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Cheat Sheet

Exchange-Traded Funds For Canadians For Dummies

Although the world’s very first exchange-traded fund began trading in Canada on the Toronto Stock Exchange way back in 1990, Canadian ETFs have only truly exploded onto the mainstream investing landscape over the past few years. Thanks to the recession and today’s slow-moving market, many Canadians have ditched their advisors and are now buying low-cost ETFs. The benefits, of course, are straightforward: ETFs are usually cheaper than mutual funds and are a wonderful way to diversify your investment portfolio. In Canada ETFs are being used more and more in Registered Retirement Savings Plans and Tax-Free Savings Accounts, where many of Canada’s hard-working citizens store the bulk of their savings. If you’re wondering how ETFs can help make you money, then check out these helpful articles for quick statistics on the rising popularity of ETFs in Canada, the best Canadian brokerages to turn to in order to build your ETF portfolio, and a list of the top online resources for Canadian ETF investors.

Some Interesting Facts about ETFs in Canada

It’s hard to imagine that only a few short years ago, the exchange-traded fund market in Canada was made up of only two providers! The following are a few facts and figures that indicate how the Canadian ETF market compares with the mutual fund market and how rapidly ETFs are gaining in popularity with Canadian investors.

  • The amount of money invested in Canadian-based ETFs and mutual funds as of September 2012:

    • ETFs: $54 billion

    • Mutual funds: $811 billion

  • The increase in Canadian ETFs since 2006:

    • 2006: 32

    • 2012: 250

    • Percentage change increase: 681 percent

  • The number of Canadian ETF providers since 2006:

    • 2006: 2

    • 2012: 7

    • Percentage change increase: 250 percent

  • Total net assets growth in Canadian ETFs between 2006 and 2012:

    • 2006: $15 billion

    • 2012: $54 billion

    • Percentage change increase: 250 percent

Canadian Brokerages Offering ETFs

If you’re a Canadian investor considering tapping into the flourishing exchange-traded fund market, then you’re certain to have questions about which provider most fits your needs. Luckily, the following list takes the guesswork out of choosing your ETF broker. Here’s a quick overview of the major Canadian bank and non-bank brokerage houses currently trading in ETFs and a short summary of the pros, cons, and price structures of each provider.

TD Waterhouse

TD Waterhouse is the largest online brokerage firm in Canada. Although their fees are competitive, they’re not the cheapest of the bunch. If your household assets are more than $50,000, you’ll be charged a $9.99 flat-rate trading fee. If you make more than 150 trades a quarter, that fee will drop to $7 a trade. If you don’t trade frequently, or have less than $50,000 in household assets, you’ll have to pay more than $29 for trades of up to 1,000 shares.

One reason why TD Waterhouse is popular is that it has a ton of investment research information. It’s also got a nicely designed website that’s fairly easy to navigate.

BMO InvestorLine

There are a lot of good things to say about this popular bank brokerage firm. BMO InvestorLine’s got an attractive interface, easy-to-access research from Globe Investor, Morningstar, and MarketWatch, and two model ETF portfolios that will help newbie investors get off to a quick start. Its fees are similar to other firms, but it offers only two price points — $9.99 for the frequent trader or the person with a large account and $29 for everyone else.

InvestorLine has one feature that other brokerage houses don’t have: real-life advice. The service, called adviceDirect, gives Canadians stock and ETF picks and can answer investing-related questions on the phone, via e-mail, or through special tools on the website.

There is one catch, and — you can probably see where this is going — it’s fees. You have to have at least $100,000 in your account to use the service, and then you have to pay 1 percent of your assets’ worth to get access to that live advice. The percentage charged does go down with more money in your account, but be sure to keep costs in mind when using this program.

