What are the best ETFs in Canada for you?

What are the best ETFs in Canada for you?

What are the best ETFs in Canada? Well, if you listen to financial experts, many will gladly answer the question with a list of the best ETFs according to their opinion. Their list will typically include ETFs from a variety of categories, such as fixed income, international and US equity ETFs. Some investors might even think the best ETF is one their friend recommended to them after it performed well for their own portfolio.

However, there’s no such thing as the best ETF for everyone. It’s impossible to know which ETF is the best one without knowing what kind of investor is asking the question; their life stage, savings goals and their personal investing style (including their risk tolerance level).

With that in mind, we want to suggest the best ETFs in Canada depending on the type of investor you are. We’ve broken it down by investor type, to make it easy for you to find the best ETFs for your situation and how they’ll help you reach your unique investing goals.

Please click on the most appropriate link/s below, to discover the best ETFs for your particular circumstances:

People joining the workforce >
Generation X >
Younger boomers >
Retirees >
New or nervous investors >
More sophisticated investors >
Long-term or growth-seeking investors >
Wealthy investors >

The best ETFs in Canada for people joining the workforce

When you’re starting your career, investing may be low on your list of priorities. After all, you’ll probably have other, more pressing concerns, such as paying off student debt or trying to come up with enough rent money each month. But investing when you’re in your 20s is highly recommended, for so many reasons. You can get a head-start on saving for your future, given that you’ll have decades to benefit from the power of compound growth (where your money earns a return on the returns it’s already made).

Investing can also be a great way to speed up the process of saving for a down payment so you can move into your own place sooner rather than later, as well as taking some strides towards building up emergency and retirement savings.

Also, if you are going to take risks, now is the best time to do it. You typically don’t have a huge amount of money to risk, and there’ll be plenty of time for your assets to recover if they’re dented by a market decline. You’ll also have longer to enjoy the benefits of dollar cost averaging.

Additionally, establishing a disciplined approach to investing now will serve you well as you grow your wealth. Therefore, for investors who are comfortable with risk and looking to grow their investments as much as possible, the best ETFs could be those that contain growth equities (stocks of companies that reinvest profits to finance growth — and therefore share value — rather than using profits to pay dividends to their shareholders). 

One example would be ETFs that contain US large caps (companies that are worth more than $10 billion), such as the Mackenzie US Large Cap Equity Index ETF (QUU), which contains hundreds of large American companies, many of which focus on growth.

More risk-averse younger investors might consider focusing on asset allocation ETFs. These contain several ETFs and so provide immediate diversification across geographical areas and industries. They can often hold thousands of companies. 

The Mackenzie Conservative Allocation ETF (MCON) is made of around 40% equities (stocks) and 60% fixed income assets (such as bonds) and so it could be the best ETF for investors who are more risk averse. Fixed income assets are typically much less risky investments than equities, because their value rarely rises or falls anywhere near as much as equities can. For younger investors who want to see faster investment growth but still have some risk aversion, the best ETF could be the Mackenzie Growth Allocation ETF (MGRW); 80% is composed of equities, with 20% made up of less risky fixed income assets.

The best ETFs for Generation X

If you’re part of this generation, you can do significant damage to your portfolio unless you’re careful. When you’re cashing in investments to help your kids with their education or getting onto the property ladder, a common investing bias is to sell your winners (investments which have grown the most) and hold onto the losers (those that have lost value).

However, it makes much more sense to sell off equities that have losses as well as winning equities. This way, you can offset the capital gains of your winners with the losses from your losers. You could then replace those investments with a sector or country ETF that closely mirrors them.

For example, if you have a lot of Canadian single stocks, you can cash those in to get the funds you need, then replace that exposure with an ETF that tracks a broad Canadian index. If you have a lot of US stocks, you could replace them with a large cap US equity ETF. Some examples are the Mackenzie Canadian Equity Index ETF (QCN) and the Mackenzie US Large Cap Equity Index ETF (QUU).

Some of the best ETFs for building retirement savings (another key concern for Generation X) could involve a combination of the added security of higher-yielding fixed income assets and the growth potential of equities.

