American investors often take their northern neighbors for granted. Canadian markets are smaller compared to the immense U.S. stock market, but that doesn’t mean Canadian firms aren’t worth owning.
In fact, plenty of Canadian companies deserve recognition, so if you’re looking to add international stocks to your portfolio, don’t ignore the Great White North.
Quick Look: The Best Canadian ETFs
- JP Morgan BetaBuilder Canada ETF (BBCA)
- iShares MSCI Canada ETF (EWC)
- SPDR Solactive Canada ETF (ZCAN)
- Invesco CurrencyShares Canadian Dollar Trust (FXC)
- Franklin FTSE Canada ETF (FLCA)
Why Invest in Canadian ETFs?
Canadian markets may be small, but ETFs are still the best way to gain exposure to the country. A number of low-cost, high-asset options have sprung up in the last few years, giving investors more opportunity than ever to get their hands on Canadian shares.
And along with these new opportunities comes ever-plummeting expense ratios.
What to Look for in a Canadian ETF
There’s no special sauce when it comes to finding good Canadian ETFs. In fact, you’ll be looking for a lot of the same features you find in good U.S. ETFs. Here are the 3 most important factors.
As always, controlling costs should be your number one goal as an ETF investor. Keep an eye not only on expense ratios but on how you’ll be taxed in your gains and dividends. Most ETFs on our list are small and have higher expense ratios comparable to ETFs in the U.S. stock market.
Still, it’s better to pay as little as possible to management.
When dealing with small funds, you want to make sure there’s enough liquidity to facilitate trading. Funds without strong asset bases have closure risk and often trade only a handful of shares per day.
Pay attention to the assets under management (AUM) and average daily share volume of these Canadian ETFs.
High concentration of Canadian firms
Always check the holdings of your ETFs and make sure they’re actually investing in the securities they claim. Why pay a premium for Canadian funds if the assets don’t match the investment goal?
The funds we’ve chosen on this list report 90% of their holdings in Canadian companies.
Our Top Picks
Using the criteria listed above, Benzinga has chosen the top Canadian ETFs and ranked them in order. The top 2 funds on this list have broad appeal to any international investor, while the last 3 are more targeted to specific strategies.
If you want exposure to Canada, consider any of these ETFs.
JP Morgan BetaBuilder Canada ETF (BBCA)
The JP Morgan BetaBuilder Canada ETF has been in existence for less than a year, but it didn’t need long to become the best buy among Canadian ETFs. With nearly $3.7 billion in assets, it’s already the largest fund in the space and laps its closest competition with a 0.19% expense ratio. The BetaBuilder Canada ETF has comparable assets but offers a more-than-double 0.47% ratio.
BBCA tracks the Morningstar Canada Target Market Exposure Index and currently holds 97 different stocks, including 88 Canadian-based large-cap companies.
Its largest holding is the Royal Bank of Canada (7.8%), followed by TD Bank (7%) and Canadian National Railway Company (4.7%). Financials (39%) make up its largest sector concentration, followed by energy (21%) and industrials (11%).
BBCA combines a strong asset base, low expenses and steady daily volume (over 750,000 shares traded daily). Other funds have lower expenses, but none bring the total package like this one. If you’re considering an investment in Canadian companies, BBCA should be the first ETF on your list.
iShares MSCI Canada ETF (EWC)
iShares MSCI Canada ETF is the old guard in the Canadian ETF space, but it still has plenty to offer investors. BlackRock created the fund in 1996 and it had no true competition until JP Morgan introduced the BetaBuilder Canada ETF.
The fund has a considerable $2.6 billion in assets and holds 92 different Canadian stocks. While comparable in many ways to BBCA, the 0.47% expense ratio needs to come down before we can recommend this fund first.
The structure is similar to BBCA with 40% of the fund’s 93 holdings in financials, 21% in energy and 9% in industrials. Its top holdings are Royal Bank of Canada, TD Bank and Canadian National Railway Company. One advantage EWC has is the consistent dividend payout, currently yielding 2.25%.
EWC also currently trades over 2.3 million shares daily on average. Though it’s no longer the top dog, iShares MSCI Canada is a reliable ETF worthy of a place in your portfolio.
SPDR Solactive Canada ETF (ZCAN)
State Street Global Advisors introduced the SPDR Solactive Canada ETF in 2014 and while its asset base remains small, the expense ratio and broad exposure to large Canadian firms are appetizing.
Despite 5 full years of trading, the fund only has just over $20 million in assets and less than 1,000 shares are traded daily on average. Liquidity is definitely a concern, but its 0.14% expense ratio is tough to beat.
The holdings are similar to BBCA and EWC with high concentrations in financials (38%) and energy (19%). The top holdings are Royal Bank of Canada, TD Bank and Enbridge Inc.
The fund holds 98 different stocks in total and has a distribution yield of 2.48%. Tradability concerns aside, ZCAN is a cheap and effective way to gain exposure to Canadian companies.
Invesco CurrencyShares Canadian Dollar Trust (FXC)
Canadian firms aren’t the only way to gain exposure to our northern neighbor. If you want to trade Canadian dollars but don’t want to open a forex account, Invesco’s CurrencyShares Canadian Dollar Trust (FXC) will give you access to the market in an exchange traded fund (ETF).
Most funds require derivatives to give investors this kind of exposure, but FXC holds 100% CAD. There’s no index tracked here, just the CAD/USD exchange rate.
The fund has an expense ratio of 0.40% and over $121 million in assets. The average spread is only 0.04% and low spreads are critical to currency investments.
Nearly 30,000 shares are traded daily on average, so liquidity is more than ample. Note that because the fund holds currency, gains are taxed at ordinary income levels. You won’t be able to hide behind the 20% capital gains rate if you invest in FXC.
Franklin FTSE Canada ETF (FLCA)
A small but mighty competitor, the Franklin FTSE Canada ETF comes from little-known Franklin Templeton Investments. The fund isn’t very liquid, with only $5 million in assets and 1,100 shares traded daily on average.
However, the fund has shrunk the normal sector portfolio from 90+ stocks to only 54 and places a larger emphasis on financials (44%) compared to its competition. Royal Bank of Canada, TD Bank and Enbridge Inc. are the 3 largest holdings.
Its 0.09% expense ratio makes it the cheapest fund to own in the entire sector. Shares can be hard to come by, so make sure your brokerage actually has the stock available before you decide to add it to your portfolio.
Where to Buy Canadian ETFs
You don’t need to be a Canadian citizen to gain exposure to Canadian firms. All the ETFs on our list can be found on the New York Stock Exchange (the underlying companies trade on the Toronto Stock Exchange).
The top 2 funds (BBCA and EWC) can be found on most online brokerage accounts. If you can locate the smaller funds from your specific broker, contact them and ask if they can add shares for you.
Canada’s Place in Your Portfolio
Canada can be a forgotten land when it comes to international investing, but the country’s strong banking system and lush natural reserves make Canadian firms attractive to retail investors.
Cheap ETFs have made it easier than ever to get a slice of the pie. If you want a portfolio that makes money regardless of borders, consider adding some Canadian funds to your investments.