Beyond SPY Stock: How Canadian Investors Can Capture Greater Returns

Here are two local alternatives to the popular SPDR S&P 500 ETF (SPY).

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 14, 2023 1:30 pm EDT

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Have you ever found yourself mesmerized by the allure of the SPDR S&P 500 ETF (NYSEMKT: SPY), the highly popular exchange-traded fund (ETF) that tracks the S&P 500 Index?

While SPY provides a straightforward and effective way to gain exposure to a broad swathe of U.S. companies, it’s not the only vehicle on the highway of investment options. And for Canadian investors, there might be routes that offer even smoother rides and potentially greater returns.

Today, I’m pulling back the curtain on some compelling alternatives to SPY that are well suited to the needs and advantages of Canadian investors. These investment options can offer you the same S&P 500 exposure as SPY, but with added perks such as lower currency conversion costs and the potential for higher returns. Here are my top two picks.

The Vanguard option

For long-term buy-and-hold investors, a great pick is the Vanguard S&P 500 Index ETF (TSX: VFV). Like SPY, VFV passively tracks the S&P 500 by buying all of the stocks tracked by the index. When you invest in VFV, your money is split between all these stocks according to their index weights.

The main reason I like VFV is due to its low-cost nature. With a management expense ratio (MER) of 0.09%, this ETF is actually slightly cheaper than SPY, which charges 0.0945%. For a $10,000 investment, this works out to around $9 in annual fees.

The Horizons option

Now, I’m personally a long-term, buy-and-hold investor, but I understand that not all my readers may be. For those looking to day or swing-trade the S&P 500, a leveraged ETF like BetaPro S&P 500 2x Daily Bull ETF (TSX: HSU) can offer magnified exposure.

This ETF seeks two times (2x) the daily returns of the S&P 500 Index. If the S&P 500 rises by 1%, HSU will rise by 2%. If the index falls by 1%, HSU will lose 2%. However, keep in mind that HSU is intended to be a short-term trading tool, and is not suitable as a long-term hold.

This is because over long periods of time, high volatility and compounding can cause the returns of HSU to differ significantly from the exact 2x returns of the S&P 500 index. The 2x leverage is only meant to be accurate for a single day. HSU also charges a much higher MER of 1.55%.