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What are we looking for?

Canada’s cheapest ETFs (that are well-rated)

The screen

Frugal Canadians who managed to squirrel away savings over the last year have hopefully put some of those savings into their tax shelter as late as yesterday (the 2022 tax year RRSP contribution deadline), to reap the benefit of a tax deferral and potentially a tax refund. Those who were able to save in a year with skyrocketing expenses are likely quite cost-conscious. As such, it might seem intuitive then that these savers apply that same frugality to their investments. But this is not often the case. It is ironic that the average shopper will spend hours scouring product reviews to save money, yet when it comes to investments, spend very little time comparing products, which makes a much larger impact on financial wealth over time.

Luckily, a combination of innovation, evolution and demand in the Canadian investment industry has reduced the costs of investing for budget-conscious Canadians. In my last column, I wrote about options for investors looking for a set-it-and-forget-it approach, such as balanced funds (also known as “all-in-ones.”) In combination with a discount brokerage account, these funds offer a formidable combo for investors wishing to be well diversified at low cost. To take this idea one step further, true DIY investors might be able to save even more by considering the ideas in today’s screen, which looks for ETFs that have:

  • An annual management expense ratio of less than 0.1 per cent (noting that on average, Canadians pay an eye-watering 2 per cent a year for a balanced funds, including the cost of advice)
  • A four- or five-star Morningstar Rating for Funds, indicating that the fund has historically outperformed respective category peers after fees, on a risk-adjusted basis. Our data shows that although the star ratings are backwards-looking, funds that have received five stars, as a group, outperform those that have received four or fewer stars in periods after receiving the rating. In other words, it’s more likely that a fund manager with a track record of outperforming peers will continue to outperform them in the future.
  • Received a Morningstar Quantitative Rating of gold, silver, or bronze, which identifies funds that Morningstar believes will produce excess after-fee returns in the future, based on our analysis of people (quality of the management team), parent (stewardship of the fund company), and process (robustness of investment decision making).

What we found

24 cheap but well-rated ETFs

NameTickerMorningstar CategoryMER (%)Morningstar Rating for FundsMorningstar Quantitative RatingTotal Ret YTD (%)Total Ret 1 Yr (%)Total Ret Annlzd 3 Yr (%)Total Ret Annlzd 5 Yr (%)Total Ret Annlzd 10 Yr (%)Inception Date
Horizons S&P/TSX 60 ETFHXT-TCanadian Equity0.044Silver4.59-1.6711.219.308.392010-09-13
Mackenzie Canadian Large Cap Equity ETFQCE-TCanadian Equity0.044Bronze4.45-1.0710.298.662018-01-24
Vanguard FTSE Canada All Cap ETFVCN-TCanadian Equity0.054Gold*4.91-1.0310.908.642013-08-02
TD Canadian Equity Index ETFTTP-TCanadian Equity0.054Gold4.68-1.1511.328.822016-03-22
Vanguard FTSE Canada ETFVCE-TCanadian Equity0.064Gold*4.42-0.9811.319.618.272011-11-30
TD Canadian Aggregate Bond Index ETFTDB-TCanadian Fixed Income0.084Gold0.99-6.76-3.000.502016-03-22
Mackenzie Canadian Aggregate Bond ETFQBB-TCanadian Fixed Income0.084Bronze1.04-6.79-2.920.552018-01-29
Vanguard Canadian Aggregate Bond ETFVAB-TCanadian Fixed Income0.094Silver*0.99-6.97-3.150.471.522011-11-30
BMO Aggregate Bond ETFZAG-TCanadian Fixed Income0.094Bronze*1.01-7.02-3.140.501.532010-01-19
BMO Discount Bond ETFZDB-TCanadian Fixed Income0.104Bronze0.94-7.27-2.960.602014-02-10
iShares Core Canadian Universe Bond ETFXBB-TCanadian Fixed Income0.104Silver*1.00-7.03-3.140.521.522000-11-20
iShares Core Canadian ST Corp Bd ETFXSH-TCanadian Short Term Fixed Income0.105Silver1.04-
iShares Core Canadian Short Term Bd ETFXSBCanadian Short Term Fixed Income0.104Silver*0.55-2.49-0.451.031.172000-11-20
iShares Core S&P US Total Mkt ETFXUU-TUS Equity0.074Gold*4.80-1.5012.1510.362015-02-10
TD U.S. Equity Index ETFTPU-TUS Equity0.074Silver4.59-2.1311.9810.752016-03-22
Mackenzie US Large Cap Equity ETFQUU-TUS Equity0.074Silver4.61-2.1112.0710.752018-01-24
iShares Core S&P US Total Mkt ETF USDXUU-U-TUS Equity0.074Gold*4.77-1.5012.142019-10-22
Franklin FTSE U.S. ETFFLAM-NEUS Equity0.084Gold4.45-1.9511.982019-02-13
Vanguard S&P 500 ETFVFV-TUS Equity0.095Gold*4.42-1.0212.3110.7715.022012-11-02
BMO S&P 500 ETF (CAD)ZSP-TUS Equity0.095Silver*4.43-0.9512.4010.7914.962012-11-14
BMO S&P 500 ETF (USD)ZSP-U-TUS Equity0.095Silver*4.13-1.2312.3210.7715.032012-11-14
Horizons S&P 500 ETFHXS-TUS Equity0.105Gold4.42-1.0312.3010.7215.122010-11-30
iShares Core S&P 500 ETFXUS-TUS Equity0.105Gold*4.17-1.2212.3010.752013-04-10

Source: Morningstar Research Inc. | Data as of Feb 28, 2023

*Denotes Morningstar Analyst Rating

The ETFs that met the above requirements are listed in the accompanying table, alongside their fees, categories, trailing performance, ratings, and inception dates. The list is sorted first on the category, which should provide an indication of what is held in the fund, then by management expense ratio, from lowest to highest. It’s worthwhile noting that all ETFs listed here are passively managed (also known as indexed), hence the low costs.

This article does not constitute financial advice. Investors are encouraged to conduct their own independent research before purchasing any of the investments listed here.

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

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