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When I first started to write about money management, mutual funds were the primary choice of many investors. They were widely available and offered portfolio diversification at what seemed a reasonable cost at the time.
They became so popular that for several years my annual Buyer’s Guide to Mutual Funds would shoot to the top of the best-seller lists as soon as the latest version was released in the fall.
But nothing lasts forever. Investors gradually discovered that high sales commissions and annual management charges were eating away at their funds’ profitability. Meantime, financial institutions were complicating matters by issuing several different versions of the same fund. A units, C units, F units, I units, etc. left investors confused and frustrated.
Thirty-five years ago, in March 1990, Canada gave birth to the world’s first exchange traded fund (ETF), the Toronto 35 Index Participation Units (TIPS). It tracked the performance of the largest 35 stocks on the TSX.
Unlike mutual funds, ETFs trade on a stock exchange and can easily be bought or sold with a phone call. Their management fees are generally lower – sometimes much lower – than those charged by mutual funds, leaving more profit for investors. Brokers quickly saw the advantage, and some offered discounted or even zero commissions on ETF trading.
At the outset, most ETFs were passively managed, meaning they tracked a specific index. That made them easy to understand. As for diversification, they offered the same advantages as mutual funds.
The mutual funds industry, which sold its product mainly through commissioned salespeople, fought back. It introduced deferred sales charge (DSC) funds, which gave investors the impression they could buy at zero commission. It took years for people to understand the negative effects of this illusion, and for securities regulators to take action to curb it. On June 1, 2022, sales of DSC funds were banned in Canada.
Still, while the advantages of ETFs were obvious, no one seriously expected them to challenge the dominance of mutual funds. They were seen as a fringe product.
Even today, mutual funds dominate in terms of assets under management. As of the end of June, the Securities and Investment Management Association (SIMA) reported that Canadian mutual fund assets totalled $2.34 trillion. ETFs were at $592.2 billion.
But here’s something interesting. Mutual fund net sales in June were $1.4 billion. The total for ETFs was $7.2 billion – more than four times higher than mutual fund sales and up 70% from the same time last year. Canadians are voting with their wallets.
That’s not an outlier. Year-to-date net sales totals for mutual funds to June 30 were $17.1 billion. The ETF total was $55.8 billion. In the same period of 2024, ETF net sales were $32.4 billion. Mutual funds recorded net redemptions of $4 billion. The trend line is clear.
The downside is that the growth in ETF demand is bringing its own complications. There were 231 new Canadian ETFs launched in 2024, bringing the total at year-end to 1,542. And that only covers those that are based in this country. Anyone with a brokerage account has access to the thousands of U.S.-based ETFs that trade daily. Since many ETF investors are do-it-yourselfers, that’s a lot to keep track of.
As with mutual funds, breaking down ETFs into categories and investing based on your personal goals can help zero in on which ones to consider. Here’s my approach to categorizing ETFs.
Low risk. These are places to hide your money if the pillars of the financial system are under attack. It includes money market funds, short-term bond funds, and high-interest ETFs.
Fixed income. The focus is on cash flow from fixed-income securities, like bonds or, rarely, preferred shares.
Balanced. These ETFs offer a mix of equities, fixed income, and cash. Asset allocation ETFs could be slotted in this group, although they are more aggressively managed.
Equity income. The main purpose is to generate cash flow by investing in stocks. Includes dividend and covered call option ETFs.
Equity growth. The goal is capital gains, achieved through stock market appreciation. Includes index ETFs, pure equity ETFs, and low-volatility funds.
Specialty: These funds invest in specific market sector, such as energy, agriculture, banks, resources, utilities, information technology, cryptocurrencies, gold, etc.
Leveraged: For gamblers only. These funds allow you to take long or short leveraged positions on movements in various commodities, such as oil, natural gas, silver, gold, or indexes like Nasdaq. They can generate huge gains, or equally huge losses.
