Key Metrics for iShares Canadian Fundamental ETF
- Morningstar Medalist Rating: Neutral
- Morningstar Rating: ★★★★
- Morningstar Category: Canadian Equity
- MER: 0.72%
iShares Canadian Fundamental ETF CRQ follows a rules-based approach that concentrates on companies with strong fundamentals. However, a few constraints make for lopsided sector bets and reduce the fund’s appeal.
The ETF tracks the FTSE RAFI Canada Index, which weights large- and mid-cap Canadian stocks by a fundamental score. Four financial metrics inform the score: dividends, cash flow, sales, and book equity, with more weight given to stocks with higher scores. Stocks must also meet certain liquidity requirements to ensure they can trade efficiently.
The rationale behind fundamental weighting is reasonable, but the approach carries risks. In theory, breaking the link between stock weights and market capitalization tunes out market noise and provides a more accurate reflection of a company’s size and value. However, there is no consensus way to calculate intrinsic value, and every method lacks precision. Additionally, there are many non-financial factors that affect a stock’s value.
The portfolio uses high-level metrics to determine the value of a stock, but the process has limitations. It doesn’t account for sales or earnings growth, and it lacks sector constraints. As a result, the portfolio exhibits a pronounced value tilt and holds heavier allocations to financial and energy stocks than its category index, the Morningstar Canada Index. Many of the portfolio’s largest holdings are large banks or energy companies that tend to favor the value side of the Morningstar Style Box.
The fund is more concentrated than the category index. It holds half as many stocks and stows a hefty 47% of assets in its top 10 holdings, compared with 36% for the Canada Index, as of June 2025. It also favors larger companies, allocating more than the benchmark to giants with strong fundamentals, such as Royal Bank of Canada, than a traditional market-cap-weighted index.
Past performance is mixed. It outperformed the Canada Index by 12 basis points annualized from its February 2006 inception through June 2025. Risk-adjusted returns were about the same. Cyclical performance trends of financial and energy stocks should largely drive future fund returns.
