With the ongoing AI boom continuing to dominate the headlines on both sides of the border, many Canadian investors might be wondering if it’s still worthwhile to top up their exposure to the U.S. tech sector. Of course, the tech-heavy Nasdaq 100 might not be a pure-play tech ETF, but it’s an index that offers tech-heavy exposure for a fairly reasonable price of admission when we’re talking about management expense ratios (MERs).
At the same time, the argument that the S&P 500 is pretty much a tech-savvy ETF seems to be growing stronger over time. Indeed, it’s not just the Nasdaq 100 that’s a bit heavy on tech these days.
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QQQ is a solid, low-cost index to help Canadians supercharge their growth
Either way, the Invesco QQQ ETF (NASDAQ: QQQ) takes the exposure to the next level and, as you’d expect, the valuation is that much frothier. Higher multiples on an index do not necessarily mean that a huge correction (or worse) is right up ahead, though. But, of course, investors should always be prepared to sail through the annual correction, which is only normal, healthy, and a good thing for new investors who are still in the early days of their careers.
It’s not just the heightened multiples to be had on U.S. tech and investments like QQQ that Canadian investors should be aware of. With the Canadian dollar recently plunging by a few more cents, now just north of the US$0.70 mark, the big question is whether there’s also considerable FX risk in swapping one’s loonies for U.S. dollars to buy shares of QQQ.
With the U.S. Federal Reserve hiking rates while the Bank of Canada has yet to (the odds of a hike at the next meeting are going up, but they probably should have hiked months ago!), it should be no mystery to see the loonie under pressure again.
As oil prices come back down, perhaps below US$0.70 could become a new reality. And for investors looking to bet on the U.S. market, perhaps a currency-hedged ETF could make a lot of sense, especially for those who expect the loonie to bounce back from its current slump relative to the greenback.
The case for hedging
Either way, something like the CI Invesco Nasdaq 100 Index ETF CAD Hedged (TSX: QQC.F) could be a worthwhile option for investors who want more exposure to big tech and its role in the AI revolution without having to take a raw deal from currency exchange rates. Now, I tend to prefer the non-hedged version, but after a rough patch for the loonie, I do think that currency hedging might actually be worth the extra fees, especially for Canadians with a lack of exposure to U.S. names.
For the most part, it’s more about whether you want more Magnificent Seven exposure and, more recently, a greater percentage invested in the semiconductor names. While there are more exciting and direct ways to play AI, QQQ and its like, I believe, is one of the lowest-cost go-to options for investors who want a bit more of a jolt compared to the S&P 500 or TSX Index.
So, should investors be buyers of the QQQ amid heightened valuations and growing concern about risks posed by AI? I’d personally wait for a pullback before jumping in. But for those keen on the QQQ, the QQC.F might be a more convenient option amid the loonie’s slump.
