Today we’ll look at the core Canadian equity ETFs that you might use when you build a global ETF portfolio. The Canadian stock market is dominated by financials and energy. It is not a well-diversified index. It might be a case of pick your poison, a level of ‘undiversification’. That said, the weakness of the Canadian stock market is quickly picked up by U.S. and International market ETFs. Also, Canadian stocks can add a layer of inflation protection that is missing from the U.S. market. Once again, we’re coming back to the beauty of a global ETF portfolio, on the Sunday Reads.
Off the top, what do we mean by buying the stock market of a country or region? Have a read of … What is index investing?
Building your global ETF portfolio
For an overview of ETF portfolio building, check out the ETF model portfolio page. We’re going to build around the core assets …
You can certainly add more assets such as gold, REITs (real estate) plus U.S. and international bonds, but many Canadians will stop a simple but effective core ETF portfolio.
The core models are offered at Tangerine Investments where I was an investment advisor and trainer for several years.
Canadian Core Equity ETFs
The most popular index used to capture the Canadian stock market is the TSX Composite. To buy the ETF that tracks the index you could use the ticker XIC-T.
The index holds 300 of the largest publicly traded companies in Canada across many sectors.
We can see that the index is dominated by Financials, Energy and Materials. It is not a well diversified index / stock market. That said the index plays to Canada’s strengths by design. We have one of the strongest banking and insurance industries in the world, and we have the oil and gas and materials that North America and the world needs. Canadian banks have historically outperformed just about everything over the longer term (even including U.S. stocks, the S&P 500), but that doesn’t mean that you necessarily want to go all in on Canadian financials.
Another popular index for Canada is the TSX 60 ticker XIU-T. The index holds 60 of the largest companies in Canada. Here is the sector breakdown.
XIC is moving to a period of outperformance says Morningstar due to greater exposure to materials, and less reliance on financials compared to XIU. We can say that XIC is more “diversified”. The materials index includes gold and other mining stocks that are on a tear.
Here’s the materials ETF vs XIC.
Gold and materials are very inflation-friendly. You can see the spike in the COVID period as well when we had a brief inflation scare.
iShares Core S&P/TSX Capped Composite Index ETF XIC
Here’s the overview from Morngingstar.
The C$19.1 billion iShares Core S&P/TSX Capped Composite Index ETF rose 4.95% in August. The gain on the fund beat the 3.61% gain on the average fund in the Canadian equity category, leaving it in the 14th percentile for performance. Over the past year, the iShares fund rose 25.77%, while the average fund in its category rose 21.35%. The fund, which launched in February 2001, has climbed 17.40% over the past three years and gained 14.92% over the past five years.
iShares S&P/TSX 60 Index ETF XIU
In August, the iShares S&P/TSX 60 Index ETF rose 4.79%, while the average Canadian equity fund gained 3.61%. The fund placed in the 24th percentile for performance. The C$17.5 billion fund has climbed 24.51% over the past year, outperforming the average fund in its category, which rose 21.35%. The iShares fund, which launched in September 1999, has climbed 16.84% over the past three years and gained 14.75% over the past five years.
The TSX Composite vs the TSX 60?
It’s a coin toss really. They are very close in sector allocation. I offered XIU in the ETF portfolio section as I like the additional weighting to the financials. XIU has outperformed XIC from XIC’s inception and over the last 10 years.
Keep in mind that Vanguard and BMO and other ETF providers also offer core Canadian equity ETFs.
Other core ETF considerations?
Vanguard VDY-T
In my wife’s personal RRSP account I used Vanguard’s Canadian High Dividend ETF VDY-T. That increases the financials concentration even beyond that of XIU. It outperformed the TSX 60 by about 1% annual. We have since moved on to create a Canadian stock portfolio.
iShares XDIV-T
iShares Canadian Quality Dividend ETF XDIV-T offers a solid history of outperfomance (in back tests). It is also big on financials, but also boosts the defensive utilities up to 13%. It is a concentrated portfolio of just 20 stocks. A company has to pass the quality screens to ‘make it in’.
