More and more, exchange-traded funds (ETFs) are finding their way into the portfolios of investors.

That’s because, unlike many other financial innovations, they don’t load you up with heavy management fees, or tie you down with high redemption charges if you decide to get out of them. Regulatory changes in Canada, introduced starting in 2015, have also forced investment brokers and advisors to disclose the commissions they earn on mutual funds. That has helped to drive interest in exchange-traded funds (ETFs). They’re considered a low-cost alternative to mutual funds.

ETFs trade on stock exchanges, just like stocks. Prices are quoted in newspaper stock tables and online. You’ll have to pay brokerage commissions to buy and sell ETFs. However, ETFs’ low management fees still give them a cost advantage over most conventional mutual funds.

Exchange-traded funds (ETFs) hold mostly blue-chip stocks. They’re widely traded on Canadian and U.S. exchanges. Each ETF mirrors, or tracks, the performance of a major stock market index. That’s different from narrower indexes that focus on resources or themes such as solar power or biotech. Of course, you may pay brokerage commissions to buy and sell these ETFs. But their low management fees give them a cost advantage over most mutual funds.

What’s more, shares are only added or removed when the underlying index changes. As a result of this low turnover, you won’t incur the regular capital-gains bills generated by the yearly distributions most conventional mutual funds pay out to unitholders.

Here’s a fund to avoid and one we recommend in its place.

ISHARES MSCI CANADA INDEX FUND is a sell in favour of a cheaper alternative. The ETF (New York symbol EWC; buy or sell through brokers; ca.ishares.com) holds the stocks in the Morgan Stanley Capital International Canada Index.

The fund has a 0.50% MER and gives you a yield of 2.1%. It began trading for investors on March 12, 1996.

The ETF’s top holdings are Royal Bank, 7.3%; TD Bank, 6.1%; Shopify, 4.8%; Enbridge, 4.0%; CPKC, 3.9%; Canadian Natural, 3.7%; Bank of Montreal, 3.7%; CN Rail, 3.6%; Bank of Nova Scotia, 3.0%; Brookfield Corp., 2.9%; and Constellation Software, 2.6%.

If you want to own a Canadian index fund, you should instead buy the largest TSX ETF, the iShares S&P/TSX 60 Index ETF. You’ll pay about a third as much in management fees, while holding essentially the same stocks.

ETFs: Choose this fund instead for a better deal

ISHARES S&P/TSX 60 INDEX ETF is a buy. The ETF (Toronto symbol XIU; buy or sell through brokers; ca.ishares.com) is a good low-fee way for you to buy the top companies listed on the TSX. Specifically, the fund’s holdings represent the S&P/TSX 60 Index. It focuses on the 60 largest, most heavily traded stocks on the exchange. This is the largest TSX ETF.

The ETF began trading on September 28, 1999. Investors pay an MER of just 0.18%. The units give you a 2.9% yield.

The S&P/TSX 60 Index mostly consists of high-quality companies. However, it must ensure that all sectors are represented, so it holds a few companies we would not include.

The quality of the ETF’s holdings should drive your future gains: its top stocks are Royal Bank, 7.7%; TD Bank, 6.4%; Shopify, 5.0%; Enbridge, 4.2%; CPKC, 4.0%; CN Rail, 4.0%; Bank of Montreal, 3.9%; Canadian Natural, 3.9%; and Bank of Nova Scotia, 3.1%.

Recommendation in Canadian Wealth Advisor: iShares MSCI Canada Index Fund is a sell in favour of the iShares S&P/TSX 60 Index ETF.