We recently published a list of 10 Best Canadian ETFs to Buy. In this article, we are going to take a look at where iShares S&P/TSX Capped Information Technology Index ETF (TSX:XIT.TO) stands against other best Canadian ETFs to buy.

The State of the Canadian Stock Market

After a slow start in 2024, the Canadian stock market saw a strong third quarter, fueled by domestic rate cuts and a recovery in global markets. Year-over-year headline inflation has cooled to align with the Bank of Canada’s target rate of 2%. As a result, policymakers have implemented four consecutive rate cuts, with an additional 50 basis point reduction anticipated in December. With the central bank expected to keep cutting interest rates to support the economy, stock market strategists are cautiously optimistic that the rally will continue. In this context, Brent Joyce, chief investment strategist at BMO, shared the following:

“The environment is very attractive for equities. It’s been this trifecta of better global growth, interest-rate-sensitive companies themselves, and the interest rate sensitivity of dividends. These were headwinds for the two years that rates were going up, [but they] have flipped into tailwinds for the Canadian stock market now that rates are falling.”

While most stocks are influenced by global factors, many companies on the Toronto Stock Exchange are also cyclically driven, meaning their performance is closely tied to the economy and the business cycle. Given the strong connection between the US and Canadian economies, stable growth in the US has provided a boost to Canadian equities. On that front, Tim Hayes, chief global investment strategist at Ned Davis Research, advises clients to allocate 5% of their equity portfolio to Canadian stocks, making it the second-largest weighting after the 69% recommended for US stocks. The S&P/TSX Composite Index is on track to have its best year since 2009, having set new records 42 times this year and risen 21.09% year-to-date, closely following the S&P 500’s 27.58% gain. Hayes highlighted the broad rally and noted that the market is largely driven by energy and financial stocks, which offer the highest trailing and forward earnings yields, contrasting with the tech sector’s lower yields.

On the other hand, U.S. President-elect Donald Trump rattled the markets earlier in November with a proposal to impose a 25% tariff on imports from Canada and Mexico, aimed at addressing drug trafficking and border issues, along with a 10% tariff on imports from China. This decision had an immediate impact on Canada’s energy sector, which experienced a 2.2% decline amid concerns that rising US crude production would meet domestic demand. At the same time, the Canadian dollar dropped to its lowest level against the US dollar since May 2020, sparking worries about potential inflationary pressures on imports.

Canadian ETFs: Strong Performers in 2024

While the future remains uncertain, the Canadian ETF industry, which began with the world’s first ETF launched in Canada in 1990, has shown notable resilience over the past 30+ years, and continued growth is expected in the years to come. Despite the market volatility this year, Canadian ETFs have managed to navigate the challenges effectively and are well-positioned for another strong year. With only a couple of weeks remaining in the year, the industry is on track to surpass the previous annual record of $58 billion set in 2021. Moreover, following recent data from IFIC showing Canadian ETF sales reached their third-best month ever in October, a new report from research firm ETFGI highlights additional gains in November, along with impressive year-to-date figures. The firm reported net inflows of US$7.5 billion in November, slightly down from the C$8.2 billion reported in IFIC’s October report, but still a strong performance that contributes to the 29th consecutive month of net inflows.

Our Methodology

We have selected the top Canadian ETFs to buy and hold based on their 5-year performance as of December 10, listed in ascending order for clarity. Additionally, we’ve highlighted the top holdings of each ETF to provide valuable insights for potential investors.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

iShares S&P/TSX Capped Information Technology Index ETF (TSX:XIT.TO)

5-year Share Price Performance as of December 9, 2024: 152.92%

The iShares S&P/TSX Capped Information Technology Index ETF (TSX:XIT.TO) offers investors exposure to leading Canadian IT companies through an index-driven strategy. Ideal for those seeking to capitalize on the growth of Canada’s technology sector, the ETF has delivered a year-to-date return of 42.24%, reflecting steady performance. While the fund’s price-to-earnings ratio stands at a high 65.97, this is typical for tech-focused funds with significant growth prospects.

One of its notable holdings, Celestica Inc. (NYSE:CLS), an American-Canadian multinational electronics manufacturing services company, holds the fourth-largest position in the ETF with an 8.05% weighting. In Q3 2024, Celestica Inc. (NYSE:CLS) reported a revenue surge of 22% year-over-year, reaching $2.50 billion. Its gross profit increased by 25% to $259.1 million, driven by higher revenues and operational efficiencies, while diluted earnings per share rose 15% to $0.77.

Stifel remains optimistic about Celestica’s outlook, raising its price target to $100 from $70 and maintaining a Buy rating on December 10. The firm attributes its confidence to strong growth driven by demand from hyperscale clients, who contribute around 40% of Celestica’s revenues, and a recovery in industrial markets. Stifel projects Celestica’s earnings per share to range between $5.50 and $5.60, excluding potential benefits from mergers, acquisitions, or significant share repurchase activities.

Overall, XIT ranks 1st on our list of best Canadian ETFs to buy. While we acknowledge the potential of XIT, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than XIT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock

Disclosure: None. This article is originally published at Insider Monkey.