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Overview Canadian U.S. International Fixed-Income All-in-One Desert-Island Picks

Welcome to the 10th edition of the MoneySense ETF All-Stars , where we present the best exchange-traded funds (ETFs) available to Canadian investors. Save for a few exceptions, this year’s list looks a lot like last year’s, which is a good thing—we wouldn’t want investors to have to buy new funds whenever we put out our annual ETF update. That said, every year brings new challenges, and 2022 has sure been a doozy so far. Rising interest rates are wreaking havoc on the bond market, and equities have struggled, partly thanks to poorly performing technology stocks. Meanwhile, a still-ongoing post-pandemic recovery and war in Ukraine has sent commodity prices soaring and, more generally, is making everyone a little bit nervous about where things will go from here.

All that said, Canada’s ETF market continues to soar. As of March 31, 2022, domestically listed ETFs held $352 billion in assets , up 26.7% from a year earlier. There are also now 1,012 funds from which to choose, an increase of 131 ETFs from March 2021, and 42 ETF sponsors, up 39 year-over-year. There may come a day when this list looks at all the funds in Canada’s ETF universe. However, for now we’re sticking to the main categories: Canadian, U.S. and international equity, fixed income and all-in-one portfolios. We did give our panellists the opportunity to choose some “desert island” picks to cover off any missing or out-of-the-box (for MoneySense ) choices, but you won’t find any gold, bitcoin or even ESG-focused funds here in the major All-Star categories. ( There is one bitcoin ETF in our desert-island picks. )

Why not? In part, it’s hard to sift through the many (and there are many ) thematic funds on the market, and the quality of options varies widely. We did debate whether to add a category on ESG (Environmental, Social & Governance), which is a booming part of the ETF market, with Canadian-listed ESG ETFs bringing in a record $997 million in inflows in Q1 2022. But because companies and fund providers still don’t have any unified ESG reporting standards to follow, it’s hard to judge whether these funds—and the businesses within them—are indeed doing what they say they are doing.

At the same time, the MoneySense motto has always been to stay the course and to own a few broadly diversified and low-cost ETFs. Jumping into an energy ETF to chase geopolitical-fuelled returns goes against much of the advice we’ve been espousing for all these years. (Canadian energy sector ETFs did record their best month of inflows in March, bringing in $541 million, but these things tend to go as quickly as they come.)

Fortunately, there are still plenty of ETFs to choose from. And while this year’s list, with its 48 picks, may look familiar, our eight panellists did become a bit more discerning, given all that’s happened over the last several months.

Reduce today’s risks with ETFs

It’s been a tough year for investors. As we finished this on May 24, the S&P 500 had fallen by about 17% year-to-date and the NASDAQ had plummeted by nearly 30%. The S&P/TSX Composite Index, which had been slightly in the black for most the year, was down 4.8% since the end of 2021. Bond prices have also declined by double digits and volatility is high, while inflation, which climbed to 6.8% in April, is making it even harder to eke out any kind of positive return. All is not lost, though. Using the many ETFs on this list, it’s possible to create a portfolio that reduces some of the risks investors are facing today.

The main message from our best ETFs in Canada panellists ? Diversified low-cost ETFs are the way to go. “Keep costs low and take advantage of the broad diversification that most ETFs provide to help reduce volatility,” says Mark Yamada. “Low-cost and well-diversified ETFs would always serve an investor well in the long term,” adds Ioulia Tretiakova. “We also suggest considering risk-managed ETFs because they mitigate volatility drag that would translate into better returns in the long term through capital preservation during volatile markets like today.”

Dale Roberts says to consider ETFs that come with real inflation protection, such as the Purpose Diversified Real Asset ETF (PRA.TO). While this fund isn’t on our list of picks, it holds physical metals, base metals, real estate companies and commodities, which hold their value in inflationary times, says Roberts. “There is the misconception that stock markets work,” he adds. “They don’t historically, not during the periods of unexpected inflation or stagflation. Commodities work, gold can work, energy stocks can work. That’s why I like PRA, it’s a one-stop shop.”

Whatever you do, though, don’t tweak your existing portfolios too much, says Ben Felix. “I would not advise using ETFs differently based on the market environment. The market prices expectations about future inflation, volatility and rate changes, and it is very clear empirically that attempting to outsmart the market is a losing game.” Cameron Passmore agrees: “Changing a portfolio based on external circumstances does not typically make sense.”

And Felix adds: “Market prices have adjusted before the last two BoC rate changes were announced, not after. The market prices in expected future events.”

The fixed income debate

Not surprisingly, most of this year’s debate centred around fixed income and just how investors should approach this asset class given that yields are likely going to keep rising, which will make bond prices fall. Generally, the panellists agree that a well-diversified portfolio should still contain bonds, but most were lukewarm on the asset class itself.

“A well-thought-out diversified portfolio can help protect investors against some inflation, owning stocks can be a good long-term hedge against inflation, and investors can also benefit from diversification by staying the investing course and from the power of compounding,” says Mark Seed. “Bonds offer small regular cash payments that are vulnerable to inflation.”

