Too many ETFs? Here's how to cut through the noise and start investing

Yahoo

2 days ago

With more than 1,600 exchange-traded funds (ETFs) now trading in Canada — and more being launched each month — some investors don't know where to begin. The country is on track for another record year of ETF launches in 2025, adding to an already complex marketplace.
Investors have 'analysis paralysis. They quite honestly don't know where to start,' says Anita Bruinsma, financial planner and investment coach at Clarity Personal Finance In Toronto. 'I'm finding with my clients that they just kind of give up, and they often leave their money sitting in cash because they get totally overwhelmed.'
As at May 31, there were 1,628 ETFs in Canada, according to National Bank Research. So far in 2025, 155 new ETFs have launched while 24 have been delisted. In 2024, Canada saw 224 new ETF launches and 61 delistings.
The growing number of options is being driven by several trends, says Tiffany Zhang, director of ETFs and financial products research at National Bank Financial. These include an uptick in actively managed ETFs, an increase in the number of issuers, and more niche products targeting specific market exposures — more issuers have been launching CLO (collateralized loan obligation) ETFs, for example.
Bruinsma sees it as a business strategy — banks and investment companies are focused on creating new, differentiated products that will attract investor dollars. The move to actively managed ETFs is, in part, because companies can charge higher fees, and ultimately make more money, she adds.
Here, experts provide a few tips to get started:
Bruinsma encourages a passive investing approach using ETFs that track broad market indices like the S&P 500, the TSX or the EAFE Index.
There may be many ETFs available, but if you narrow it down to 'just the true passively managed, boring, plain vanilla ETFs,' the list becomes much more manageable. 'It actually becomes very easy to pick,' she added.
She warns that actively managed ETFs can add unnecessary risk. The risk with an actively managed ETF is that someone's picking the best performers — how confident are you that they're picking the right ones?, she says.
'No one has a crystal ball. No one can say which of these stocks are going to do the best.'
For example, some investors may be tempted to put 80 per cent of their money into a sector-specific ETF, like one focused on U.S. technology, which leaves them vulnerable if that sector or its key companies underperform. A broad market ETF, like one tracking the S&P 500, provides more diversification across sectors and reduces the risk, Bruinsma says.
Another common mistake among new investors is buying too many ETFs, which can lead to overlapping investments, says Jason Heath, managing director of Markham, Ont.-based Objective Financial Partners.
Take a look at three of the biggest ETF companies by assets in Canada — iShares, BMO and Vanguard, he says.
iShares and BMO have ETFs that track the S&P/TSX Capped Composite Index — their ETFs are iShares S&P/TSX Capped Composite Index ETF (XIC.TO) and BMO S&P/TSX Capped Composite Index ETF (ZCN.TO). Additionally, Vanguard has its Vanguard FTSE Canada All Cap Index ETF (VCN.TO) that tracks the FTSE Canada All Cap Domestic Index, a very similar index, he adds.
The top eight holdings are the same for each ETF. Heath says. Ten-year performance has been 8.96 per cent, 8.96 per cent, and 8.87 per cent, respectively, through May 31.
'The point? You don't necessarily need to diversify your ETFs if they own the same things,' Heath said. 'You can even buy a single all-in-one (a.k.a asset allocation) ETF that gives you bonds as well as Canadian, U.S., and international stocks in a single ETF.'
It's easy to get caught up in the strength of the U.S. stock market, especially over the past decade, but Bruinsma cautions against leading too heavily on U.S. ETFs.
For example, an investor might buy an S&P 500 ETF, then add a NASDAQ-100 ETF — both U.S.-focused — along with a global ETF that also has heavy U.S. exposure, and then layer on yet another U.S.-focused fund.
The U.S. has been a top performer, but it hasn't always been, Bruinsma says. Canada and Europe, for example, have also outperformed at different times, she adds, noting that markets move in cycles. And when those cycles occur, investors may sacrifice returns by having too much invested down south.
The country could be exposed to an economic slowdown or crisis, Bruinsma adds.
"You always want to make sure that you have a little bit invested everywhere so that you're not exposed to one particular event happening.'