The most "famous" Canadian ETF without a doubt is the iShares S&P/TSX 60 Index ETF (XIU), and for a good reason. This ETF played a critical role in the genesis of the ETF industry, owing to it being the first ETF launched in the world in 1990. Thanks to this first-mover advantage, XIU has enjoyed much higher assets under management (AUM) than other Canadian ETFs, currently sitting at $11 billion.
The ETF is also a popular trading vehicle for institutional investors and traders due to its large size and liquidity. While the S&P/TSX Composite is Canadas's benchmark equity index, some still gravitate towards the S&P/TSX 60 thanks to XIU. Overall, the XIU has become a staple in many portfolios and has played a significant role in democratizing access to the Canadian equity market.
However, XIU isn't the only option for Canadian market exposure. Thanks to the voracious appetite of Canadian investors for domestic stocks, a wide variety of competitors have popped up. Most of these competitors cannot beat XIU on volume or AUM but can be based on fees. This is because XIU actually charges a rather hefty expense ratio of 0.18%.
By using the NEO ETF screener, I was able to find a list of 168 Canadian equity ETFs ranked in descending order by expense ratio. Here's a look at the three most cost-effective Canadian equity ETF competitors to XIU available on the market right now.
Scotia Canadian Large Cap Equity Index Tracker ETF (NLB:SITC)
A great low-cost, NEO-listed alternative to XIU on the market right now is SITC, which sports an expense ratio of just 0.06%, clocking in at one-third that of XIU's. For a $100,000 portfolio, this works out to around $30 in annual fees, whereas XIU's 0.18% expense ratio would incur around $180 in annual fees.
In terms of composition, SITC doesn't track the same index as XIU, despite having similar holdings. Rather, it tracks the Solactive Canada Large Cap Index, which also holds 60 large-cap Canadian stocks, albeit with slightly different rules than XIU. In practice, the two are functionally identical.
Like many Canadian ETFs, the top holdings in SITC comprise an assortment of bank, pipeline, and railway stocks. Given that SITC and XIU have different indexes but similar historical performance, the two could be possible tax-loss harvesting partners in a taxable brokerage account.
Mackenzie Canadian Equity Index ETF (TSX:QCN)
Investors looking for broader exposure to mid and small-cap Canadian equities may find XIU lacking due to its large-cap focus. Notably, XIU's holdings exclude many REITs. Investors trying to index the entirety of the Canadian equity market may therefore prefer an alternative like QCN.
This ETF tracks the Solactive Canada Broad Market Index, which as its name suggests currently holds a market-cap weighted portfolio of 308 large, mid, and small-cap domestic equities. Due to its market-cap weighted approach, the top holdings of QCN mirror those of SITC and XIU.
QCN doesn’t have nearly as much AUM as XIU, but it isn’t a slouch either. Investors have flocked to its low 0.04% expense ratio, and the ETF currently sits at a comfortable $1.15 billion in AUM. For those who like staying hands off, QCN is also eligible for automated dividend reinvestment (DRIP).
Horizons S&P/TSX 60 Index ETF (HXT)
Investors looking for name-brand exposure to the S&P/TSX 60 really only have one other alternative to XIU outside of trading index futures. In this case, the candidate is HXT, which tracks the index via synthetic replication. By this, I mean that HXT doesn't actually hold the underlying index stocks.
Rather, the ETF gains exposure to the total returns of the S&P/TSX 60 via total return swaps with a counterparty. If you're unfamiliar with these types of ETFs, I suggest giving this guide a read. In short, HXT's structure allows it to pay no dividends and incur very low tracking error.
The intended use for HXT is as a highly tax-efficient holding in a taxable brokerage account given the lack of taxable distributions. However, some investors use HXT as a core Canadian holding in tax-advantaged accounts anyways simply due to its low 0.04% expense ratio.
This content was originally published by our partners at the Canadian ETF Marketplace.