The SPDR S&P 500 ETF (NYSEMKT: SPY) is the world’s largest ETF, and for many a de facto gateway to gaining diversified exposure to large-cap U.S. stocks. For a reasonable price, it offers a snapshot of the U.S. market’s vigour, featuring titans from almost every sector.
But while SPY has become synonymous with U.S. market exposure, it’s essential for investors, especially those north of the border, to recognize that SPY isn’t the sole avenue for investment opportunities within the U.S. stock market.
Today, I’ll go over three compelling ETF alternatives to SPY. Much like the foundational ABCs that underpin any learning process, we’ll look at the unique advantages and distinct nuances of these alternatives compared with SPY.
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Anchoring in the Dow: Diving into value stocks
When many think of the U.S. stock market, the S&P 500 often dominates the conversation. However, for those seeking a different flavour — a touch more anchored in time-tested value — the Dow Jones Industrial Average (DJIA) presents an enticing option.
Often referred to as “The Dow,” this index comprises 30 hand-picked, blue-chip companies that have withstood the test of time. Representing a cross-section of major industries (barring utilities and transportation), the DJIA offers curated insight into the health of the U.S. economy.
For Canadian investors, this can be a boon. The Dow’s emphasis on longstanding companies means it inherently leans towards firms with consistent track records, often deemed as value stocks. Many of these stocks also pay above-average dividends.
To access value stocks, consider the BMO Dow Jones Industrial Average Hedged to CAD Index ETF (TSX: ZDJ), which charges a 0.26% expense ratio.
Benchmarking with the Nasdaq: Tech’s top titans
Investors looking for growth stocks may like the Nasdaq-100 over the Dow. This index showcases the top 100 non-financial companies listed on the Nasdaq stock exchange, teeming with technological giants and innovators.
Unlike broader indices, the Nasdaq 100 offers a laser-focus on the tech sector’s movers and shakers. By investing here, you’re betting on the future, riding the waves of digital transformation and innovation.
Compared to the Dow, the Nasdaq 100 pays fewer dividends, but has historically provided greater capital appreciation. If you favour a growth investing strategy over value investing, this ETF may be ideal.
To access growth stocks, consider iShares NASDAQ 100 Index ETF (CAD-Hedged) (TSX: XQQ), which charges a 0.39% expense ratio.
Cushioning with currency: Hedged S&P 500 ETFs
Currency fluctuations can be an unexpected jolt for Canadians investing in U.S. markets. While the allure of the S&P 500 remains strong, the impact of the CAD-USD exchange rate can’t be ignored.
This is where currency-hedged S&P 500 ETFs come into play. Designed to offset currency risks, these ETFs provide Canadians a smoother ride by neutralizing the effects of currency movements between the CAD and USD pair.
By cushioning against currency volatility, investors can focus more on the market’s inherent value, ensuring their U.S. stock journey aligns closer with their investment goals.
The alternative to SPY here is the Vanguard S&P 500 Index ETF (CAD-hedged) (TSX: VSP), which charges a low 0.09% expense ratio.
