By using the NEO ETF screener, Canadian investors can easily sort the investable universe of ETFs by descending assets under management (AUM). From there, it's easy to identify the usual ETFs popular with Canadian investors: those from large fund managers like Vanguard, iShares, and BMO (TSX:BMO).
While these ETFs are certainly popular, there's no reason why investors should limit their scope to what's in vogue. Looking outside the box can unearth some unique, interesting, and effective ETFs that may have escaped your attention. Some of these ETFs provide low costs, offer exposure to exotic asset classes, or grant access to unique strategies.
Today, I'll be highlighting three underrated ETFs from Canadian fund managers that are listed on the NEO exchange. Each one of these ETFs has less than 500 million in AUM and possesses some unique features that I think make them worthy of investor consideration.
Scotia Canadian Large Cap Equity Index Tracker ETF (NLB:SITC)
On the surface, SITC appears to be yet another ETF tracking large-cap Canadian equities weighted by market cap. This ETF competes with industry heavyweights like the long-standing iShares S&P/TSX 60 Index ETF (XIU), sharing many of the same top holdings and posting similar historical performance.
However, SITC has one feature that makes it stand out in my opinion: its ultra-low expense ratio. The ETF currently charges just 0.03%, which is as low as it gets in the Canadian ETF industry. A $10,000 investment in SITC would only cost an investor around $3 in annual fees.
Mackenzie US TIPS Index ETF (QTIP)
As high inflation wreaked havoc throughout 2022, investors fled equities and fixed-income in search of inflation-resistant assets. Inflows into traditional inflation-fighting assets like commodities and gold ETFs soared as a result, but one asset class escaped the attention of Canadians: TIPS.
TIPS stands for "Treasury Inflation-Protected Securities". They are U.S. government bonds that have their price (and thus coupon payments) indexed to inflation. Because it can be hard, if not impossible, for Canadians to purchase individual TIPS, an alternative is QTIP, which costs a 0.17% expense ratio.
Invesco S&P 500 High Dividend Low Volatility Index ETF (UHD)
2022 also showed investors the weaknesses of a traditional long equity index strategy. When the index takes a dive, your portfolio does too. In contrast, "smart beta" approaches that targeted different equity factors had a great year. A great example is UHD, which targets high-dividend, low-volatility U.S. stocks.
Compared to the Vanguard S&P 500 Index ETF (CAD-Hedged) (VSP), the currency-hedged version UHD.F returned 0.43% in 2022 with all dividends reinvested, while VSP lost 19.25%. For investors looking for a more defensive equity holding, UHD could be ideal.
3 Underrated NEO-Listed ETFs to Watch: Summary
Many investors tend to gravitate towards well-known and heavily marketed ETFs with large AUM, assuming that they must be the best option due to their popularity. But this thought process overlooks the potential benefits of considering less popular ETFs with lower AUM and investor attention.
By investing in less popular ETFs, investors can potentially gain access to unique opportunities that are often overlooked by the mainstream market. These ETFs may provide exposure to niche markets or emerging themes that have yet to be fully discovered, offering the potential for higher returns.
Investors who are willing to look beyond the crowd and do their due diligence on lesser-known ETFs may be rewarded in the long run. As with all investment decisions, the key to success is keeping an open mind, exploring all possible alternatives, and seeking opportunities wherever they arise.
This content was originally published by our partners at the Canadian ETF Marketplace.