Why Canadian Investors Should Consider Investing in U.S. Stocks

The U.S. market has great growth and tech-oriented indexes like the Nasdaq 100 worth considering.

Tony Dong, MSc, CETF®

Tony started investing during the 2017 marijuana stock bubble. After incurring some hilarious losses on various poor stock picks, he now adheres to Bogleheads-style passive investing strategies using index ETFs. Tony graduated in 2023 from Columbia University with a Master's degree in risk management. He holds the Certified ETF Advisor (CETF®) designation from The ETF Institute. Tony's work has also appeared in U.S. News & World Report, USA Today, NYSE ETF Central, NASDAQ Fundinsight, Cboe ETF Market, TheStreet, and Benzinga. He is the founder of ETF Portfolio Blueprint (https://etfportfolioblueprint.com)

Published July 1, 2023 12:00 pm EDT

| More on: XQQHXQZQQ

Missed out on the recent strong returns from the artificial intelligence (AI) hype train? If so, it may be because your portfolio was lacking in U.S. stocks.

While the Canadian market is known for its bevy of solid dividend-paying bank, pipeline, railway, and telecom stocks, it doesn’t have the most well-known, largest, or fastest-growing technology stocks.

To gain access to those, Canadian investors must head down south to the U.S. market, where they can track a highly popular market benchmark: the Nasdaq 100 Index. Here’s why this index is great for investing in U.S. stocks.

Nasdaq 100 explained

Think of the Nasdaq 100 like a really cool club that’s all the rage right now. Its current members represent 100 of the largest non-financial companies from the Nasdaq stock exchange. Its a bit of a popularity contest really.

Many of the club members are tech rockstars—think big names like Apple, Microsoft, Amazon, Tesla, Nvidia and Alphabet. But it’s not just a tech hangout—companies from other sectors like PepsiCo and Costco hang out there, too. However, it is still very much tech-focused, with 50% of the index composed of tech sector stocks.

Now, an index—like the Nasdaq 100—is sort of like a scoreboard. It gives you a quick glance at how these top 100 companies are doing in the game of business. If the Nasdaq 100 Index is up, the companies in the club are generally doing well. If it’s down, they’re having a bit of a rough time.

How to invest in the Nasdaq 100

But how do you get in on this action? Well, you can’t exactly join the club by investing directly in an index, but you can bet on how well the club members are going to do via a fund that replicates it.

That’s where exchange-traded funds (ETFs) come in. Think of them as a ticket that lets you profit when the club does well and lose when it does poorly.

The Canadian ETF market has numerous options when it comes to tracking the Nasdaq 100 Index. These ETFs provide exposure to the movements of the index by buying and holding the same stocks in the correct proportions.

Currently, some of the most popular Nasdaq 100 ETFs include:

BMO NASDAQ 100 Equity Hedged to CAD Index ETF (TSX: ZQQ)
iShares NASDAQ 100 Index ETF (CAD-Hedged) (TSX: XQQ)
Horizons NASDAQ-100 Index ETF (TSX: HXQ)

These ETFs charge varying expense ratios, from 0.28% for HXQ to 0.39% for ZQQ and XQQ. They also payout minimal dividends, which make them fairly tax-efficient as a growth-oriented holding outside of a TFSA or RRSP.