An exchange traded fund (ETF) holds a basket of securities, such as stocks and bonds, that you can buy and sell through brokerages or exchanges. Some ETFs track the performance of a benchmark index like the Toronto Stock Exchange (TSX) while others offer exposure to a particular asset class, sector or industry. ETFs are ideal investment vehicles for investors who seek diversification and long-term capital gains.
Here are the five best Canadian Dollar ETFs for 2020.
- BMO Low Volatility Canadian Equity ETF (TSX: ZLB)
In March, stock markets around the world, including the TSX, succumbed to a coronavirus-induced selloff. As the COVID-19 pandemic continues to threaten the growth of Canada’s economy, it is quite possible for the health crisis to cause another crash.
Consider protecting your wealth against another market collapse by investing in the BMO Low Volatility Canadian Equity ETF.
ZLB’s portfolio allocation is underweight in high risk sectors such as energy and materials but overweight in sectors with stable profits such as utilities, financials, and consumer staples. The low volatility nature of the ETF offers protection against market crashes, while positioning for long-term gains.
While the ETF plunged during the March selloff, ZLB’s remarkable recovery attests to its risk-adjusted profile and long-term growth potential.
Over the last 5 years, ZLB has generated an average annual return of 5.42%.
- iShares S&P/TSX Capped Information Technology Index ETF (TSX: XIT)
XIT offers targeted exposure to some of the largest Canadian IT companies. Unlike the low stable profile of ZLB, XIT is ideal for investors who have medium to high risk appetites.
The ETF features some of the hottest stocks in Canada’s tech space including Shopify (SHOP), Constellation Software (CSU), and Open Text (OTEX).
Over the last decade, XIT dropped in value in one out of 10 years. BlackRock reports that XIT has an annual compounded return of 17.90 since 2009.
XIT flexed its muscles after shrugging off the coronavirus-induced selloff in March. The ETF printed a new all-time high in May as people became more reliant on technology and online shopping in this brave new world. The ETF is a buy on dip candidate as it flashes overheated signals in the long-term timeframe. Nevertheless, it remains in a strong long-term uptrend.
- iShares Core S&P US Total Market ETF (TSX: XUU)
For investors who seek long-term capital growth by investing in some of the largest companies in the world, XUU may be your best bet. The ETF offers a wide range of exposure to U.S.-based companies listed in the S&P 500.
XUU is overweight in tech titans, including Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Facebook (FB), and Google-parent Alphabet (GOOGL). These names have largely ignored the stock market selloff in March and remarkably posted fresh all-time highs amid the pandemic.
The S&P 500 has also made an impressive bounce after it cratered in March. The bellwether index is less than 6% from its all-time high as the Federal Reserve continues to provide liquidity and reassure the financial markets.
Over the last 5 year, the annual compounded return of XUU has been 10.83%.
- iShares S&P/TSX Capped Utility (TSX: XUT)
Another ETF that can help you guard against volatility during these uncertain times is XUT. This ETF is heavy on utility, multi-utility, and renewable electricity companies. It features some of the biggest names in the utilities sector, such as Fortis (FTS), Brookfield Infrastructure Partners (BIP.UN), and Emera (EMA). People and businesses will continue to need utilities, such as electricity, gas, and water no matter what health crisis the world is facing. So the demand for these services is largely unchanged.
XUT is a great complement if you’re investing in high risk assets like the XIT. It offers modest returns and comes with a relatively low risk profile; an ideal blend for long-term investors. Just like most assets, XUT succumbed to the coronavirus-selloff. But it has made a strong recovery since and is starting to show signs of stability.
- Horizons Marijuana ETF (HMMJ)
Cannabis stocks have had an unforgettable 2019 as the bear market wiped out tens of billions of dollars in the nascent industry. Many have written off this industry, which makes it a solid choice for high-risk, high-reward investors.
HMMJ tracks the performance of North American publicly listed life sciences firms with significant interests in the marijuana industry. The ETF holds names of market leaders in the industry such as Canopy Growth, Cronos Group, Tilray, and Aurora Cannabis.
2020 could be the year that cannabis stocks make a comeback. The North American legal marijuana market is expected to hit $24.5 billion in sales in 2021. In addition, the launch of Canada’s recreation market permits the sale of a wide range of cannabis-based products such as beverages, edibles, and vapes. In the U.S., six additional states are pushing for the legalization of marijuana.
The writings on the wall indicate that the industry can turn the corner this year and the chart is showing signs of life.
There’s a very good chance that HMMJ has recorded a generational bottom in March when it dropped to 4.39 CAD. Even if the ETF consolidates for the rest of the year, HMMJ pays a high trailing dividend of 13.28%.
Kiril is a CFA Charterholder who is passionate about the financial markets and analyzing different opportunities for investors. He specializes in researching and reporting on equities, ETFs, mutual funds as well as commentary on different market trends.