Best ETFs for 2023: Best U.S. equity ETFs for 2023

If the Canadian market’s skew towards banks and oil producers gives some investors pause, the U.S. market’s Achilles heel is its weighting to technology. Information technology stocks represent more than a quarter of the cap-weighted S&P 500 index, even after a big drop last year. 

That also excludes mega-caps that most of us would consider tech stocks, like Amazon.com Inc., Alphabet Inc. and Tesla, Inc., which are classified in other sectors (consumer discretionary, communication services and health care  respectively, believe it or not).

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The best U.S. ETFs available for Canadians

Technology bias did not serve investors well last year, as rising interest rates skimmed the froth off long-duration assets of all kinds, including tech stocks. It sparked some debate among our panellists over the wisdom of diverging from basic cap-weighted funds, which tend to have the lowest fees, in favour of slightly more expensive equal-weighted and factor ETFs, such as low-volatility, value and dividend funds.

“Canadian investors may want to look at an equal-weight S&P 500 fund, which changes the risk/return/exposure profile meaningfully,” suggested panellist Yves Rebetez, who is convenor at ETFinsight Conference and partner at Credo Consulting Inc. His pick for this purpose is the Invesco S&P 500 Equal Weight Index ETF (EQL). The BMO Low Volatility U.S. Equity ETF (ZLU) and iShares Edge MSCI Min Vol USA Index ETF (XMU) likewise attracted votes from our panellists as reasonably priced alternatives to the standard indices with a low beta factor. Low beta stocks tend to be less volatile than the markets as a whole.

Ultimately, though, our panel’s only unanimous picks among U.S. equity funds were low-cost, cap-weighted index ETFs, iShares Core S&P U.S. Total Market Index ETF (XUU) and Vanguard U.S. Total Market Index ETF (VUN). Also highly rated by the panel, Vanguard S&P 500 Index ETF (VFV) offers an unhedged pure play on the S&P 500, the world’s most closely watched index. 

Canadians who invest in these funds can be assured they are neither paying too much in fees nor missing out on the proven long-term performance of the benchmark, the hallmarks of passive index investing.

Read more on investing:

• Tax planning for Canadians who invest in the U.S.
• For Canadians living abroad, is it worth investing in foreign ETFs?
• The best TFSAs in Canada
• The best RRSP investments

About Michael McCullough

Michael is a financial writer and editor in Duncan, B.C. He’s a former managing editor of Canadian Business and editorial director of Canada Wide Media. He also writes for The Globe and Mail and BCBusiness.

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