Canada’s best ETFs: FundGrade A+® 2018 Award winners

April 15, 2019

In late January, Fundata presented its 2018 FundGrade A+® Awards at its annual Evening of Excellence held at The Globe and Mail Centre in Toronto. The awards are given to eligible mutual funds, exchange-traded funds (ETFs), and segregated funds, with seg funds ranked separately, and are based on up to 10 years of risk-adjusted performance to the end of 2018. ETFs were well represented at the awards with a total of 41 winners from seven ETF providers. "

In all, 6.2% of eligible ETFs won an A+ award while 4.9% of mutual funds and 4.7% of seg funds won the award. Among ETFs with the most impressive performance, we saw a diverse mix of strategies, including index-tracking funds, a rules-based low-volatility fund, an active dividend fund, and a covered call fund.

BlackRock Canada’s iShares had 15 ETFs that were A+ Award winners for 2018. Most impressive was the iShares MSCI World Index ETF (TSX: XWD), which has won the award for seven consecutive years. The fund has been a first-quartile performer in the Global Equity category for every time period from one to nine years and as of Feb. 28 has an average annual compounded rate of return of 12% since inception in June 2009. As the name suggests, the fund tracks the MSCI World Index, which consists of roughly 60% U.S. equity, 23% European equity, 13% Asia equity and 3% Canadian equity. The fund comes with an MER of 0.47%.

Bank of Montreal’s ETF group had 10 A+ Award winners in 2018. The BMO Low Volatility Canadian Equity ETF (TSX: ZLB) has won the award five times and was the top-performing fund in the Canadian Equity category over 5-, 6-, and 7-year periods including a 5-year annualized return of 11%, which was 5.5 percentage points better than the S&P/TSX Composite Index over that span. This came with a 5-year standard deviation of 7.5%, the sixth-lowest in the category. The fund aims to achieve low volatility by using a rules-based methodology, investing in low-beta Canadian stocks. The resulting top three holdings are Fairfax Financial Holdings, Emera Inc., and Intact Financial Corp. The MER is 0.39%.

Horizons ETFs won the A+ Award for five of its ETFs. The Horizons Active Canadian Dividend ETF (TSX: HAL) is a first-time winner of the award but has produced first-quartile returns in the Canadian Dividend & Income Equity category over every time period from one to nine years. The 3-year annualized return is 11.3%, far better than the category average of 8.3%. The fund’s portfolio consists primarily of Financial Services and Energy stocks with Enbridge Inc., Royal Bank of Canada, and Pembina Pipeline Corp. rounding out the top three holdings. Being an actively managed fund, the MER is slightly higher, at 0.79%.

First Asset, a subsidiary of CI Financial, garnered four A+ Awards in its product suite. The First Asset Energy Giants Covered Call ETF (TSX: NXF) proves that the covered call strategy can outperform with a 3-year annualized return of 10.5%, good for third-best in the Energy Equity category. The ETF uses the covered call strategy to lower volatility and provide downside protection by writing call options on a maximum of 25% of the fund. The underlying securities are 100% energy stocks. Again, this is an actively managed fund, so the MER is 0.71%.

Royal Bank of Canada boasted three A+ Award winners, all of which are target-date fixed-income funds. The RBC Target 2021 Corporate Bond Index ETF (TSX: RQI) ranked first out of 60 funds in the Canadian Short Term Fixed Income category with a 5-year annualized return of 2.9%. The fund tracks the FTSE Canada 2021 Maturity Corporate Bond Index, has an average credit rating of A, and a weighted average duration of 2.14, while holding primarily corporate bonds from Canadian Financial companies. The MER is 0.28%.

Invesco won three A+ Awards from its lineup. The Invesco QQQ Index ETF (TSX: QQC.F) tracks the performance of the NASDAQ 100 Index (CAD hedged) and has produced an annualized return of 16.8% since inception in June 2011. The fund resides in the U.S. Equity category and produced a 3-year annualized return of 19%, sixth-best in the category. The ETF holds about 55% technology stocks with the top three holdings being Apple Inc., Microsoft Corp., and Inc. The MER is 0.33%.

Vanguard had one A+ Award winner, the Vanguard FTSE Developed All Cap ex North America Index ETF (TSX: VI). The ETF is in the International Equity category where it is ranked eighth over a 3-year period, with an annualized return of 12.5%. Replicating the FTSE index, the top sectors in the fund are Financial Services at 18.1%, Consumer Goods at 17.7%, and Healthcare at 12.1%. The top three holdings are Nestlé SA, Royal Dutch Shell plc, and Samsung Electronics Co. The MER is 0.23%.

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