Scotia iTrade

Scotia iTrade has plenty of great tools and research to help you make money. The main advantage it has over its rivals is that it offers 50 free ETFs. Although that’s fantastic — American brokerages have been offering no-commission ETFs for years — it’s not quite as great as it may seem. The freebies are mostly old Claymore funds, which are now owned by iTrade. You can’t purchase stalwarts like XIC and XIU; most of the freebies are sector or country funds. You can buy the two popular iShares laddered bond funds, but most people won’t want to create a portfolio just out of these options.

If you want to buy something not on the list, then you’ll have to pay between $6.99 and $24.99 in trading fees.

RBC Direct Investing

This site from RBC is similar to the others. Its fees range from $6.95 to $28.95, and it’s partnered with Morningstar to offer stock, mutual fund, and ETF research. It also has several useful tools, including its Community tab, which allows Direct Investing clients to share ideas with one another.

CIBC Investor’s Edge

Much like the others, though CIBC Investor’s Edge is arguably not as good. It doesn’t offer U.S.-dollar registered accounts, and it lacks some of the tools that other brokerages have. Fees are comparable, ranging from $6.95 to $28.95.

Virtual Brokers

One of the non-bank brokerage firms, Virtual Brokers is a relative newcomer on the scene, launching in 2009. It was recently ranked the top brokerage firm in Canada by the Globe and Mail. Here’s the main reason to consider this site: All ETF purchases are free. Yes, you read that right. Any ETF you buy, Canadian or American, will cost you nothing.

You will pay a charge to sell, but it’s dirt cheap. You’re dinged $0.01 per share of anything that’s over $1. The minimum commission is $0.99, and the maximum is $9.99, well below what the banks charge.

Qtrade

It’s probably the most critically acclaimed non-bank brokerage of the bunch, and for good reason — Qtrade is user-friendly, it’s got great investment tools, and its fees are comparable, if not better than, the competitions’ (prices range from $9.95 to $19).

Best of all, it has 60 commission-free ETFs. Like iTrade’s freebie funds, most of the offerings are of the bond, sector, or international variety — the main domestic equity ETFs aren’t on the list — but it also offers 20 U.S.-based funds, such as the Vanguard Consumer Discretionary ETF and the SPDR S&P International Financial Sector ETF.

Questrade

The only broker than can beat Questrade’s cheap fees — stock commissions are between $4.95 and $9.95 — is . . . Questrade! In February 2013, the company announced that it would waive fees on every ETF purchased. It still charges its inexpensive commission on the sale of ETFs, but, like Virtual Brokers, every North America-listed fund will cost you nothing to buy. To top it off, Questrade also offers U.S.-dollar RRSPs, and there are no annual fees on registered accounts.

Other online brokers

Here are some additional online brokers you might want to check out:

  • Disnat: The online brokerage arm of Desjardins. Fees range from $9.95 to $29.

  • HSBC InvestDirect: Not much to write home about, other than its oddly numbered fees that range from $6.88 to $28.88.

  • National Bank Direct Brokerage: Similar to other bank brokerage firms on fees and features.

    Credential Direct: Only one thing to note here: Investors with $50,000 or more in assets have to pay a $19 flat rate. Everyone else offers $9.99 or less.

4 Top Canadian Websites for ETF Advice

More and more Canadian investors are checking out exchange-traded funds as a means of lowering their investment costs and diversifying their portfolios. Of course, finding accessible, trustworthy advice can be difficult; in the world of finance, there is often more misinformation than information circulating online. The following are some Canadian-specific websites you can rely on to keep you informed and up to date on ETFs and other investment issues:

  • MoneySense: Canada’s premier personal finance magazine is a big proponent of ETFs. The site is filled with plenty of must-read info on the index-tracking security, but you’ll also find insightful stories on other investing and finance issues.

  • Canadian Couch Potato: This blog, written by Toronto-based personal finance writer Dan Bortolotti, is a stellar source for Canadian ETF news and commentary.

  • Globe and Mail: Globe Investor’s ETF page offers useful news and performance information. Find out which funds are making money or losing big.

  • Morningstar: Thorough information on individual funds, along with Morningstar’s trademarked rating system.

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