BMO’s Low Volatility ZLB-T
I’m a big fan of the low volatility approach in Canada. It has a long history of outperformance with less volatility and less draw down (decline) in recessions.
ZLB quickly fixes up the poor sector allocation and is more defensive. It wins by losing less.
Tax efficient Global X HXT-T
For taxable accounts you can consider the Global X HXT-T that is part of their tax-efficient Corporate Class structured ETFs. Global X aims for zero distributions, but that’s not a given. Here’s an introduction to the corporate class structure from Global X.
Please use the Contact Dale form if you have any questions. We’ll now move on to the Sunday Reads (and podcasts).
The Bank of Canada cuts by 0.25%
Here’s a good video podcast interview (on WONK) with Bank of Canada Governor Tiff Macklem. Mr. Macklem suggests that if tariffs stay where they are, Canada is not heading for a recession. Instead we’re heading for slow growth in the area of 1.0%.
The Fed cut 0.25% south of the border, it was double-cut week, and the markets are likely to approve …
And on utilities, here’s what they don’t like, but how we can hedge …
TFSA contribution hike?
Aaron is calling for $7000 in 2026 …
Related post: How to use your TFSA account.
At Findependence Hub, by way of Mark Seed, can your retire with a traditional 60 / 40 portfolio? Yes of course, it’s a wonderful approach as I often remind Retirement Club members. We also learn how to do a little bit better with some superior asset selection and an optimized retirement cash flow plan.
The 60 / 40 made it through (satisfied the 4% rule) even through the dot com correction of the early 2000s, the stagflation era that began in the 70’s and through the financial crisis of 2008-2009. Simple works.
Building the retirement portfolio podcast
Jonathan Chevreau joins the TD Direct Investing podcast, He discusses optimal asset allocation in retirement, savvy portfolio drawdown strategies, the best time to take Canada Pension Plan (CPP) and Old Age Security (OAS) benefits, when to convert to a Registered Retirement Income Fund (RRIF) conversion, and more.
And speaking of Canada and gold stocks, Stocktrades.ca offers a few gold stocks for consideration.
It’s a regular stop to check in on Dividend Hawk’s portfolio action and news for the week.
At the Retirement Manifesto 3 questions that will determine 99% of your success. From a U.S. perspective but all this will apply north of the border …
1) Do You Have A Reliable Cash Flow Plan?
2) Have You Accounted for Healthcare and Unexpected Costs?
3) How Will You Spend Your Time And Stay Fulfilled?
At Booming Encore they ask a retirement expert – Did I retire too soon?
The Loonie Doctor looks at dividends within a corporation.
Recent retirement posts / must reads
Can you retire on a million dollars?
Retirement tip: Don’t forget the spousal account.
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Here’s Canada’s top-performing Robo Advisor, Justwealth. You can get advice, planning and low-fee ETF portfolios all at one shop. You can have it all.
Consider Justwealth for RESP accounts. That is THE option in Canada with target date funds that adjust the risk level as the student approaches the College or University start date.
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Make your cash work a lot harder at EQ Bank. RRSP and TFSA account rates are at 1.75%, other savings rates up to 3.0%. You’ll find some higher rates on GICs up to 3.60%. They also offer U.S. dollar accounts at 3.0%. We use EQ Bank, they have been awesome.
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For August we received $51.24 in cash from everyday spending. You can select 3 categories for 2.0% cash back. The rest pays at 0.50%.
That cash went into my TFSA account to help buy some CBIL-T, CHPS-T and HURA-T.
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It is a series of monthly Zoom Presentations, newsletters, plus a secure and private online space where we learn, share ideas and connect with members. Here’s the Retirement Club overview page. This past week we conducted a retirement cash flow review and plan for a club member who thought she might be spending in the $60,000 annual (after taxes) area. The cash flow plan shows a safe spend rate is likely in the $90,000 to $95,000 range.
Make sure you’re doing retirement right. It’s also suitable for those who are approaching retirement. Use Contact Dale if you’d like more info, or to sign up for the next group.
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