Looking to invest in the US market but you don’t want to deal with currency exchange? One of the easiest way to do so is to buy a Canadian ETF (Exchange Traded-Fund) that invests in the US market through a stock index such as the S&P 500 index.
One of the best US index to start with when investing in the US is the S&P 500 index (maintained by S&P Global). It’s filled with companies that are operating locally within the US but also internationally providing you with a good exposure to many economies.
It should not be a surprised to learn that it has outperform the TSX over the long term. In fact, this beginner portfolio example starts with an S&P 500 index.
What is the S&P 500 Index?
The S&P 500 Index, managed by S&P Global, is a world renowned float-adjusted market capitalization weighted Index that tracks the securities of the largest and most liquid public companies in the United States.
Constituent securities must pass minimum float-adjusted and liquidity screens to qualify and maintain membership in the Index. Index weights are reviewed quarterly.
The index includes 500 leading companies and covers approximately 80% of available market capitalization. Furthermore, the index rebalances quarterly in March, June, September, and December. (500 is not a hard number as it has 505 in the index at the time of writing)
Generally speaking, the index is considered to be a proxy of the U.S. equity market. Below are the top 10 holdings representing approximately 29% of the ETF.
Choosing Your S&P 500 ETF – To Hedge or Not to Hedge?
How can choosing an ETF that covers the S&P 500 be so confusing? Isn’t there just one index and shouldn’t all the ETFs covering the index be the same? and perform the same?
Unfortunately for Canadians, the currency conversion is the complication. While the ETF trades on the TSX in Canadian dollars, it’s replicating the US index by buying the same index on the NYSE.
Essentially, you hold a Canadian ETF that buys a US ETF. Something you could do on your own, in fact, but the asset management firms want to make it easy for investors.
To help reduce the impact of currency fluctuation, the ETF companies have create a Canadian dollar hedged version of the simple S&P 500 ETF. The desired intention is to seek a balance in the value of the ETF against the currency fluctuations.
But is the CAD-Hedge S&P 500 ETF better than its counterpart? While you can’t easily predict currency fluctuations, there is enough data to start showing which is performing better between all the S&P 500 ETFs traded in Canada.
List of S&P 500 ETF for Canadians
The list of available S&P500 ETFs for Canadians is outlined below. Doesn’t seem like much when presented this way but still confusing for many.
ETF Company
Unhedge ETF
CAD-Hedge ETF
Vanguard
VFV
VSP
Black Rock iShares
XUS
XSP
BMO
ZSP
ZUE
Horizons
HXS
HSH
Let’s see what the various offerings have in common and where they differ.
ETF Company
Ticker
NAV
MER
FEE
Yield
Frequency
Vanguard
VFV
5.578B
0.08%
0.08%
1.06%
Quarterly
Vanguard
VSP
1.824B
0.09%
0.08%
1.04%
Quarterly
iShares
XUS
4.491B
0.10%
0.09%
0.90%
Semi-Annual
iShares
XSP
7.930B
0.10%
0.09%
0.92%
Semi-Annual
BMO
ZSP
10.150B
0.09%
0.08%
1.32%
Quarterly
BMO
ZUE
1.563B
0.09%
0.08%
1.25%
Quarterly
Horizons
HXS
2.305B
0.10%
0.10%
1.38%
?
Horizons
HSH
0.220B
0.10%
0.10%
1.38%
?
Let’s review and compare the same ETFs with currency hedging and no currency hedging to narrow down the process. There is a clear winner in each case.
VFV ETF wins over VSP ETF
XUS ETF wins over XSP ETF
ZSP ETF wins over ZUE ETF
HXS ETF & HSH ETF both lose
Either of them cannot beat the S&P 500 like 3 of the others.
The Best S&P 500 ETFs
Once you understand what the various ETFs have in common and where they differ, the decision to select the best S&P 500 ETF is easy.
Especially after you realize that the currency-hedge version lags behind not only the S&P500 but also the non-hedge ETF
The best is now between VFV, XUS and ZSP. If you look at the graph below, representing the last 5 years, there are no clear winner between the top 3 S&P 500 ETFs. Whichever you can trade for free should be the one you go with and save on the trading fees.
Otherwise, the winner is based on the lowest MER with Vanguard leading the way with the lowest fees.
On the Canadian side of the stock market, the best ETFs to track it would be VFV, XUS and ZSP.
Canadians have to deal with currency conversion so it’s never just a 1 to 1 ratio. If you wanted a 1:1 ratio, you should buy the US S&P500 index but you will need to exchange your Canadian dollars first.
