Best ETFs to Invest In During March 2021: A Comprehensive Guide

The world of investment is ever-evolving, and one of the most popular and accessible investment vehicles are Exchange Traded Funds (ETFs). These are investment funds traded on stock markets, allowing investors to buy and sell shares in a single fund that mimics a particular index, sector, or asset class. For those looking to make the best investment in March 2021, this guide will help you understand the nuances of ETF investments and select the right ones for your portfolio.

Understanding ETFs and the Etymology of Index ETFs

ETFs are a form of investment that mirrors an index or a basket of assets, providing an index-based passive investment approach. Unlike traditional index funds, ETFs trade like individual stocks, offering a more flexible and cost-effective way to participate in markets. However, it's important to note that ETFs have distinct differences compared to index funds - particularly in how new units are issued and the process of buying and selling.

Unlike index funds, where new units are issued when you buy and the fund's Asset Under Management (AUM) increases, ETFs are a closed-ended fund post their initial fundraising. This means that you can only buy ETFs through the secondary market, from other investors, unless they are traded in the primary market by the underwriters. This unique trading mechanism adds a layer of liquidity to ETFs, similar to how individual stocks are traded.

Key Factors to Consider Before Investing in ETFs

Before diving into ETF investments, it's crucial to understand a few key factors that can influence your investment decision. In my opinion, one should always consider evergreen funds like SPY, CSPX, and others. These are time-tested and continuously updated funds that provide stable and reliable returns over the long term.

One of the primary benefits of using an ETF-focused search engine like ETFino is the ability to check the holdings and strategize your investments accordingly. This provides a clear view of what the fund is invested in, allowing you to align your portfolio with your investment goals and risk tolerance.

Top Three ETFs to Invest in During March 2021

When considering March 2021, the following ETFs stand out as strong choices based on their performance, management costs, and market conditions. These funds are diverse and offer a range of options for different investment strategies:

iShares Core SP 500 Index ETF (CAD-Hedged)(TSX:XSP): Horizons SP/TSX 60 Index ETF (TSX:HXT): iShares SP/TSX Capped Information Technology Index ETF (TSX:XIT):

Let's take a closer look at each of these ETFs:

1. iShares Core SP 500 Index ETF (CAD-Hedged) - TSX:XSP

Description: This ETF invests in the SP 500 Index, providing exposure to the largest and most widely held U.S. companies. The CAD-hedged version helps to mitigate currency risk, making it a popular choice for Canadian investors.

Main Features:

MER (Management Expense Ratio) of 0.10% Provides broad market exposure Incorporates a core component of the global market

2. Horizons SP/TSX 60 Index ETF - TSX:HXT

Description: This ETF tracks the SP/TSX 60 Index, providing exposure to 58 of the largest Canadian companies. This fund is particularly attractive for Canadian investors who want to invest in their domestic market.

Main Features:

MER of 0.04% Weighted towards larger-cap companies Includes strong sector representation

3. iShares SP/TSX Capped Information Technology Index ETF - TSX:XIT

Description: This ETF invests in the Information Technology sector, providing exposure to Canadian tech companies. Given the rapid growth of the tech sector in recent years, this fund offers a strategic play for those interested in capturing the growth potential of tech firms.

Main Features:

MER of 0.61% Focused on specific sector growth Strong fundamentals in the tech sector

Why ETFs May Not Be For Everyone

While ETFs can be a powerful tool in an investor's arsenal, they are not without their challenges. Some argue that ETFs, often referred to as "black box" investments, can be complex and opaque. The intricate financial relationships underlying the ETF can make it difficult to understand the full scope of risks and potential downsides. External risks such as weather, earthquakes, or geopolitical events can impact the performance of the underlying assets, leading to unpredictable outcomes.

Moreover, while ETFs offer the flexibility to buy and sell throughout the trading day, this also means that they are subject to intraday price fluctuations, which can be challenging for individual investors who might not have the expertise to manage such volatility.

Conclusion

Investing in ETFs during March 2021 can be a strategic move, providing access to a wide range of market indices and sectors. However, it's essential to consider the nuances of ETF investments, the specific features of the funds you're evaluating, and the broader market conditions.

Whether you're a seasoned investor or just starting, understanding the best ETFs to invest in can help you make informed decisions and achieve your investment goals. Always keep in mind the inherent risks and consult with a financial advisor to tailor your investment strategy to your individual circumstances.