Many investors tend to invest in mutual funds or stocks. These can yield great results, but they can also be expensive and come with a high risk. Exchange-traded funds, on the other hand, tend to offer more diversity and thus more room for success.
Exchange-traded funds(ETFs/ETF) are a type of investment that includes stocks, bonds, and commodities. They are similar to mutual funds but trade like stocks (see also ‘How to Trade Options in Canada’ post).
Not only are ETFs more diversified, but they can also be cheaper in many ways than mutual funds and stocks (see here how to find undervalued stocks).
They are also less of a risk. This is because if a company you have stock in fails, that entire stock will suffer. If you have an ETF with stock in that company, the rest of your ETF will make up for your losses (see also best dividend ETF in Canada).
ETFs are split into different sectors, so you have plenty of options.
ETF Sections Explained
Sector ETFs are exchange-traded funds from specific industry sectors. Industries range from real estate, technology, health care, oil, gold, consumer staples, consumer discretionary, etc.
Sector ETFs tend to focus on US stocks, but can sector ETFs can expand globally. Even if they are US stocks, Canadians can still invest in sector ETFs. Sector ETFs are popular among investors for hedging and speculating.
We’re going to take a look at 13 different sectors in Canada so you can have a better understanding of which ETFs you should invest in. Moreover, you can take a look at what the best Canadian bank ETFs are, too.
ETFs for Oil
There has often been good money to be made in the oil sector. Trading oil futures yourself, however, can be confusing. ETFs for oil are thus a better option for most investors. Buying ETFs for oil will allow investors to have shares of oil-producing companies. The higher oil prices are, the more your shares will be worth. Additionally, the best preferred shares are dedicated to Canadian oil and gas companies, too.
There are plenty of gold stocks in Canada. So many in fact, that choosing one can be hard. Similarly, purchasing your own physical gold has practical limitations. Buying gold ETFs is thus a better option for most Canadians. It will help increase your exposure to the benefits of owning gold, with less hassle, and lower risk.
ETFs Crude Oil
Here are some of the highest rated crude oil ETFs available in the crude oil sector in Canada.
- Horizons NYMEX Crude Oil ETF (HUC)
- Horizons BetaPro NYMEX Crude Oil Bull Plus ETF (HOU)
- Auspice Canadian Crude Oil Index ETF (CCX)
- United States Oil Fund, LP (USO)
ETFs Natural Gas
Two of the most popular natural gas ETFs available in Canada are Horizons Natural Gas and Canadian Natural Gas. Both are great options for investors looking to get into the natural gas sector in Canada.
Investing in copper in Canada has died down, but experts say the sector could be making a comeback. Canadians are starting to demand a cleaner, greener society. Copper can help with that as it is used in electric vehicles as well as wind and solar power technology. So, investing in copper ETFs now would be a good plan for investors.
ETFs by Industry
ETF sectors not only include physical items such as copper, gold, and coffee but industries as well. The most popular industry to invest in is technology. Technology is constantly growing, and so are the investments in it. Health care and real estate are a close second and third. People will always need health care and real estate, so they are solid investments.
You may not know this, but after crude oil, coffee is the second-most traded commodity in the world. Many people rely on coffee around the world, so investing in it is almost infallible. Investing in coffee ETFs is the best way to go rather than in mutual funds or stocks.
ETFs Physical Gold
As we discussed earlier, investing in physical gold does not always yield the best results. Most gold ETFs won’t even offer physical gold. That being said, it is available from Sprott Physical Gold Trust, Royal Canadian Mint – Canadian Gold Reserves, and Purpose Gold Bullion Fund.
Unlike regular ETFs, bond ETFs focus solely on the bonds sector. They trade similar to stocks on the stock market. This is one of the best ways to invest in a variety of bonds at one time. Choose from short term bonds, high yield, global, corporate, or emerging market.
Silver and gold are ETFs belong to similar sectors, so it’s no surprise that both are often available hand in hand. iShares Silver Trust, Sprott Physical Silver Trust, Horizons Silver, Global X Silver Miners, and ETFMG Prime Junior Silver are popular ETFs in the silver sector. Silver stocks – see post – are also a great way to invest in companies that are mining to diversify your investments.
ETFs Emerging Markets
Many of the popular companies we’ve discussed already offer ETFs in the emerging markets sector. Notably, Vanguard, iShares, and Horizons.
ETFs Renewable Energy
As we mentioned before, Canadians want a greener country. Renewable energy is one of the ways of achieving that. So, investing in the renewable energy sector now is a good idea. ETFs like Invesco WilderHill Clean Energy ETF and First Trust NASDAQ Clean Edge Green Energy Index Fund is a good place to start (see also ‘NASDAQ ETF Canada‘).
The energy sector – see best energy ETFs – is one of the biggest sectors offering exchange-traded funds. This is because the energy sector consists of renewable energy, coal, natural gas, oil, and nuclear energy. Also, everyone needs energy in some form, so it is a consistent investment to make.
The Most Common ETFs
Have you been wondering what the most common ETF sector in Canada is? Here are the top ten.
- Real estate
- Consumer discretionary
- Consumer staples
As for specific ETFs, anything from Vanguard and iShare tends to be a safe bet. Whatever sector you are looking for, Vanguard and iShare probably offer it. If you look at any list of the best ETFs in Canada, it is likely that Vanguard and iShare will be there. So, you don’t need to only take our word for it.
The Bottom Line
ETFs, exchange traded funds, are becoming increasingly more popular as investors are starting to see the value of having a diverse portfolio with low management costs. Investing solely in a stock, bond, or mutual fund is limiting. ETFs, however, combine all of these investment types into one.
When choosing what ETF to invest in, choosing a sector is a good place to start. An industry sector such as technology, healthcare, and real estate tend to be safe bets that are constantly growing. The energy sector is another good option as it is a resource we will always need.
It is just important to remember that the more popular a sector or, the more it yields, the more it will cost for you to invest in.
The ETF industry is huge, especially in Canada. This often makes investing in ETFs intimidating. But, if you are interested in investing in ETFs, the first step you should take is to find a broker. Online brokers such as Questrade or Qtrade are a great place to start. Join the $122.9 billion industry and start investing in ETFs today!