Best Canadian ETFs 2026: What the TSX Actually Gives You
August 19, 2026 · 2 min read · by ETFWinner Research
A TSX index fund is the standard Canadian core holding. It is also one of the most concentrated developed-market indices in the world, and that shapes everything.
Canadian investors are told to start with a broad TSX fund, and that is reasonable advice. What often goes unsaid is what the TSX is made of — because unlike the US market, the Canadian index is dominated by two sectors, and owning it is closer to a sector bet than most people realise.
The two funds most portfolios start with
XIC at 0.06% tracks the capped composite — several hundred Canadian companies. XIU at 0.18% tracks the 60 largest. In practice they behave very similarly, because the largest 60 dominate the composite by weight anyway.
The cheaper, broader fund is the sensible default. The narrower one exists largely for its liquidity, which matters to institutions and not to a monthly investor.
| Ticker | Fund | Expense | YTD | Yield | AUM |
|---|---|---|---|---|---|
| XIC | iShares Core S&P/TSX Capped Composite Index ETF | 0.06% | 13.00% | 2.40% | CAD 23.5B |
| XIU | iShares S&P/TSX 60 Index ETF | 0.18% | 12.50% | 2.85% | CAD 21.2B |
Financials and energy are the index
Canadian banks, insurers, pipelines and producers make up an enormous share of the TSX. That gives the index a high dividend yield and a strong link to commodity prices and interest rates — and very little exposure to the technology and healthcare sectors that drive returns elsewhere.
This is why a Canadian portfolio that is 100% domestic is not diversified in any meaningful sense. It is a leveraged position on Canadian banking and resource extraction, held by someone whose salary and house are probably also tied to the Canadian economy.
The income side
Because financials and pipelines pay well, Canadian dividend funds yield generously — VDY at 3.80%. The catch is the same concentration in a more concentrated form: a Canadian dividend fund is often a bank fund with extras.
On the fixed-income side, ZAG at 0.09% yielding 3.35% does the standard aggregate bond job, dominated by federal and provincial issues.
| Ticker | Fund | Expense | YTD | Yield | AUM |
|---|---|---|---|---|---|
| VDY | Vanguard FTSE Canadian High Dividend Yield Index ETF | 0.22% | 8.50% | 3.80% | CAD 6.65B |
| ZAG | BMO Aggregate Bond Index ETF | 0.09% | 2.50% | 3.35% | CAD 11.87B |
What a sensible Canadian core looks like
- A broad TSX fund for the home market, sized well below 100% of equities.
- A US or global fund to add the sectors the TSX barely has.
- Bonds in Canadian dollars, because your liabilities are in Canadian dollars.
- Optionally a dividend fund — but check its bank weight before treating it as diversification.
ETFs mentioned in this guide
iShares Core S&P/TSX Capped Composite Index ETF
iShares S&P/TSX 60 Index ETF
Vanguard FTSE Canadian High Dividend Yield Index ETF
BMO Aggregate Bond Index ETF
Frequently asked questions
What is the best Canadian index ETF?
A broad capped-composite fund is the usual core because it is cheap and covers the whole market. The 60-stock version behaves similarly since large companies dominate both.
Why is the TSX so concentrated?
Financials and energy make up a very large share of Canadian listed market value, while technology and healthcare are comparatively small.
Should a Canadian investor hold only Canadian ETFs?
Rarely. Canada is a small share of global market value and its index is heavily weighted to two sectors, so international exposure adds the diversification the TSX cannot.
Do Canadian dividend ETFs hold mostly banks?
Typically they have a large financials weight, because Canadian banks and pipelines are among the highest and most consistent dividend payers on the index.