Today, we’re setting our sights on the bustling streets of Wall Street. For many Canadian investors, this iconic financial hub may seem distant, complex, or even a bit intimidating. But what if I told you that Wall Street could be your ticket to diversifying your portfolio on an international scale, and it’s easier to jump on board than you might think?
As Canadians, we might feel a pull towards investing in our own domestic market, and while that’s a valuable part of any investment strategy, broadening our horizons can help spread risk and potentially boost returns. This is where Wall Street, and more specifically, the tech-laden Nasdaq 100 comes in.
Think of Nasdaq 100 as a high-speed train packed with some of the most dynamic and innovative tech companies from around the globe. By purchasing an exchange-traded fund, or ETF, that tracks the Nasdaq 100, Canadian investors essentially buy a ticket for this train, gaining exposure to international markets and a diverse array of industries, all with a single, straightforward investment.
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How does the Nasdaq 100 work?
The Nasdaq 100 is a stock market index, much like the S&P 500 or the Dow Jones Industrial Average. But unlike these indices, the Nasdaq 100 has a special focus: it’s made up of the 100 largest non-financial companies listed on the Nasdaq stock exchange.
What does this mean for you, the investor? Well, when you hear “Nasdaq,” you should think “innovation.” That’s because the Nasdaq exchange is known for its high concentration of technology and innovative companies. The Nasdaq 100 is a reflection of that, featuring many of the world’s leading companies in sectors such as technology, biotechnology, and health care.
But that’s not all. One important thing to note is that the Nasdaq 100 is a market capitalization-weighted index. This means that the companies with the highest market values (i.e., the number of shares outstanding times the price per share) have the most influence on the index’s performance.
In practical terms, this means that when the largest companies in the index see their share prices move, it will have a greater effect on the index than movements in smaller companies. This is why the Nasdaq 100 is a great way to invest in the largest growth stocks, like the FANGMA cohort.
Nasdaq 100 ETFs
A Canadian-listed Nasdaq 100 ETF is essentially a passport to the exciting world of top-tier tech and innovative companies hailing from Wall Street.
These funds are listed on a Canadian stock exchange, just like any other domestic stock, but their focus is on the Nasdaq 100 index. This means that by investing in a Canadian-listed Nasdaq 100 ETF, you gain exposure to some of the biggest and most influential companies in the U.S. tech sectors.
One key advantage of Canadian-listed Nasdaq 100 ETFs for Canadian investors is the ease of currency transactions. Unlike buying U.S. stocks or ETFs, when you purchase a Canadian-listed ETF, you deal in Canadian dollars. This eradicates the need for potentially costly currency conversion, simplifying your investing process and making it more cost effective.
My favourite Canadian Nasdaq 100 ETF is Horizons NASDAQ-100 Index ETF (TSX: HXQ). With a management expense ratio (MER) of 0.28%, this ETF is significantly cheaper than competitors, which usually charge 0.39%. It also doesn’t pay dividends, which makes it a very tax-efficient holding.
