Best ETFs for 2023: Desert-island ETF picks

In the past editions of the “Best ETFs in Canada,” the desert island category offered our panellists the opportunity to highlight out-there investment ideas and diversifiers that would never otherwise make it through our screening process. For 2023, perhaps chastened by the markets’ drubbing last year, the judges took a more conservative line, in many cases opting for funds that might fit in the core part of an exchange-traded fund (ETF) investor’s portfolio—or even take the place of an entire portfolio. Just give some thought to how these funds complement or possibly overlap with your other allocations before clicking “buy.” Another theme is factor-based ETFs that narrow down an ETF’s holdings rather than simply buying the whole market.

Our panellists’ best desert-island ETF picks:

Avantis International Small Cap Value ETF (AVDV): Ben Felix

A returning pick, AVDV holds a broad collection of small-cap companies from developed countries outside of the U.S. Felix likes small-cap value stocks because “they have higher expected returns than the market.” He adds: “This is true both theoretically and empirically. The theoretical basis for the higher expected returns of small-cap value stocks is that they are riskier, so allocating them does not make sense for everyone.” The fund trades on the NYSE Arca exchange, so trades might cost you more than it would with Canadian-listed ETFs trading in Canadian dollars.

DFA Dimensional US Small Cap Value ETF (DFSV): Cameron Passmore

Dimensional Fund Advisors’ products are a favourite because they’re designed based on academic asset-pricing literature and take five compensated risks into account, says Passmore. That includes market, company size, relative price, profitability and investment risks. DFA increases the weights of its securities that have exposure to these risks, which “results in a more reliable expected return,” he says. “DFSV is a small-cap value ETF that delivers deep exposure to multiple risk factors.” Again, this is a US-listed fund, so higher trading fees may apply.

Horizons Gold Yield ETF (HGY): Yves Rebetez

Gold recently crossed the psychologically important USD$2,000-per-ounce threshold and thinking strategically, Rebetez believes there’s more upside to come. An anticipated pause from the US Federal Reserve should weaken the US dollar, which usually trends in the opposite direction as the precious metal. Plus, gold is traditionally a haven and inflation hedge in precarious times. “HGY is a play on the above, but one which, in exchange for some upside, yields around 6%, which can then be DRIPped [reinvested], compounding over time and driving baseline growth,” he says. The 6% yield comes from covered call writing, an option strategy meant to reduce downside risk and provide income.

TD One-Click Moderate ETF Portfolio (TOCM): Dale Roberts 

“Being in semi-retirement, I look for a balanced approach,” Roberts says. “I like this TD One-Click Portfolio. It is a 60/40 balanced portfolio with a slight factor tilt with some low volatility, a tech inclusion and a global quant addition. It’s missing dedicated inflation fighters, but it’s impossible to cover all [your needs] in retirement with one ETF.”

Horizons Growth TRI ETF Portfolio (HGRO): Mark Seed

Instead of going out on a limb, Seed’s choice this year is an all-in-one fund for investors looking to work on their core. “If I had to pick just one fund, and only one fund, for tax-efficient investing in a taxable account and to hold in all other registered accounts, HGRO might be it,” he says. 

BMO Low Volatility US Equity ETF (ZLU): Ioulia Tretiakova

The US equity market is the elephant in the room. This one country represents more than 40% of global stock market capitalization. Yes, its valuation seems high, but most years it outperforms other regions and provides most of your portfolio’s growth, did you notice? Tretiakova likes ZLU for exposure to the U.S., only “with the dampened downside of the low-volatility factor.” This ETF’s methodology selects the 100 least market-sensitive stocks from the universe of US large cap stocks.

Horizons Nasdaq 100 Index ETF (HXQ.U): Mark Yamada

A world with an aging population and climate challenges will increasingly rely on information, energy and biomedical technology for solutions. “The NASDAQ 100 provides diversified exposure to technology while HXQ.U provides the ultimate set-it-and-forget-it total return solution while sitting on a desert island,” Yamada reasons. “No worries about paying taxes, reinvesting dividends, or rebalancing currency and you can’t see volatility for the sand and sunshine.”

Watch: ETF Academy Lesson 9

Read more on investing:

• The best online brokers in Canada
• A guide to the best robo-advisors in Canada
• 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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