Is S&P 500 a good investment?
As a Canadian, it definitely is a good investment as you an easily beat the Canadian market through one simple ETF such as VFV.
Do note that over a long period of time, the US market tends to outperform the Canadian market so make sure you are investing for the long run.
The S&P 500 increased 7.5% during the first quarter of 2023. Though it was led by a few big outperformers, more than half of the stocks on the index closed above their end-of-December prices. Here are the top 30 biggest gainers on the index from January 1 to March 31, 2023.
Regarding dividend payouts, VOO also has the edge: its dividend yield is 1.59% compared to VFV's dividend yield of 1.24% (as of February 17, 2023). However, VOO's cheaper MER and higher dividend yield are offset by the 15% withholding tax on dividends, which reduces total returns.
The S&P/TSX Composite Index is a capitalization-weighted equity index that tracks the performance of the largest companies listed on Canada's primary stock exchange, the Toronto Stock Exchange (TSX). It is the equivalent of the S&P 500 index in the United States, and as such is closely monitored by Canadian investors.
S&P 500 5 Year Return is at 57.45%, compared to 55.60% last month and 73.30% last year. This is higher than the long term average of 44.33%. The S&P 500 5 Year Return is the investment return received for a 5 year period, excluding dividends, when holding the S&P 500 index.
Basic Info. S&P 500 10 Year Return is at 161.0%, compared to 161.9% last month and 195.6% last year. This is higher than the long term average of 112.5%.
If you are looking for funds with good return, Vanguard S&P 500 ETF can be a profitable investment option. Vanguard S&P 500 ETF quote is equal to 384.570 USD at 2023-05-20. Based on our forecasts, a long-term increase is expected, the "VOO" fund price prognosis for 2028-05-10 is 513.787 USD.
VFV is the Canadian version of the Vanguard S&P 500 ETF offered by Vanguard U.S. Although they both track the S&P 500, one of the major differences between investing in VFV versus VOO is that dividends paid out by VFV are subject to a 15% foreign withholding tax.
While the S&P 500 is a popular index, you actually can't invest in it in Canada. However, you are able to invest in the stocks that make up the S&P 500 index. You can also invest in Canadian indexes that follow the S&P 500's performance.
Purchasing US stocks in Canada can be a good way to benefit from investing in the American market. It will allow you to diversify your portfolio and tap into this highly profitable market. However, it's also important to understand the costs and risks involved, especially if you are new to stock trading.
How long has it historically taken a stock investment to double? NYU business professor Aswath Damodaran has done the math. According to his math, since 1949 S&P 500 investments have doubled ten times, or an average of about seven years each time.
This is a return on investment of 574,555.93%, or 9.75% per year. This lump-sum investment beats inflation during this period for an inflation-adjusted return of about 31,534.56% cumulatively, or 6.38% per year.
The average yearly return of the S&P 500 is 10.331% over the last 100 years, as of the end of February 2023. This assumes dividends are reinvested. Dividends account for about 40% of the total gain over this period. Adjusted for inflation, the 100-year average stock market return (including dividends) is 7.191%.
History shows us that investing in an S&P 500 index fund -- a fund that tracks the S&P 500's performance as closely as possible -- is remarkably safe, regardless of timing. The S&P 500 has never produced a loss over a 20-year holding period.
The index acts as a benchmark of the performance of the U.S. stock market overall, dating back to the 1920s. The index has returned a historic annualized average return of around 11.88% since its 1957 inception through the end of 2021.
10% Return for S&P 500 a Real Possibility by End of 2023
Short of a recession — a very real possibility — consensus estimates are for about 5% earnings growth (opens in new tab) for S&P 500 companies in 2023. That's certainly less than what it was in years past, but still respectable.
"In the first half of 2023, the S&P 500 is expected to re-test the lows of 2022, but a pivot from the Federal Reserve could drive an asset recovery later in the year, pushing the S&P 500 to 4,200 by year-end," the investment bank said in a research note.
We do not think now is a good time to invest heavily in the S&P 500 if you have a short- to medium-term horizon. We underweight equities in our broader Asset Allocation framework because inflation is still high, and we do not think the Federal Reserve has finished hiking despite market expectations of cuts in 2023.
The U.S. government considers most Canadian-domiciled mutual funds and ETFs to be Passive Foreign Investment Companies (PFICs). As a U.S. citizen, you must make special filings to report these holdings to the IRS. These can be complicated, and paying a tax expert to do it can be expensive.
