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®

Author Bio Tony turned a series of marijuana stock losses in 2017 into a self-employment venture, focused on helping retail investors build better portfolios with exchange-traded funds (ETFs). He is the founder of ETF Portfolio Blueprint and the Lead ETF Analyst for ETF Central, a partnership between Trackinsight and the New York Stock Exchange. He also currently writes freelance for MoneySense, U.S. News & World Report, Kiplinger, and 24/7 Wall St., and runs an investing-focused newsletter called The Dumb Money Dispatch with 3,300+ subscribers. Outside of finance, Tony owns a small ranch in rural British Columbia, raising goats and chickens, and also volunteers as a wildland firefighter in his local community. His background includes service in the Canadian Armed Forces as a reservist and stints in corporate security. Education Master of Science (MSc) in Enterprise Risk Management, Columbia University Bachelor of Arts (BA) in Criminology, Simon Fraser University Certified ETF Advisor (CETF®), The ETF Institute Securities Industry Essentials (SIE), FINRA Canadian Securities Course (CSC), Canadian Securities Institute Areas of Expertise ETFs, mutual funds, Berkshire Hathaway, indexing, dividend stocks, royalty trusts, REITs, infrastructure, aerospace & defence, passive income investing, portfolio construction, risk management, RRSPs & TFSAs. Social Media Profiles https://www.linkedin.com/in/tzld96/ https://www.youtube.com/@okanaganhomesteader Favorite Investment Quote "Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1." - Warren Buffett

Published July 1, 2023 12:00 pm EDT

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.

ETF chart stocks — Image source: Getty Images

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.