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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

“ If you look at the actual usage of products, whether by assets under management, annual net sales or traded volumes on the exchange, core is a huge part of how investors and advisors use ETFs in overall portfolio construction. It is the original category in many respects, and still the most widely used. ”

Steven Leong

Head of Canada iShares Product, BlackRock

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.

“ You can think of core ETFs almost like your major food groups. You might have a taste for something out of the ordinary, but these are the servings that satisfy your long-term nutritional needs day-to-day. ”

Stu Kedwell

Co-Head of North American Equities

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.

1. Core ETFs for portfolio diversification

“Because of their low cost, core ETFs are a great tool to help advisors tailor portfolios to their clients’ investment objectives,” shares Leong. “For instance, say a client has a selection of 30 individual stocks in their portfolio, the advisor can complement these holdings using a core equity ETF that captures sectors and regions not covered by the portfolio. This allows the advisor to easily add diversification for the client’s portfolio and avoid concentration risk.”

2. Core ETFs for tactical allocation

Likewise, core ETFs make tactical moves easy. If changing interest rates are the concern, for example, advisors can look to modify their portfolio duration using a core fixed income ETF with a shorter duration. If the client is concerned about high stock valuations in certain geographies, the advisor can shift money to other geographies using core funds. “There are a lot of practical benefits to these ETFs,” says Leong.

3. Core ETFs for simplicity

Some core ETFs can be viewed as a pre-built “all-in-one” solution to provide a range of equity and fixed income exposure in one fund. They are a simple and easy way to access broadly diversified mix of investments, while allowing investors to align their risk tolerance and long-term investment goals.

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.”

1. Source: Morningstar, as of October 31, 2022.
2. Source: BlackRock. Data as of October 31, 2022.

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Disclosure


RBC iShares ETFs are comprised of RBC ETFs managed by RBC Global Asset Management Inc. and iShares ETFs managed by BlackRock Asset Management Canada Limited ("BlackRock Canada"). Commissions, trailing commissions, management fees and expenses all may be associated with investing in exchange-traded funds (ETFs). Please read the relevant prospectus before investing. ETFs are not guaranteed, their values change frequently and past performance may not be repeated. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional.




Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”). Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). TSX is a registered trademark of TSX Inc. (“TSX”). All of the foregoing trademarks have been licensed to S&P Dow Jones Indices LLC and sublicensed for certain purposes to BlackRock Fund Advisors (“BFA”), which in turn has sub-licensed these marks to its affiliate, BlackRock Asset Management Canada Limited (“BlackRock Canada”), on behalf of the applicable fund(s). The index is a product of S&P Dow Jones Indices LLC, and has been licensed for use by BFA and by extension, BlackRock Canada and the applicable fund(s). The funds are not sponsored, endorsed, sold or promoted by S&P Dow Jones Indices LLC, Dow Jones, S&P, any of their respective affiliates (collectively known as “S&P Dow Jones Indices”) or TSX, or any of their respective affiliates. Neither S&P Dow Jones Indices nor TSX make any representations regarding the advisability of investing in such funds.




MSCI and EAFE are trademarks of MSCI, Inc. (“MSCI”). XEC, XEC.U, XEF, XEF.U, XEH, XEM, XEU, XFC, XFI, XFF, XFS, XFS.U, XFA, XIN, XMI, XML, XMM, XMS, XMU, XMU.U, XMV, XMW, XMY, XWD, XAW, XAW.U, XFH, XDIV, XDU, XDU.U, XDUH, XDG, XDG.U, XDGH, XESG, XSUS, XSEA, XSEM, XQLT, XMTM and XVLU are permitted to use the MSCI mark and, as applicable, the EAFE mark pursuant to a license agreement between MSCI and BlackRock Institutional Trust Company, N.A., relating to, among other things, the license granted to BlackRock Institutional Trust Company, N.A. to use the indices. BlackRock Institutional Trust Company, N.A. has sublicensed the use of these trademarks to BlackRock Asset Management Canada Limited. XEC, XEC.U, XEF, XEH, XEM, XEU, XFC, XFI, XFF, XFS, XFS.U, XFA, XIN, XMI, XML, XMM, XMS, XMU, XMU.U, XMV, XMW, XMY, XWD, XAW, XAW.U, XFH, XDIV, XDU, XDU.U, XDUH, XDG, XDG.U and XDGH are not sponsored, endorsed, sold or promoted by MSCI and MSCI makes no representation, condition or warranty regarding the advisability of investing in XEC, XEC.U, XEF, XEF.U, XEF.U, XEH, XEM, XEU, XFC, XFI, XFF, XFS, XFS.U, XFA, XIN, XMI, XML, XMM, XMS, XMU, XMU.U, XMV, XMW, XMY, XWD, XAW, XAW.U, XFH, XDIV, XDU, XDU.U, XDUH, XDG, XDG.U and XDGH.




XBB, XCB, XCH, XFR, XGB, XGGB, XHB, XLB, XQB, XRB, XSB, XSH XSQ and XSU (collectively, the “iShares ETFs”) are not in any way sponsored, endorsed, sold or promoted by the London Stock Exchange Group plc and its group undertakings (collectively, the “LSE Group). The LSE Group does not accept any liability whatsoever to any person arising out of the use of the iShares Funds or the underlying data.




“FTSE®” "Russell® and “FTSE Russell®” are trademarks of the relevant LSE Group company and are used by any other LSE Group company under license.




® / TM Trademark(s) of Royal Bank of Canada. Used under licence. iSHARES is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. Used under licence. © 2023 RBC Global Asset Management Inc. and BlackRock Asset Management Canada Limited. All rights reserved.




Published on 6th January, 2023.




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® / TM Trademark(s) of Royal Bank of Canada. Used under licence. iSHARES is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. Used under licence. © 2025 RBC Global Asset Management Inc. and BlackRock Asset Management Canada Limited. All rights reserved.
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