3 underrated Canadian ETFs to keep on your watchlist
These funds are smaller and not as well known, but are certainly worth considering.
In Canada, the "Big 3" ETF managers measured by total assets under management (AUM) are currently Vanguard, BlackRock iShares, and BMO Global Asset Management.
Their ETF lineup, particularly the index and asset allocation options have proven highly popular with Canadian investors thanks to a combination of low costs, aggressive marketing, brand-name recognition, and first-mover advantages.
That being said, investors willing to consider boutique ETF managers with smaller AUM might be delighted to find some highly effective and well-performing funds in their roster. Today, I’ll be profiling three ETFs with less than $300 million AUM that deserve your attention.
Purpose Diversified Real Asset ETF (PRA)
In my opinion, PRA is one of the best hedges against inflation a Canadian investor can consider for their portfolio. Rather than just focus on commodity futures or energy sector stocks, PRA uses a diversified methodology by weighing its underlying assets by risk to ensure equal contributions to volatility.
The fund holds equities and futures contracts across five industries: agriculture, real estate, energy, precious metals, and base metals. All of these are designed to perform well under inflationary circumstances and hold a low correlation to equities and bonds.
Year-to-date, PRA is up 12.05%, with a 7-year annualized return of 8.15%. Despite its high expense ratio of 0.91%, I think its performance this year, and historically, warrants close consideration, especially for investors hunting for a hedge against the next bout of inflation.
Horizons Canadian Utility Services High Dividend Index ETF (UTIL)
UTIL isn’t your typical Canadian utilities index sector fund. In fact, it’s more of an infrastructure fund, considering its exposure to not only utility companies, but also pipeline and telecommunication companies, by tracking the Solactive Canadian Utility Services High Dividend Index.
These types of companies tend to have low beta and high dividend yields, which can make them excellent defensive core holdings. UTIL also employs screeners for minimum yield requirements, so income potential is maximized as much as possible.
UTIL doesn't have an expense ratio yet given its limited history but it charges a management fee of 0.50%. The ETF currently has $10 million AUM, but I expect that to increase given that its holdings are a Canadian dividend investor's dream team.
NBI Global Private Equity ETF (NGPE)
NBI investments has a slew of actively managed funds out there, and I previously profiled their liquid alternatives ETFwhich has performed very well in 2022. Of note is NGPE, which offers Canadian investors proxy exposure to global private equity investments.
Now, private equity as an asset class is normally limited to high net-worth investors. NGPE circumvents this by holding the shares of publicly traded private equity firms like Apollo, Blackstone, and KKR to name a few. It's not exactly pure private equity exposure, but it’s a reasonable approximation.
NGPE will outperform when the private equity sector does more deals than normal and generate stronger returns from their underlying investments. This happened in 2021, when the ETF returned 41%. In terms of fees, you're looking at a 0.63% expense ratio, which is fairly normal for an ETF of its class.
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