This is the average return you should expect from Canadian blue-chip stocks

If you want to know what to expect from Canadian blue chip stocks as a long-term investor, let one of the country’s biggest, more battle-hardened ETFs be your guide.

The iShares S&P/TSX 60 Index ETF (XIU-T) has been around in its current form since September 1999, which means it has weathered the stock market tech wreck of 2000-01, the 2008-09 global financial crisis, the pandemic and sundry other setbacks. XIU has likewise seen multiple bull markets, including the one that helped it generate a gain of 17 per cent for the 12 months to May 31.

The average annual total return since inception for XIU is 7.6 per cent. If you invest in big Canadian companies, that’s your benchmark for measuring returns over periods of 10 years and longer. We’re talking here about share price gains plus dividends, which are an important driver of returns when you invest in blue chips.

Comparing your portfolio returns to benchmarks is a useful exercise at any time, but more so now. Stocks have had a great run in the past 18 months and there’s growing speculation about when and how the next pullback will take shape.

It’s noteworthy that the 10-year annualized total return for XIU is 7.95 per cent, not far off the average annual return since inception in 1999. As it happens, the three-year return is 7.4 per cent. Though XIU has had a great 12 months, you can see a pattern of consistency in returns that fall in the mid 7 per cent range.

XIU’s past returns offer some guidance on the downside for Canadian blue chips as well as gains. The fund lost 6.4 per cent in 2022, 7.7 per cent in 2018, 7.9 per cent in 2015, 9.3 per cent in 2011 and a disturbing 31 per cent in 2008. Looking ahead, let XIU be your guide to what normal and extreme corrections mean for holders of blue chip stocks.

There’s about $12-billion invested in XIU, most of it from institutional investors that value it for its liquidity. You can jump in and out of this fund at very competitive prices thanks to its exceptionally high trading volume. An average 2.6 million shares of XIU traded hands in the past 30 days, which is massive volume by ETF standards.

The 60 index is made up of the country’s biggest, most widely held stocks. Most pay dividends, but some are growth-oriented companies that do not. Portfolio-wide, the dividend yield on XIU was about 3.1 per cent in late June. If you have a diversified portfolio of blue chips, there’s another benchmark to use.

One final note about XIU is about fees. The management expense ratio of this fund is 0.18 per cent, which is comparatively pricey for retail investors who plan to buy and hold, rather than trade. XIU’s stablemate, the more diversified Shares Core S&P/TSX Composite Index ETF (XIC-T) has an MER of 0.06 per cent, similar to some other comparable funds.

XIU isn’t the cheapest fund tracking the Canadian market, but it is the oldest. That’s why it makes such a useful benchmark.