Key Morningstar Metrics for iShares Canadian Fundamental ETF CRQ
- : BronzeMorningstar Medalist Rating
- : AverageProcess Pillar
- : Above AveragePeople Pillar
- : Above AverageParent Pillar
IShares Canadian Fundamental ETF follows a rules-based approach that concentrates on companies with strong fundamentals. However, few constraints make for lopsided sector bets and reduce its appeal.
The exchange-traded fund 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. Plus, there are many nonfinancial factors that affect a stock’s price.
The portfolio uses broad 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 average peer in the Canadian equity Morningstar Category. Many of the portfolio’s largest holdings are large banks or energy companies that tend to gravitate toward the value side of the Morningstar Style Box.
The fund is more concentrated than its average peer. It holds less than one-third as many stocks and stows a hefty 51% of assets in its top 10 holdings, compared with 31% for its average peer, as of June 2026. It also favors larger companies, allocating more than the benchmark to giants with strong fundamentals, such as Royal Bank of Canada, over a traditional market-cap-weighted index.
Past performance has been strong compared with peers. It outperformed its average Canadian equity peer by 1.97 percentage points annualized from its February 2006 inception through June 2026. Risk-adjusted returns higher than its average peer, despite higher volatility. Cyclical performance trends of financial and energy stocks should largely drive future fund returns.
iShares Canadian Fundamental ETF: Performance Highlights
The ETF’s top-heavy portfolio has led to above-average volatility, a trend that is likely to continue. Despite that, performance has been strong. The ETF’s 13.7% 10-year annualized return ranks in the top decile of the category through June 2026. Volatility was around 17% higher than peers during that period, but its higher returns made up for it, and risk-adjusted performance exceeded the category average.
The ETF’s sector bets, specifically in financial and energy stocks as of June 2026, can cause returns to diverge from its average peer. Heavy allocations to financial services and energy stocks benefited the ETF. These two sectors have been the main sources of outperformance over the past five years. However, if those sectors take a hit, the fund will likely underperform peers with more balanced portfolios.
Historically, the ETF’s performance has been uneven, with a few exceptional years pulling its returns higher. For example, it outpaced its average peer by over 10 percentage points in 2009, 2016, and 2021. More recently, however, it has hewed closer to the category norm, delivering a steadier pattern of outperformance in recent years.
