Best Index Funds and ETFs (Canada)

If we assume that any two funds are identical in effectiveness of tracking an index, it would be most beneficial to own the cheapest one. After all, why pay more for more-or-less the same product? While this may be the case, there could be some situations where you might chose a more expensive product, for example, due to practicality. In this article we will discuss the major ETFs and index funds available to Canadian investors. While we've discussed Vanguard ETFs and TD e-series index funds multiple times before, there are other competitive options available.

To give a quick recap, index funds are passively managed portfolios that track major indexes by owning many investments within that index. Exchange-Traded Funds (ETFs) are index funds that are traded on major markets, which come with a commission for trading, but tend to have lower Management Expense Ratios (MERs). You obtain an index fund from the company managing it (usually at no commission), while you buy an ETF off the market.

In the following comparisons we will only focus on: Canadian stock index, U.S. stock index, Canadian bond index and international stock index. Note that there are other index options with most of the funds listened below, although we will only focus on the most common indexes.

Exchange-Traded Funds For Canadians - abbreviated fund name (ticker), MER
Vanguard ETFs

Canada All Cap Index (VCN), 0.06%
S&P 500 Index (VFV), 0.07%
Canadian Aggregate Bond Index (VAB), 0.14%
Developed Europe All Cap Index (VE), 0.20%
Emerging Markets All Cap Index (VEE), 0.19%
Developed Asia Pacific All Cap Index (VA), 0.20%

BMO ETFs
S&P/TSX Capped Composite Index (ZNC), 0.09%
S&P 500 Index (ZSP), 0.13%
Aggregate Bond Index ETF (ZAG), 0.23%
MSCI EAFE Index (ZEA), 0.25%

iShares (BlackRock) ETFs 

S&P/TSX Capped Composite Index (XIC), 0.06%
S&P U.S. Total Market Index (XUH), 0.11%
High Quality Canadian Bond Index (XQB), 0.13%
MSCI All Country World (ex. Canada) Index (XAW), 0.22%
MSCI Emerging Markets IMI Index (XEC), 0.28%

If you’re going to purchase ETFs, Vanguard funds remain the cheapest option available, although both BMO and BlackRock offer competitive products. Given the nature of ETFs (traded on exchanges) you should really be getting the cheapest ones possible, unless you wish to purchase a specific fund not offered elsewhere. Another option not mentioned are Horizon ETFs, Horizon provides a way range of ETFs (including commodity ETFs), although they are more expensive than those mentioned above. Currently Questrade discount broker offers free purchases of ETFs, while you will still have to pay transaction fees on sales, removing all purchasing costs is already fantastic.

Index Funds For Canadians - abbreviated fund name (ticker), MER
TD Canada e-Series Index Funds
Canadian Stock Index – e (TDB900), 0.33%
U.S. Stock Index – e (TDB902), 0.35%
Canadian Bond Index – e (TDB909), 0.50%
International Stock Index – e (TDB911), 0.54%

Even though TD increased the MERs of e-series slightly over the summer of 2015, they continue to be the cheapest index funds directly available to Canadians. You can purchase these investments online through a TD e-series Funds account (accessible online through TD Canada Trust EasyWeb, or through TD Direct Investing). It is also possible to purchase e-series through a TD TFSA. If you have a medium to small sum to invest, e-series index funds will very likely be your best option for simplicity and pure value.

RBC Global Asset Management Index Funds
Canadian Index Fund (RBF556), 0.72%
U.S. Index Fund (RBF557), 0.72%
Canadian Government Bond Index (RBF563), 0.67%
International Index (RBF559), 0.71%

National Bank Index Funds
Canadian Index Fund (NBC814), 0.66%
U.S. Index Fund (NBC846), 0.67%
International Index Fund (NBC839), 0.66%

While RBC and National Bank also offer index funds, they are substantially more expensive to own than e-series. If you have all your banking accounts with one of these banks and have a relatively small sum to invest, it may not be worth the trouble of opening an investment account with TD. Also take note that you have more indexing options with TD e-series than with either RBC or National Bank. An advantage to RBC and National Bank indexes is that they are also available through discount brokerages (although at that point, you really should be buying ETFs).

Tangerine Investment Funds
Balanced Income Portfolio (INI210), 1.07%
Balanced Portfolio (INI220), 1.07%
Balanced Growth Portfolio (INI230), 1.07%
Equity Growth Portfolio (INI240), 1.07%

I came close to leaving Tangerine funds off the list since having an MER of 1.07% is very high for an index fund, but there are benefits to owning these funds. For one thing, it does all the work for you. Each Tangerine fund listed above is actually already a balanced index portfolio, so you only need to buy one to be very diversified and don`t need to worry about rebalancing. For example, the ‘Tangerine Balanced Income Portfolio’ consists of: 70% Canadian bonds, 10% Canadian stocks, 10% US stocks and 10% International stocks. The other three portfolio options are simply more aggressive on stock index ownership. You have to open an account directly with Tangerine to obtain these funds (TFSA option available), and there is no account minimum. If you have just a small sum to invest, this may well be a great option; although if you have even just a couple thousand to invest, you would very likely be better off investing in e-series.

The index or ETF that is ideal for you will depend on a few factors such as: investment amount, frequency of transactions, simplicity, brokerage fees, products to purchase and personal preferences. Please have a look at the complete list of funds available before making a selection, as there are other funds I have not listed for simplicity sake. Also note that not all funds listed can be directly compared in terms of MER, as they do not all track exactly the same indexes (especially the case for international stock indexes). Its is also important to note that while index funds that track the same index are not identical in nature, they tend to be very similar.

Here are some of our other articles on similar topics:
Choosing an Index Portfolio Model
What Exactly is An Index?
TFSA: Index Funds vs. ETFs

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-Yinvestors


Note that MERs consist of management fees and all associated operating fees. It is typically based on the previous costs experienced over the last 12-month period (or as reported). It is worth nothing that it is based on 'historical data' and does not perfectly depict future costs. Having said that, the most recent numbers provided by each company are used and MER does provide the most accurate basis for cost comparison available. MERs are also fairly consistent given an index fund will typically have relatively stable and predictable costs due to its passive nature.