Rob Carrick’s 2019 ETF Buyer’s Guide: Best U.S. equity funds

The U.S. stock market had a bad year in 2018. Or did it?

Your actual experience as an investor holding a U.S. equity exchange-traded fund last year depended to a large extent on which one you owned. With an S&P 500 index fund using currency hedging to smooth out the impact of fluctuations in the value of our dollar, you lost money in 2018. Without hedging, that S&P 500 fund produced a reasonable gain. Low-volatility funds without hedging did even better.

This latest installment of The Globe and Mail 2019 ETF Buyer’s Guide is designed to help you sort out which U.S. equity fund might work for your portfolio. The focus here is on core funds – your one and only ETF for the U.S. market – with a history of at least five years.

Let’s start by talking about hedging. When buying a TSX-listed U.S. equity ETF, you’ll often have the choice of versions with and without currency hedging. Hedging means you get the returns of the underlying portfolio, with no distortions caused by currency fluctuations. Your U.S. returns won’t be undermined when our dollar rises, nor will they be enhanced when the dollar falls.

Unhedged funds rule when our dollar is falling and lag when the dollar rises. Unhedged was the way to go last year, but currency swings are highly unpredictable. Some investment pros believe there’s no point in hedging if you have a long time horizon.

Low-volatility ETFs are growing in popularity and the reason is obvious. Their focus on stable companies with shares that move around in price less than the broader market has, over the past five years, produced returns that often beat the S&P 500. Low-volatility funds typically get their comeuppance in a strong bull market, but their behaviour in down markets has offset that risk.

Click here to download an Excel version of the guide.

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