You can buy Vanguard ETFs with the help of a financial advisor, or through an online brokerage account. You can buy Vanguard mutual funds with the help of a financial advisor, or check with an online brokerage firm for availability.
Best Diversified ETF: Vanguard Total Stock Market ETF (VTI)
The Vanguard Total Stock Market ETF tracks the performance of the overall U.S. stock market. A large-blend ETF, it currently offers returns over 8%, making it one of the best-performing stocks on this list.
The State Street SPDR S&P 500 ETF is not only the oldest U.S. listed exchange-traded fund, but it also typically has both the largest assets under management (AUM) and highest trading volume of all ETFs. This alone makes the SPY the mother of all S&P 500 ETFs.
Does it make sense to have both VTI and VOO? For most investors, it probably doesn't make sense to own both. VTI and VOO both provide great diversification at a low cost. However, you may find that your retirement plan at work doesn't offer a total stock market index fund like VTI.
In Canada, we offer a suite of market-capitalization-weighted index ETFs that cover Canadian, U.S. and international equities and Canadian and global investment-grade bonds.
ETFs are more tax-efficient than index funds by nature, thanks to the way they're structured. When you sell an ETF, you're typically selling it to another investor who's buying it, and the cash is coming directly from them. Capital gains taxes on that sale are yours and yours alone to pay.
The monthly historical returns of both the S&P 500 Index and the Dow Jones Industrial Average show that the best months for the stock market are November, December, and April. The months of October and January also performed well but not as well as the months of April, November, and December.
The largest Equal-Weighted ETF is the Invesco S&P 500 Equal Weight ETF RSP with $32.08B in assets. In the last trailing year, the best-performing Equal-Weighted ETF was BBP at 49.91%. The most recent ETF launched in the Equal-Weighted space was the SoFi Web 3 ETF TWEB on 08/09/22.
The S&P 500 could approach or exceed the 10,000 level by the early to mid-2030s. Many investors take it as a given that—since returns on the S&P 500 have been strong for 10-plus years—stocks are expensive and over-owned.
XQQ has attracted AUM of $1.72 billion, whereas ZQQ has AUM of $1.34 billion. Although both are sufficient for a buy-and-hold investor, XQQ is currently the more popular ETF among Canadian investors.
ZQQ is currently the most popular Canadian Nasdaq 100 ETF with just over $1.2 billion in assets under management, or AUM. The ETF buys and holds the underlying stocks of the Nasdaq 100 index in the same proportions.
How can I invest in S&P500 in Canada? There are many Canadian ETFs that you can buy in Canadian dollars to get exposure to the S&P 500. The primary ETFs by net asset value are VFV, XUS, XSP, and ZSP. They are available on the TSX and trade in Canadian dollars.
Canadians looking to diversify their investment portfolio with US-listed stocks can consider purchasing individual stocks of various companies on the S&P 500 list or investing in an S&P 500 index fund listed on the Toronto Stock Exchange (TSX). Such a fund is also called an exchange-traded fund (ETF).
VFV is the Canadian version of the Vanguard S&P 500 ETF offered by Vanguard U.S. Although they both track the S&P 500, one of the major differences between investing in VFV versus VOO is that dividends paid out by VFV are subject to a 15% foreign withholding tax.
Index funds are a great passive investment that can expose you to a wide breath of high-performing Canadian companies at a low cost. Many index funds pay a dividend, which makes them ideal for Canadian investors who want fixed income from their investments but don't want to handpick their own dividend stocks.
To provide long-term growth through capital appreciation. The Fund is managed to obtain a return that approximates the performance of the S&P/TSX Composite Index. The S&P/TSX Composite Index is intended to represent the Canadian equity market.
VFV ETF is a good way for Canadian investors to diversify their holdings and gain exposure to some of the most popular blue-chip companies. It provides exposure to large US stocks specifically inclined towards IT, healthcare, consumer discretionary, and financial sectors.
As an investor, we cannot invest directly in the S&P500 index. Instead, the easiest way to invest in the S&P500 index is through investing in the S&P500 Exchange-Traded Funds (ETFs). An ETF is an instrument that mirrors the performance of an underlying index. Similar to stocks, ETFs are also traded in the stock market.
Address: 359 Kelvin Stream, Lake Eldonview, MT 33517-1242
Phone: +577037762465
Job: Product Hospitality Supervisor
Hobby: Gardening, Web surfing, Video gaming, Amateur radio, Flag Football, Reading, Table tennis
Introduction: My name is Manual Maggio, I am a thankful, tender, adventurous, delightful, fantastic, proud, graceful person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
