If you’re like the many Canadian investors who are just a bit too heavy on the TSX Index funds and want to diversify internationally (even if it entails having some exposure to stocks south of the border), it’s worth looking into the ETFs out there (TSX-traded and those on the NYSE or Nasdaq). Of course, the U.S. markets have more growthy sectors that the TSX Index can’t provide.
And while it is possible to bring your 100% mix of Canadian stocks into a better balance from a sector-wide perspective, I’d argue that the relatively small representation in the tech sector limits one to emerging technological trends. When it comes to such revolutionary innovations, AI has to come to the top of the list. And while Canada has an AI model maker in Cohere, new retail investors can’t yet pick up shares on the TSX Index.
Of course, it will be interesting to see what happens when the much-anticipated TSX IPO finally has its debut day. Either way, there’s no shortage of AI and other transformative tech plays in the U.S. market. And you don’t need to pick and choose from the many names in the tech scene. Arguably, just buying the Nasdaq 100 is a great way to get a big chunk of tech exposure for your portfolio.
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The case for buying U.S. index ETFs
Given the concentration in the top-10 U.S. holdings, the S&P 500 is also good enough to get the job done. With so many S&P 500 ETFs on the TSX Index that cost you very little (we’re talking expense ratios of less than 0.10%), you could just buy the likes of a Vanguard S&P 500 Index ETF (TSX:VFV) and call it a day. In my opinion, the VFV is a go-to if you want low costs, the legendary Vanguard banner, and to keep your investments in Canadian dollars.
Though, do note that the price action will account for the fluctuation in value of the Canadian dollar versus the greenback. If that bothers you, especially as the loonie stays in a rough spot relative to the U.S. dollar and you think the Canadian dollar will bounce back at some point in the near future, a currency-hedged S&P 500 ETF could make sense.
Investing in the U.S. indices has never been easier for Canadians
However, personally, I think the VFV is just fine for most, especially when you consider how hard it is to make a call on currency moves. The Canadian dollar could tread water for some time and maybe even lose further ground due to some unforeseen event. Either way, the VFV is a quick-and-easy way to own the S&P 500 in something like a TFSA or a non-registered account.
For something like the RRSP, the Vanguard S&P 500 ETF (NYSEMKT:VOO), which trades in U.S. dollars, is worth making the currency swap for (don’t forget about Norbert’s Gambit if you want to save some money during the conversion!). Why? You won’t have to worry about the U.S. dividend withholding tax of 15%.
As for the Nasdaq 100, there are also great options to pick from, including the BMO Nasdaq 100 Equity Hedged to CAD Index ETF (TSX:ZQQ) if you want Canadian dollar hedging or the Invesco QQQ Trust (NASDAQ:QQQ) for your RRSP.
As for the Dow, I’d argue it makes more sense to bet on the S&P 500 rather than an arbitrary mix of 30 stocks, especially when you consider you’ll pay, on average, a much higher expense ratio for admission to such an ETF. If you are keen on the Dow, though, the BMO Dow Jones Industrial Average Hedged to CAD Index ETF (TSX:ZDJ) is one way to do it.
