S&P 500 exchange-traded funds (ETFs) are one of the most popular investment categories in Canada.
Nearly every major provider offers one, and most of their funds charge roughly the same fee, typically around a 0.09% management expense ratio.
For investors, that competition is generally a good thing. Lower costs make it easier to gain exposure to one of the most widely followed stock market benchmarks in the world.
But if I had to choose just one S&P 500 ETF to put $500 into right now, my pick would be the BMO S&P 500 Index ETF (TSX: ZSP).
It charges the same 0.09% expense ratio and has grown into a large fund with about $20.9 billion in assets under management. However, there are a couple of bigger-picture reasons why it stands out to me.
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ZSP’s structure matters
Canadian S&P 500 ETFs can obtain exposure to the index in several different ways.
Some use a fund-of-funds structure. In that setup, the Canadian ETF simply buys units of an existing U.S.-listed ETF that tracks the S&P 500. It works fine, but it adds an additional layer between investors and the underlying companies.
Others use synthetic exposure through derivatives such as swaps. In those cases, the ETF does not actually hold the stocks themselves. Instead, it holds financial contracts designed to replicate the index’s return.
ZSP takes a much simpler route. It physically holds the underlying stocks in the index. The fund actually goes out and buys the companies in the S&P 500 in their respective weights and holds them directly in the portfolio.
Personally, I prefer that straightforward structure. It minimizes complexity and keeps the connection between the ETF and the underlying companies as direct as possible.
A homegrown provider
Another reason I like the ZSP is the firm behind it.
Many S&P 500 ETFs available in Canada are managed by Canadian subsidiaries of large U.S. asset managers such as Vanguard or BlackRock. There is nothing inherently wrong with that, and those firms are highly respected.
However, it is worth remembering that the ETF industry in Canada is also served by domestic institutions.
BMO Global Asset Management is part of one of Canada’s largest banks and has a long history serving Canadian investors. The firm was managing Canadian investment products long before many foreign providers entered the market.
In an environment where trade relations between Canada and the United States can occasionally become uncertain, some investors may appreciate having an ETF sponsored by a Canadian financial institution.
That may be a small consideration, but it is another factor that makes ZSP appealing to me as a simple, reliable way to track the S&P 500.