With bonds falling, people may want to rethink the traditional 60% equities and 40% fixed income balanced portfolio, too, suggests Yves Rebetez. “We believe the 60/40 portfolio benefited largely from a 40-year bond bull market—nothing more really,” he explains. “Strategic buys into more equities should pay off well, and certainly keeping some cash is always smart. Cash is the opportunity to buy when what you’d like to own goes on sale. So, not when value, as a factor, comes back into play—it now is—but rather when stock market and price movement takes specific securities to a price where you then consider them to be better value.”

There was also some debate about adding gold ETFs and two Fidelity all-in-one funds that hold small amounts of bitcoin ( find out more on the “Best all-in-one ETFs” page ), but ultimately the consensus was to not include any cryptocurrency funds—or sector funds for that matter. “I am hesitant to open the floodgates to sectors, themes and strategies that involve high-turnover active rebalancing,” says Yamada.

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There are many ways to use our Best ETFs in Canada list. You can pick one fund from each main category to build a couch potato–like portfolio or you could purchase an all-in-one fund that covers multiple markets in a single security. Whatever you decide, our 10th list may be more important than ever, given how many more options there are today. Besides the traditional passive ETFs, there are now actively managed funds, higher-fee securities, leveraged options, sector-specific ETFs and so much more.

Our list, at the very least, gives you a place to start. “The truly passive ETF space has become crowded,” says Tretiakova. “Plagued by price wars, manufacturers are looking to justify higher fees with active strategies. This makes the space confusing and potentially less cost-efficient for a retail investor, who now must separate the wheat from the chaff while being tempted by the eternal promise of alpha.”

Felix agrees, adding that with more than 1,000 Canadian-listed ETFs and almost 3,000 U.S-listed ETFs, which Canadian investors can also buy, “the market has become difficult for investors to navigate. The maturing of the ETF market to include more specialized and actively managed funds means investors need to scrutinize products beyond their ETF structure. To be clear, the ETF market has become difficult to navigate due to the number of available products.”

At the same time, ETFs are underutilized in Canada, says Roberts. “It is surprising to see the modest adoption of ETFs by Canadians,” he says. “In ETFs, we have investment vehicles that are far superior to high-fee mutual funds. As creatures of habit, boomers and older Canadians largely stick to their underperforming mutual funds.”

While investors can supplement this list with sector and thematic funds, don’t get too carried away, cautions Passmore. “As more specialized ETF products become available, there will be a potential increase in decision fatigue for investors,” he says, pointing to Morningstar’s 2021 Mind the Gap report, which compares the returns of individual investors to total fund returns.

The report found that investor returns in sector equity funds trailed the category’s total returns by 3.95%, while asset-allocation funds only had a gap of 0.69%. The difference, says Passmore, is because investors who buy sector ETFs tend to try to time the market, while asset-allocation ETFs are bought and held. “It is clear how investor behaviour in more specialized products can be a problem,” he says.

Fortunately, there’s still plenty to like about the more broad-based passive market, which is what our list covers. Robb Engen is particularly optimistic about the all-in-one options, a category we added three years ago.

“The ETF market is becoming more mutual-fund-like with more niche products like thematic ETFs, but there have been good advancements for the diehard passive investors as well,” he says. “Asset-allocation ETFs absolutely changed the game when they came on the scene a few years ago, and now nearly every ETF provider offers a suite of these all-in-one products, which is great for investor choice. Yes, there’s only so much innovation you can do with a broadly diversified index fund, but ETF investors have everything they need to build a very low-cost and broadly diversified portfolio.”

Watch: MoneySense – BMO ETFs – ETFs and Mutual Funds fees

Meet the MoneySense 2022 ETF All-Star panel

Yves Rebetez , CFA, is a partner at Credo Consulting, a brand analytics and research firm focused on the Canadian financial services industry. Rebetez ran ETFinsight between 2011 and 2018 and is now working on several ETF and advisor engagement initiatives.

Mark Seed is the blogger behind the My Own Advisor website, which caters to do-it-yourself investors and takes a hybrid approach to investing in both ETFs and individual securities.

Mark Yamada is CEO of Toronto’s PUR Investing Inc., which provides the ETF screener for the TMX Money website. He writes about investment issues for Advisor , appears regularly at ETF conferences and publishes academic papers about advanced pension strategies.

Ioulia Tretiakova is vice-president and director of quantitative strategies at PUR Investing Inc. She specializes in risk management and quantitative portfolio construction, and she is the lead author of several peer-reviewed papers in the Rotman International Journal of Pension Management and the Journal of Retirement .

Robb Engen is a fee-only financial planner and founder of the award-winning Boomer & Echo personal finance blog. He’s based in Lethbridge, Alta.

Dale Roberts is a former investment advisor with Tangerine, founder of the Cut the Crap Investing blog and a regular MoneySense contributor.

Ben Felix is a portfolio manager and head of research with PWL Capital in Ottawa. He has a bi-weekly YouTube series called Common Sense Investing, and he co-hosts the weekly Rational Reminder podcast. PWL is a wealth management firm managing $3 billion in assets using low-cost ETFs and index funds.

Cameron Passmore joined PWL Capital in 1997. He is a partner in the firm and its executive chairman, as well as a portfolio manager in Ottawa. Passmore co-hosts the Rational Reminder podcast.

This article was originally published in 2012 and is updated annually (most recently on May 25, 2022).