What ETFs are best suited to the current environment?

With so many new ETFs on the market, it can be often be a challenge to determine which fund fits each client’s specific goals and risk tolerances. Increasing numbers of Canadians are buying ETFs, but are they buying the right ones?

“We generally find that Canadian investors are focused on Canadian and US stocks and are underweight investment in international markets,” said Steven Leong, Director, Head of Canada iShares Product at BlackRock Canada.

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“That also aligns our long-term macro view that growth in Europe, Japan and emerging markets has bit longer to run than in the US.”

For investors who realize the importance of adding some international equity exposure, Leong recommends the iShares Global Stock ex-Canada ETF (XAW), which provides “quick and easy” access to developed and emerging markets and US stocks.

“For an investor that already has significant Canadian and US exposure, which does tend to happen, we recommend two specific tickers: the iShares International Developed Markets ETF (XEF), which primarily covers Europe and Japan, and the iShares Global Emerging Markets ETF (XEC), which covers emerging markets in Asia and Latin America,” Leong said.

With interest rates starting normalize, many investors are wondering whether now is time to rejig their fixed income allocations. Given the current landscape, Leong recommends the iShares Conservative Strategic Fixed Income ETF (XSE), an actively managed fund with different types of fixed income exposure including government, corporate, and emerging market bonds.

“It can be a sensible type of product heading into a market environment where you want to be a little more choosy,” Leong said. “Having somebody managing the duration of the portfolio can help investors capitalize on market changes and interest rate fluctuations.”

When looking for a fund provider to work with, Leong encourages advisors to work with one of the big players rather than one of the “scrappy upstarts”. Leong has noticed a trend of advisors building ETF model portfolios for their clients and he doesn’t think it necessary for advisors to have working knowledge all of 500+ ETFs in the marketplace.

“We are seeing more advisors picking three or four different risk profiles that fit the majority of their clients. Then, they package together groups of ETFs into models for each risk profile,” Leong says. “It enables an advisor to scale up and means they can understand what their clients are holding and how their portfolios will respond to markets or other events without having to worry about the intricacies of hundreds of different accounts.”


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