Today, I’m setting my sights south of the border to explore the bustling marketplace of U.S. stocks. While our domestic market offers numerous lucrative opportunities, diversifying into the U.S. market can bring exposure to industries and sectors that are underrepresented at home. Thusly, we can enrich our investment portfolios with additional growth potential.
The U.S. market is particularly renowned for its strong technology sector, boasting some of the world’s largest and most innovative tech companies. It also provides exposure to some of the biggest growth stocks out there. Whereas the Canadian market favours more dividend-oriented picks.
Down below, I’ll be going over some compelling reasons why Canadian investors should consider U.S. stocks, with a particular focus on underrepresented sectors such as technology. Furthermore, I’ll leave you with an exchange-traded fund (ETF) pick that not only offers exposure to the U.S. market but specifically zeroes in on its dynamic tech giants, making it an ideal vehicle for growth-oriented investors.
The Nasdaq 100
When it comes to technology, the U.S. stands at the forefront, and this is clearly reflected in the composition and performance of the Nasdaq 100 Index. This index holds 100 of the largest non-financial stocks listed on the Nasdaq exchange, and is packed with some of the world’s largest and most influential tech companies.
The Nasdaq 100 is more than 50% composed of tech stocks. This heavy weighting in tech is distinctive, especially when compared to indices like the S&P 500, in which tech stocks make up a lesser portion (around 28%) of the overall composition.
The index is also significantly tilted towards growth stocks, meaning companies that are expected to grow at an above-average rate compared to other market players. This focus aligns with the nature of tech companies, which are known to reinvest a significant portion of their profits back into their business to fuel further growth — a factor that could lead to higher stock prices and returns for investors.
Finally, almost all companies in the Nasdaq 100 are large-cap, meaning they have a market capitalization of $10 billion or more. These companies tend to be industry leaders with stable earnings, strong balance sheets, and a global presence, which is great for long-term investors.
The tech-centric, growth-oriented, large-cap focus of the Nasdaq 100 has contributed to its strong performance over the past decade. It has consistently outperformed the broader S&P 500, reflecting the tech sector’s substantial growth and sustained investor appetite for tech stocks. Even in 2023, this trend continues, as the tech-heavy Nasdaq 100 continues to deliver impressive returns.
My ETF of choice
In my opinion, the BMO NASDAQ 100 Equity Hedged to CAD Index ETF (TSX: ZQQ) emerges as an ideal choice for Canadian investors. Unlike U.S.-listed Nasdaq 100 ETFs that trade in U.S. dollars (USD), ZQQ trades in Canadian dollars (CAD), so you don’t need to worry about currency conversion fees.
As the name suggests, ZQQ is also currency hedged to CAD. This means the fund employs strategies to minimize the impact of fluctuations in the USD-CAD exchange rate. This feature is particularly useful for Canadian investors, as it reduces the currency risk associated with investing in U.S. assets.
Currently, the ETF charges a 0.39% expense ratio. Because it is growth focused and not dividend-oriented, ZQQ only pays a small distribution yield of 0.32%. This makes ZQQ and other Nasdaq ETFs very tax-efficient holdings for non-registered, taxable brokerage accounts.
