With the recent launch of a few new Vanguard ETFs, tax-loss selling with Canadian ETFs is a breeze. There are now plenty of options available to replace the main equity asset classes:
Taxable investors holding the BMO S&P/TSX Capped Composite Index ETF (ZCN) in their non-registered accounts can sell their underwater shares and immediately replace ZCN with the Vanguard Canada All Cap Index ETF (VCN). Although the funds have similar holdings of large, mid, and small company stocks, they track entirely different indices (the S&P/TSX Capped Composite Index vs. the FTSE Canada All Cap Index), making them arguably different enough to avoid the superficial loss rules.
Although the majority of investors will not be showing a loss on their U.S. holdings, taxable investors can now build a more broadly diversified U.S. equity allocation using the Vanguard U.S. Total Stock Market Index ETF (VUN). If a tax-loss selling opportunity were to arise, they could always switch to the iShares S&P 500 Index ETF (XUS). VUN invests in large, mid, small and microcap companies, while XUS invests in only the largest companies. The underlying index for VUN is the CRSP US Total Market Index, making it notably different than the S&P 500 Index that XUS follows.
Taxable investors who are looking for developed international exposure now have two options: the iShares MSCI EAFE IMI Index ETF (XEF) and the Vanguard FTSE Developed ex North America Index ETF (VDU). Other than the obvious difference between their underlying indices (MSCI vs. FTSE), XEF invests in large, mid and small company stocks, while VDU only covers the large and mid size companies. FTSE also considers Korea to be a developed country (and includes about a 4% allocation to it), while MSCI still considers it to be an emerging market, excluding it from their index.
Emerging Market Equities
No additions here, but still a worthwhile discussion. The iShares MSCI Emerging Markets IMI ETF (XEC) covers large, mid, and small company stocks, while the Vanguard FTSE Emerging Markets Index ETF (VEE) covers large and mid companies. Since MSCI still considers Korea to be an emerging market (while FTSE does not), it is included in their index.
For taxable investors who prefer not to mess around with currency conversions, the above are all excellent building blocks for a passive ETF portfolio. You are now able to tax-loss sell easier than ever by using ETFs that all trade on the Canadian stock exchange. For more information on when it may make sense to trigger a loss, please feel free to read my blog: How often should you tax-loss harvest?