Three excellent American ETFs for your RRSP in 2023
Investors continue to face several challenges as the page turns to 2022 and plans are made for 2023. The bad news is that inflation remains elevated and geopolitical concerns continue to dominate. one of the newspapers. The good news is that inflation appears to be slowing, rate hikes are becoming less extreme, and China has begun to ease its “zero-COVID” policies that have hampered the global economy.
There are realistic reasons to expect the stock market to rebound or decline further, or anything in between. The best choices for investors are therefore broadly diversified funds that steer clear of companies that are vulnerable to these problems and are likely to outperform in the long term, whatever happens next. For Canadian investors looking to avoid geographic favoritism and avoid tax on their U.S. stocks, these U.S. ETFs can save them withholding tax on dividends when held in an RRSP:
Three excellent American ETFs for 2023
Morningstar gives these exchange-traded funds listed on US stock exchanges a Silver or Gold analyst rating.
– Dimensional US Core Equity 2 ETF (DFAC)
– Schwab International Dividend Equity ETF (SCHY)
– Vanguard Total Bond Market ETF (BND)
The first ETF on my list is Dimensional US Core Equity 2 ETF (DFAC). This gold-rated strategy began being offered as an ETF in 2021, but as a mutual fund it has outperformed its category average since 2005.
This fund offers broad exposure to US stocks of all sizes, and leans towards those with lower valuations, higher profitability, and smaller market capitalization. He owns about 2,700 stocks and chooses to remain invested in all companies while looking for factors likely to give him an outperformance such as value, profitability and small size.
Leaning towards value stocks protects the portfolio against companies that embed long-term growth assumptions that they may well be unable to deliver. However, value stocks come with their own inherent risks, which Dimensional deftly deflects by focusing on profitability. The fund easily outperformed the Russell 3000 by almost 4 percentage points for the year and should continue to carve out a long-term advantage through robust factor exposure at low prices.
The second ETF on my list is Schwab International Dividend Equity ETF (SCHY). This Silver-rated ETF has the same strategy as its wildly popular US counterpart (SCHD) [Schwab U.S. Dividend Equity ETF]but applies it to international equities.
With so many unknowns hanging over US interest rates, now is the time to hedge against local jingoism by investing in international equities. This ETF starts with a broad list of foreign stocks and seeks those with higher dividend yields, better profitability, higher cash flow, lower volatility, and a long history of regular cash dividend payments. This selection process provides exposure to multiple outranking factors such as value, quality and low volatility.
The result is a portfolio of 100 foreign stocks whose profitability is constant and dividends are stable. It also comes with a modest fee (14 basis points), giving it a sustainable cost advantage over its peers. It has only outperformed the average of its peers and the index of its category since its launch in April 2021.
The third ETF on my list is Vanguard Total Bond Market ETF (BND). This gold-rated ETF captures a wide range of high-quality, taxable US bonds, replicating the full range of opportunities available to active managers while taking advantage of its attractive fees (3 basis points).
The threat of a recession increases the likelihood of larger credit spreads, so targeting higher quality bonds with a heavy dose of non-credit treasuries is therefore a valid risk management strategy. This fund invests approximately 70% of its assets in AAA-rated bonds, avoiding portfolio participation in riskier issues. It comes with more moderate interest rate risk that could weaken it if the Fed raises rates more than expected. It does, however, provide upside potential if the Fed has to forgo rate hikes.
The Vanguard Total Bond Market ETF is currently yielding over 4%, a rise in returns in recent years. In addition, bonds are now in a better position to hedge equities because their rates are higher from the start. This fund should provide stable returns and performance in an uncertain stock market environment for years to come.