For higher-than-average yields, floating rate income ETFs typically contain bonds that are below investment grade and therefore deliver higher yields. They also help combat the effects of rising interest rates, given that their yield rates tend to rise in line with bank rates. Similar advantages can be had with high yield bond ETFs. Examples of these kinds of ETFs include the Mackenzie Floating Rate Income ETF (MFT) and the Mackenzie US High Yield Bond Index ETF (QHY).

For higher potential growth, Chinese equities offer a compelling long-term investment option, despite the economic slowdown during COVID-19 lockdowns. Given that China is the second biggest economy in the world, and its economy and corporate governance are expected to mature considerably in the coming years, an ETF containing a wide selection of mainland Chinese companies could be a good option for long-term growth — one example would be the Mackenzie China A-Shares CSI 300 Index ETF (QCH).

It's also worth considering ETFs that provide a wide selection of global companies; these can provide important diversification and protection from possible downturns in other markets (countries typically experience growth and recession at different times). Examples of highly diversified global equity ETFs are the Mackenzie Global Sustainable Dividend Index ETF (MDVD) and the Mackenzie International Equity Index ETF (QDX).

The best ETFs in Canada for younger boomers

The years leading up to retirement can be tricky; on the one hand, you still need your investments to grow, so that you can retire on schedule. However, you don’t want to be burned by a potential market crash that could put your plans back several years.

Younger boomers typically have the advantages of having significant assets invested, lower monthly expenses and their highest income. Nevertheless, it would be unwise to put a lot of your money into single stock ideas. While the potential returns can be very tempting, if one stock drops significantly, that can be a big loss for your portfolio to handle when you’re this close to retirement.

Instead, set aside just 10% of your portfolio for your more interesting (and potentially more volatile) investment ideas. You can then diversify the fixed income part of your portfolio with actively managed ETFs that are designed to outperform average bond funds, while still minimizing volatility. Examples of this type of ETF are the Mackenzie Core Plus Canadian Fixed Income ETF (MKB) and the Mackenzie Unconstrained Bond ETF (MUB). 

You can also consider smart beta or strategic beta ETFs; these are funds that are managed according to specific rules, and are designed to outperform more traditional, index-tracking funds. For example, the Mackenzie Maximum Diversification Canada Index Fund (MKC) holds many companies that are outside of Canada’s key sectors of financials, energy and materials.

You can get exposure to big international companies with the Mackenzie International Equity Index ETF (QDX). Also, you could use the Mackenzie Balanced Allocation ETF (MBAL) as a benchmark to gauge your other investments against. If another investment performs poorly in comparison, it might make sense to sell it.

The best ETFs for retirees

When they retire, many investors hit the pause button on growth investments, thinking that the best ETFs for them are the safest ones available. They see growth investments as too risky now that their earning days are over. However, Canadian retirees can now expect to live well into their 80s, so their savings need to last much longer. They also need to keep up with inflation, so they should still dedicate some of their portfolio to equities (and this is especially the case for younger retirees). Otherwise, they could run out of money and be forced to cut back on the quality of their retirement or even go back to work.

It's a tricky balancing act for retired investors. They need their investments to provide retirement income but won’t want to have to cash in investments that have lost a lot of value (in the event of a market crash). Therefore, the best ETFs for them could contain a mix of bonds plus equities, as well as those that contain dividend-paying companies (to provide a regular income). The Mackenzie Conservative Allocation ETF (MCON) contains 40% equities (stocks) to provide growth potential and 60% in fixed income assets to provide stability.

ETFs that are designed to produce positive returns while providing protection from market crashes can also be a good option. One example is the Mackenzie Unconstrained Bond ETF (MUB), which contains mostly lower-risk fixed income assets, which provide a consistent yield. Also, ETFs that contain companies that pay above-average dividends can provide retirees with a good income source, such as the Mackenzie Global Sustainable Dividend Index ETF (MDVD).

The best ETFs in Canada for new or nervous investors

If you’ve never invested before, or have and got your fingers burned, it makes sense that you might feel a little anxious about putting your money into an investment that can go down as well as up. We always recommend that investors use a financial advisor to help put them on the right path to achieving their unique investing goals, and this can be particularly important for nervous investors.

