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So much drama is hidden in the rather bland results from Canadian equity ETFs in the past 12 months.

A crash in March, 2020, was followed by a monster rally. What did we learn about using exchange-traded funds as a low-cost way to add Canadian market exposure to a portfolio? A few lessons stand out in the data that you’ll find in this first installment of the 2021 Globe and Mail ETF Buyer’s Guide:

  • Funds tracking broad Canadian stock indexes validated themselves as buy-and-hold investments: Index-trackers were front and centre for the peak-to-valley decline of 37 per cent in the S&P/TSX Composite Index from mid-February through late March, but they also delivered the subsequent upside and produced reasonable overall 12-month returns.
  • The underlying ETF strategy matters: Returns in the short and longer term vary a fair bit, which highlights the importance of choosing funds wisely.
  • Low-volatility funds hit a wall: Once a popular choice for putting a conservative slant on stock market investing, these funds lost a lot of the performance magic we saw in previous editions of this guide.

The ETF Buyer’s Guide is designed to help long-term investors find core investments for their portfolios. You want Canadian stocks in your account, right? The guide offers 11 different candidates you can research on to see whether they meet your needs.

Five more guide installments will roll out over the next few months, each focusing on established funds that have been around for at least five years. All types of ETFs are included – traditional index-trackers, funds that apply a screening process to the market and actively managed funds. The asset classes included in the guide are Canadian equity, bond, U.S. equity, international/global equity, Canadian dividend and balanced.

An ETF is a low-fee version of a mutual fund that trades like a stock. To invest in ETFs, you need a brokerage account. For help on that, consult the 2021 Globe and Mail online brokerage ranking. Also consider robo-advisers, which can build and manage a portfolio of ETFs for you at a reasonable cost.

Click here to download an Excel version of the guide.

Click here to download a PDF version of the guide.

Notes: Market data as of Feb. 5, 2021. Returns to Jan. 31, 2021. Sources: Rob Carrick;, TMX Money, ETF company websites

Here’s an explanation of investing terms used in the ETF Buyer’s Guide:

Assets: Shown to indicate how a fund has resonated with investors. A $1-billion fund is considered huge, while $100-million is a serious size.

Management expense ratio (MER): The main cost of owning an ETF on a continuing basis; returns are shown on an after-fee basis both here and on ETF company websites.

Trading expense ratio (TER): The cost of stock-trading commissions incurred by the managers of an ETF as they maintain the portfolio. Add the TER to the MER for a full picture of a fund’s cost. Many ETFs do so little trading that their TERs round down to zero.

Dividend yield: Yields are based on dividends paid over the previous 12 months. Mainstream Canadian equity ETFs can be a good source of dividend income.

Number of holdings: A higher number suggests you’re buying the entire market, while a smaller number suggests a more selective process is used to build the portfolio. You’ll need to decide whether that process is adding value.

Top three sector weightings: Financial stocks dominate our stock market, but some Canadian equity ETFs are deeper into the sector than others.

Returns: The ETF guide shows total returns, which reflect price changes in the stocks that a fund holds as well as dividends paid by those stocks.

Three-year beta: Beta is a measure of volatility that compares funds with the benchmark index (in this case, the S&P/TSX Composite), which always has a beta of one. A lower beta means less volatility on both the up and down side. Beta offers a chance to see how well low-volatility ETFs deliver.

Launch date: The older an ETF is, the more likely you can look back at a history of returns through good markets and bad.

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