The focus of my newsletters is on low to medium risk ETFs. We don’t recommend leveraged ETFs.
Because most ETFs consist of a basket of securities based on the fund’s mandate, it’s rare to find one that posts an unusually high return over a long period. A diversified portfolio makes it almost impossible to match or exceed the sky-high gains we have seen recently from stocks like Nvidia and Celestica. An ETF that generates an average annual gain of 10% over 10 years is doing very well.
That said, an occasional ETF may post high double-digit returns, for a short time, but don’t expect that to continue forever.
Following are updates on three ETFs recommended by my Internet Wealth Builder newsletter that are doing very well this year.
iShares S&P/TSX Global Gold Index ETF (TSX: XGD) tracks the performance of the index of the same name, less expenses. It invests in mining and royalty stocks, rather than bullion itself. The fund was up almost 68% year-to-date as of Aug. 14, but these are exceptional times for gold. The 5-year average annual compounded rate of return to July 31 was only 6.34%, so the big gains are very recent. The fund was started in March 2001 and has $2.6 billion in assets. The MER is 0.61%.
Holdings include some of the world’s top gold producers/streamers, including Newmont, Barrick, Franco-Nevada, Wheaten Precious Metals, and Agnico Eagle. There are 46 stocks in the portfolio.
Distributions are made quarterly, and they vary. The June payout was $0.143 per unit. Over the past 12 months, investors have received distributions totaling about $0.44, for a yield of 1.2%.
VanEck Uranium and Nuclear ETF (NYSE: NLR) tracks the performance of the MVIS Global Uranium & Nuclear Energy Index. The index includes companies involved in uranium mining and the building and maintaining of nuclear power facilities, as well as those that supply equipment and services to the industry. The fund was launched in August 2007 and has $2.2 billion in assets under management. The net expense ratio is 0.56%.
This ETF started the year slowly but began to surge in late April. The units are up about 43% for the year. It holds 28 stocks with the top five holdings accounting for nearly 40% of the assets. The top position is Constellation Energy, which accounts for 7.94% of the assets. Canada’s Cameco Corp. is number two, with 7.09% of the portfolio. Overall, Canadian companies make up over 16% of the total portfolio.
The fund makes one distribution a year, in December. Last year’s payment was $0.61 per unit. Distributions are treated as foreign income and are taxable unless the units are held in a retirement account, such as a RRIF. TFSAs do not qualify for a tax exemption.
The risk for this ETF is High. Many companies in the portfolio, including the Canadian holdings, are sensitive to movements in uranium prices. In 2024 uranium prices dropped by a third. Accordingly, the fund is for aggressive investors who want some exposure to the nuclear industry.
Amplify Video Game Leaders ETF (NYSE: GAMR) focuses on the burgeoning video game industry. The fund invests in global companies in the video gaming value chain, including game development, publishing, mobile and online games, GPUs, development platforms, supporting software, hardware, peripherals, and the metaverse. The fund was launched in March 2016. It currently has about $48 million in assets under management and an expense ratio of 0.59%. The ETF began a strong rally in March that has carried it to its current price. It’s ahead about 43% this year.
There are 21 holdings in the portfolio. The biggest bets are on Advanced Micro Devices (12.62%), Nvidia (10.8%), Meta Platforms (9.74%), Microsoft (9.45%), and Tencent Holdings (9.38%). Together, those companies account for 52% of the total assets.
The fund expects to make just one distribution this year, at the end of December. Based on history, it will be small. The main attraction of this fund is its capital gains potential.
Historic performance suggests investors should view this fund as high risk, although its top holdings are performing well at present. As such, it’s a good choice for investors seeking capital gains potential.
Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.
Follow Gordon Pape on X at X.com/GPUpdates and on Facebook at www.facebook.com/GordonPapeMoney.
For more information and details on how to subscribe to Gordon’s newsletters, go to www.buildingwealth.ca/subscribe.
Notes and Disclaimer
Content © 2025 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.
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