The return potential of an ETF cannot and should not be compared to an individual growth stock. As a basket of assets, it’s naturally weighed down by the multitudes of assets contained within. And if an ETF leans too heavily towards one or two securities, it would lose its diversification advantage (even within a sector). So, that’s a natural trade-off.
However, there are still many ETFs that offer a healthy capital-appreciation potential, and three such ETFs that grew over 70% in the last five years should be on your radar.
Image source: Getty Images
An ETF by TD
While Toronto Dominion is not as well known when it comes to ETF as other banks, its TD US Equity Index ETF (TSX:TPU) is definitely worth looking into. It comes with a minimal management fee (max) of 0.06% and follows a huge basket of U.S. assets (502 individual companies). Most of them are from the U.S., and a handful are from Europe.
This international exposure makes the ETF ideal to hold when the local markets are not performing very well. But the primary reason to consider this fund is its generous return potential. If you had invested $10,000 in the fund five years ago, you would be sitting on over $19,000.
As a well-diversified ETF following a relatively faster market than the TSX, the U.S. Equity index ETF can be held for solid growth in your RRSP or TFSA for the long term.
An ETF by BMO
BMO MSCI USA High-Quality Index ETF (TSX:ZUQ) is another U.S.-facing ETF with a relatively smaller basket of assets. All of the holdings within this ETF are from the U.S., and there are about 125 of them, and the top five make up more than 20% of the total weight. They include three tech giants and two healthcare companies.
This index differs from most others that simply have market-cap proportional holdings. It’s a curated bunch that offers exposure to the highest quality growth stocks available on the U.S. market. It outperforms the broader market by a slight margin.
It carries a medium-risk rating, which seems adequate for its performance. And if you had bought it five years ago, it would have appreciated about 94% in value, which doesn’t include the quarterly distributions. But the ETF does carry a relatively high MER (0.33%).
An ETF by Harvest Portfolios
If you are looking to get exposure to the vibrant tech sector, Harvest Tech Achievers Growth & Income ETF Class A (TSX:HTA) is a great option. This ETF is a bit unique, even though it’s fully U.S.-focused like the other two. It’s made up of just 20 holdings, and the distribution is not by market cap. For example, the top three holdings are Fortinet (a cybersecurity company), AMD, and Nvidia.
The management fee is also quite high at 0.85%. The holdings within the ETF are quite well diversified, at least within the tech sector. The ETF has been performing quite well since its inception, and in the last five years, it has grown about 87%. At this pace, the ETF could easily double your capital within seven to eight years.
Foolish takeaway
Not all ETFs offer this level of growth, and U.S.-focused ETFs tend to be relatively better growers than Canadian ETFs (especially broad market ones). They might not be comparable to growth stocks in pace, but they also offer much better consistency at a significantly lower risk level.
