The S&P 500 is so widely followed that nearly every major equity exchange-traded fund (ETF) in Canada tracks it. BMO, iShares, Global X, and Vanguard all offer versions of it, and they’re all solid – but none are the best.
For Canadians, the top pick still isn’t listed on the TSX. It’s the SPDR Portfolio S&P 500 ETF (NYSEMKT:SPLG), a U.S.-listed fund that I consider the undisputed GOAT of S&P 500 ETFs. Here’s why.
It’s dirt cheap
Canadian S&P 500 ETFs typically charge an average management expense ratio (MER) of 0.09%, which is already low. SPLG’s MER is just 0.02% – that’s $2 per $10,000 invested, versus $9 for a comparable Canadian-listed ETF. Splitting pennies, sure, but when you’re comparing like for like, cheaper is objectively better.
As for the fact that SPLG trades in U.S. dollars, that’s easily managed. Currency conversion doesn’t have to cost you if you use Interactive Brokers (IBKR) or perform Norbert’s Gambit – that is, using a dual-listed security to convert Canadian dollars to US dollars, or vice versa. If you’re still paying a 1.5% FX spread at a bank brokerage, that’s a platform issue – not an SPLG problem.
It’s tax-efficient
Canadian-listed S&P 500 ETFs lose 15% of their underlying dividends to U.S. foreign withholding tax, even when held in Tax-Free Savings Accounts (TFSAs) or Registered Retirement Savings Plans (RRSPs). That’s because they hold U.S. stocks, so it gets taxed at the fund level before you even receive it.
SPLG, being U.S.-domiciled, avoids this issue when held in an RRSP. As long as your brokerage has a valid W-8BEN form on file – usually done automatically – you won’t be hit with that 15% tax. (The exemption doesn’t apply in TFSAs, so RRSPs are the better home for U.S.-listed ETFs.)
The Foolish takeaway
If your portfolio is small, owning a Canadian-listed S&P 500 ETF instead of SPLG won’t make or break your returns. But when measured by cost, efficiency, and structure, SPLG is the better ETF – hands down.
If you’re not investing through an RRSP or you’re stuck with a brokerage that charges steep foreign exchange fees, you can disregard this, as SPLG’s tax and cost advantages won’t matter as much.
But for anyone comfortable buying U.S.-listed funds in USD within an RRSP, SPLG remains the most cost- and tax-efficient way for Canadians to invest in the S&P 500.
