they are actively or passively managed) over the first 11 months of 2023. Clearly, being boring pays off, and it’s certainly easier on the wallet given their low management expense ratios relative to active funds.

Today, I seek funds of this nature that have not only been beating their categories this year, but have done so over a longer history and on a risk-adjusted, after-fee basis. To do this I used Morningstar’s Rating for Funds (informally known as the “star” rating), which measures this over three, five and 10 years – if available – placing more emphasis on recent history. Specifically, I screened only for five-star funds, or those that have outperformed their categories historically. I also placed a screen on funds that Morningstar believes will outperform peers in the future, as denoted by a Morningstar Medalist rating of gold or silver. That rating is based on Morningstar’s assessment of the stewardship qualities of the parent firm, the experience and success of the people managing the investment fund, and the investment process itself.

Only Canadian-domiciled ETFs were considered in this search.

What we found

Five-star passive ETFs

NameTickerMorningstar CategoryMER(%)Inception DateMorningstar Rating OverallMorningstar Medalist RatingTotal Ret YTD (%)Total Ret 1 Yr (%)Total Ret Annlzd 3 Yr (%)Total Ret Annlzd 5 Yr (%)Total Ret Annlzd 10 Yr (%)Total Ret Annlzd 15 Yr (%)
iShares Canadian HYBrid Corporate Bd ETFXHB-TCanadian Corporate Fixed Income0.502010-09-22★★★★★Silver6.454.91-0.822.823.24
BMO High Quality Corporate Bond ETFZQB-TCanadian Corporate Fixed Income0.112020-01-28★★★★★Silver5.074.48-0.72
Horizons Europe 50 Index ETFHXX-TEuropean Equity0.192016-12-06★★★★★Gold25.2621.2610.1410.22
iShares MSCI World ETFXWD-TGlobal Equity0.472009-06-18★★★★★Silver19.6614.819.5611.1511.13
BMO MSCI Global ESG Leaders ETFESGG-TGlobal Equity0.282020-01-15★★★★★Silver21.8917.1410.01
iShares Global Infrastructure ETF CommCIF-TGlobal Infrastructure Equity0.732008-08-27★★★★★Gold10.117.2913.0711.528.328.93
Mackenzie China A-Shares CSI 300 ETFQCH-NEGreater China Equity0.702018-02-01★★★★★Gold-13.13-15.43-10.692.80
BMO MSCI EAFE Hdgd to CAD ETFZDM-TInternational Equity0.222009-10-20★★★★★Silver16.7313.549.849.187.67
TD International Equity CAD Hdgd Idx ETFTHE-TInternational Equity0.192016-03-22★★★★★Silver16.2313.809.629.12
Horizons S&P 500 ETFHXS-TUS Equity0.102010-11-30★★★★★Gold22.8617.5511.8013.7214.48
Vanguard S&P 500 ETFVFV-TUS Equity0.092012-11-02★★★★★Gold23.0717.6611.9013.8014.54
BMO S&P 500 ETF (CAD)ZSP-TUS Equity0.092012-11-14★★★★★Gold22.8817.5711.8813.7914.51
iShares Core S&P 500 ETFXUS-TUS Equity0.102013-04-10★★★★★Gold23.0017.3011.9113.8314.53
Mackenzie US Large Cap Equity ETFQUU-TUS Equity0.072018-01-24★★★★★Silver24.0018.5711.1513.88
iShares S&P US Mid-Cap ETF USDXMC-U-TUS Small/Mid Cap Equity0.162019-10-22★★★★★Gold10.516.709.12
BMO S&P US Mid Cap ETFZMID-TUS Small/Mid Cap Equity0.172020-01-28★★★★★Silver10.457.009.05

Source: Morningstar Direct | Data as of Dec 12, 2023

The funds that qualified in the screen are listed in the table accompanying this article, alongside their management expense ratios, historical performance and ratings. Investors are urged to look first at the category to which a fund belongs, as this not only gives an indication of the asset class and geographic exposure, but also serves as the peer group by which Morningstar’s ratings are meant to measure against.

This article does not constitute financial advice, it is always recommended to conduct one’s own independent research before buying or selling any of the funds or ETFs mentioned in this article.

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 29/05/24 3:56pm EDT.

SymbolName% changeLast
XHB-T
Ishares CDN Hybrid Corp Bond ETF
+0.48%18.96
ZQB-T
BMO High Quality Corporate Bond Idx ETF
-0.25%27.95
HXX-T
GX Europe 50 Index Corporate Class ETF
+0.43%51.72
XWD-T
Ishares MSCI World Index ETF
-0.4%85.43
ESGG-T
BMO MSCI Global ESG Leaders Index ETF
-0.55%45.21
CIF-T
Ishares Global Infrastructure Index ETF
+0.48%43.57
QCH-NE
Mackenzie China A-Shares CSI 300 Index ETF
-0.96%79.51
ZDM-T
BMO MSCI EAFE Hedged To CAD Index ETF
+0.3%29.93
THE-T
TD Intl Equity CAD Hedge Index ETF
+0.08%25.68
HXS-T
GX S&P 500 Index Corporate Class ETF
-0.77%73.05
VFV-T
Vanguard S&P 500 Index ETF
-0.84%127.25
ZSP-T
BMO S&P 500 Index ETF
-0.77%78.4
XMC-U-T
Ishares SP US Midcap ETF USD
+1.11%22.87
QUU-T
Mackenzie US Large Cap Equity Index ETF
-0.8%205.85
ZMID-T
BMO SP US Mid Cap Index ETF
+0.49%43.1

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