The best ETFs for nervous investors who don’t have an advisor could be funds that provide substantial diversification through exposure to a wide variety of investment types. This can really help to minimize the daily ups and downs of the market, at a low cost. This way, nervous investors can enjoy the benefits of being invested in the stock market while still being cautious. A good example of this type of ETF is the Mackenzie Balanced Allocation ETF (MBAL), which, while providing some security, also allows nervous investors to enjoy the growth potential of equities.

The best ETFs for more sophisticated investors

Those investors who have some years of experience of investing will want to start considering new options for their portfolio. Having an allocation ETF that’s focused on growth can act not only as a core part of the equity portion of their portfolio, but it can also act as a portfolio benchmark, to measure the success of their more active investing choices.

These ETFs closely follow one or several indexes (often a combination of North American and international equities). Therefore, if your individual stock picks or more niche products are beating your allocation ETF, it might make sense to hold onto them. However, if they’re underperforming it, it probably makes sense to sell them. One example is the Mackenzie Growth Allocation ETF (MGRW), which closely tracks several core indexes, including the S&P 500, S&P/TSX Composite and MSCI Emerging Markets indexes.

Many sophisticated investors recognize how difficult it is to outperform the US large cap market (an index of the largest American-based organizations by value). They understand that they can enjoy almost all of the growth in this market by simply buying an ETF that closely tracks an index such as the Solactive US Large Cap CAD Index (such as the Mackenzie US Large Cap Equity Index ETF (QUU).

Other sophisticated investors understand the value and diversification benefits of holding international stocks in their portfolios. However, this market sector is notoriously difficult for individual investors to thoroughly research.

Some of the best ETFs to help investors easily achieve international exposure are international equity ETFs. They give broad coverage of the international equities market, while freeing up more time for investors to research opportunities in North America, which is typically a region that Canadians are more familiar with. The Mackenzie International Equity Index ETF (QDX) could be a good option, given that it closely tracks the Solactive GBS Developed Markets ex. North America Large and Mid Cap CAD Index.

The best ETFs in Canada for long-term or growth-seeking investors

Success in investing is largely about starting as soon as you can and staying invested over the long term. For maximum growth potential, ETFs that contain equities can deliver the fastest growing returns; however, it’s important to be aware that these kinds of assets will have periods of ups and downs.

These types of equity ETFs include the Mackenzie Canadian Equity Index ETF (QCN) and the Mackenzie US Large Cap Equity Index ETF (QUU). Some growth-seeking investors might be tempted to invest in ETFs that contain leading edge technology companies. While these have the potential to provide exceptional gains in the short term, it can be extremely difficult to know when to sell them before they start to drop in value. Timing the market is hard even for investment professionals, so you may be better served with more general and more secure equity ETFs, as listed above. 

The best ETFs for wealthy investors

Those who already have a sizable portfolio have very different investing needs and goals compared to someone who’s starting out or still building up their savings. Retaining capital is obviously important, but so too is seeing it grow to outpace inflation and help reach your other investing goals.

This is why fees really matter to wealthy investors; low-cost, well-diversified ETFs will be attractive to them, given their low management fees. While they might happily pay for ETFs that outperform their benchmark indexes, they’ll quickly exit ETFs that are not delivering.

Wealthy investors also recognize that patience in investing is key, so having half of their portfolio made up of low-fee index equity ETFs could provide a solid base, given that they’ll have time to ride out any volatility. Examples include the Mackenzie Canadian Equity Index ETF (QCN) with a management fee of 0.04%, and the Mackenzie US Large Cap Equity Index ETF (QUU) with a fee of 0.06%.

The other half of their portfolio will often feature funds that are designed to deliver above-average returns, chosen with the help of a financial advisor. These could include rules-based strategic beta strategies, such as the Mackenzie Corporate Knights Global 100 Index ETF (MCKG) and the Mackenzie Global Infrastructure Index ETF (QINF).

How to start investing in the best ETFs for you

A financial advisor will look at your overall financial situation, life stage, appetite for risk and your short- and long-term investing goals. Only then will they be able to recommend the best ETFs for you and your current situation.

The best ETFs for you today may not be the best ones for you in five or 10 years’ time; a good financial advisor will constantly monitor your changing financial needs and be able to recommend the best ETFs during any period of your life. 

 

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