Over the last several years, the number of Canadian-listed exchange-traded funds (ETFs) has exploded. There are 1,300+ domestic ETFs to choose from, doubled from just a few years ago.¹ Despite the ever-expanding number of ETFs, traditional core ETFs, most of which track well-known indexes such as the S&P 500 and S&P/TSX Composite Index, remain a popular choice for investors. Core products – including core equity, core fixed income, and core asset allocation ETFs – represent just under half of all ETF assets in Canada.²

Core funds are the ETFs that offer broad, indexed exposure to an asset class or geographical region and they usually track a popular index. They’re also generally market capitalization-weighted, and they have a broad range of portfolio applications.

Typically, people will build their portfolio with just a handful of ETFs – Canadian, U.S., international, and emerging market equities and bonds.

One of the main reasons why core ETFs continue to garner large inflows is due to their ability to capture broad market performance, explains Kedwell. Sector, thematic or factor-based funds, like dividends or low-volatility, can experience periods of outperformance and underperformance relative to their broader market benchmark, while core funds simply replicate the market they’re tracking. Hypothetically, if overall earnings growth averages 7% a year, over say five to 10 years, then “as long as the valuation is not too far from average, the odds of capturing that growth are pretty high using core ETFs,” he says. Capturing that growth is a key component for investors and advisors as they plan for the future. While both stock and bond performance has been challenging in 2022, such periods are a good reminder of the importance of a long-term approach. “The longer the time horizon an investor has, the better the prediction they can make about future returns. Core portfolios can then really line up with that prediction.”

At the same time, core ETFs are some of the most cost-effective funds on the market, as they can achieve scale by tracking broad indexes. “What ETFs have done is allow investors to capture market return in a portfolio in a very inexpensive and efficient way,” says Leong.

RBC iShares offers 32 core options, ranging from broad market equity, fixed income, asset allocation, as well as dividend ETFs that can be used as core holdings. For instance, the iShares Core MSCI Canadian Quality Dividend ETF (XDIV) provides Canadians an easy way to hold stocks that have above-average dividend yields, and the iShares Core Equity ETF Portfolio (XEQT) gives investors an opportunity to own an all-in-one equity portfolio that’s diversified across multiple sectors and regions. Currency hedged and U.S. dollar versions of core ETFs are also available.

How advisors and investors might use these funds will depend on risk tolerance, time horizons and/or retirement goals. Having a full complement of core options makes it easier to build a more personalized long-term portfolio. “With 32 core ETFs, you can build a portfolio using your own recipe, or you can buy a pre-built portfolio off the shelf,” says Leong. “We often see investors doing both, starting with something pre-built, but then using one or two additional ETFs to tweak and adjust based the on their needs.”