Top 5 ETF Funds

Top 5 ETF Funds

ETFs (exchange traded funds) are a strong alternative to actively managed portfolios and have been gaining a lot of momentum over the past ten years. The pros of ETFs are there low costs/fees and the broad diversification one can achieve by holding one fund.

In an earlier post we talked about how a passive/dormant approach to investing often wins out against most investments portfolios that feverishly buy and sell in an attempt to time the market (active portfolio). Keep in mind the average active managed portfolio only beat the index in five of the last 20 years. With that in mind I’ve selected my Top 5 ETF Funds below.

TOP 5 ETFs

1) XIC: iShares Core S&P/TSX – this ETF is managed by Black Rock and is part of the iShares family. The fund holds almost 250 of the largest market capitalization public companies in Canada. With a ridiculously low fee of 0.05% (compared to some actively managed mutual funds are above 2.00%) this one had to be near the top of the list.

Fund Fee – 0.05%

10 Year Avg Annual Return – 6.8%

2) VUN: Vanguard US Market Index – this would be the US counterpart to the above Canadian market fund XIC. It attempts to mirror entire US market at a low cost. The fund holds over 3,500 different equities for a large of diversification.

Fund Fee – 0.15%

10 Year Avg Annual Return – N/A (fund started in 2013 – 25.67 return since inception)

 3) VSB: Vanguard Short-Term Bond Index – ETF’s do not discriminate against bonds. Much like equity ownership (stocks), ETF’s group together different types of bonds or fixed income investments to allow for greater diversification for a low fee.

Currently, interest rates are ridiculously low, which means they will likely rise eventually. If you recall back to your economics class; when interest rates rise, bond prices fall. So, why then buy bonds at all? They still provide a less volatile stream of income, however, by purchasing SHORT-TERM bonds you won’t be hit as hard if and when interest rates rise.

VAB provides both corporate and government bonds for a good mix of yield and security. Again, all of this at a very low cost.

Fund Fee – 0.10%

10 Year Avg Annual Return – N/A (fund started in 2012 – 3.23% return since inception)

4) VXC: Vanguard All-World – No portfolio would be complete without a little international exposure. This fund contains equities from some of the largest corporations in the world. It’s important to note the fund holds approximately 50% of US equities (due to its relative size), so you should consider that when purchasing strictly US fund ETF’s (such as VUN mentioned above)

Fund Fee – 0.25%

10 Year Avg Return – N/A (fund started in 2014 – 22.15% return since inception)

5) ZDB: BMO Discount Bond Index – One complaint of bonds is they are not the most tax-friendly investments when held in taxable accounts. That’s because interest (which bonds pay out) to the investor is taxed at a very high rate.

I’ll spare you the boring tax details of why this fund is more tax effective, but for all you keeners out there take a look at this MoneySense article. Basically, the fund contains bonds that will reduce your overall taxable generated by the ETF.

Fund Fee – 0.10%

10 Year Avg Return – N/A (fund started in 2014 – 6.37% return since inception)

Wrap Up

Depending on where you’re at in your investing journey a different allocation of fixed income/bonds and equity ETFs should be selected (usually the older or less adverse you are to risk, the higher percentage of bond funds you should own)

These top five ETFs probably won’t be the most exciting investment you’ve ever held, but odds are they’ll produce long-term returns that the average Wolf of Wall Street-type would brag about to their buddies.

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8 comments

  1. Great list, but can I make a sixth recommendation? If you’re looking for some tax-free dividends, then I’ve been using CMU, which is a municipal debt ETF. A higher expense ratio (1.3%) than what you’ll see in most stock index ETFs, but a lot of positives outweigh that. First, and most obvious, is that it’s yield (6.7%) is not taxable income. Second, it is super diversified. It is spread across many muni sectors (healthcare, transport, utilities, etc.), across many maturities, and no single state is more than 10% of the portfolio. Third, it is trading at 15% discount to NAV. Historically, it trades around NAV, and last three years about 5% discount to NAV. The concerns with rising rates this year have made it a great buying opportunity.

    Price returns amount to about 4-5% a year last 15 years, but the monster dividend is on top of that. Plus, I think we’ve seen with the many muni defaults and the 2008-9 financial crisis, that the “contagion” effect in the muni space is non-existent.

    Strong buy for solid income, IMO.

    Eric
    Retire29 recently posted…Life is What Happens While You Are Busy Making Other PlansMy Profile

  2. I have started a love affair with ETF’s (husband doesn’t mind at all!) They have an ETF for every investing scenario you can dream up. I am SLOWLY moving away from individual stocks into various funds. Right now in High Dividend and some World. They are a great way to get international exposure without having to trade on foreign markets. Can you tell I am a fan.
    May recently posted…99 First World ProblemsMy Profile

    • Jonny

      Haha, yes, I can tell you’re a fan!
      I started buying ETF’s a few years back when I finally had some spare change to invest. The low fees are just the best.
      ETF’s should be the staple of an investor that is just starting out.

  3. I like to keep it simple. VXC and VAB in tax-sheltered accounts. XEI or VCN in taxable accounts

  4. Great and informative post about ETF funds.
    One ETF can give exposure to a group of equities, market segments or styles. In comparison to a stock, the ETF can track a broader range of stocks, or even attempt to mimic the returns of a country or a group of countries.

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