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The SPDR S&P 500 ETF Trust (NYSEMKT:SPY), which debuted in 1993 as the first U.S.-listed exchange-traded fund (ETF), has since evolved into the world’s largest ETF, boasting approximately $437 billion in assets.
However, for Canadian investors, the path to investing in SPY isn’t as straightforward as it might seem. One of the primary hurdles is currency conversion.
Investing in a U.S.-listed ETF like SPY involves converting Canadian dollars into U.S. dollars, which can introduce currency risk and transaction costs. This factor alone can significantly impact the overall return on investment.
Beyond currency considerations, Canadians have diverse ways to invest in the U.S. market, each aligning with different investment philosophies and goals. Let’s look at two ETF ideas tailored for Canadian investors looking to tap into the U.S. market: one suited for growth investors and another for value investors.
Growth: Nasdaq-100 index
For growth-oriented investors, an ETF that tracks the Nasdaq-100 index presents an ideal opportunity. The Nasdaq-100 is renowned for its concentration in the technology sector and is characterized by its large-cap growth tilt.
This index represents some of the most dynamic and innovative companies in the tech sector, making it a go-to for investors seeking growth potential.
It’s important to note that while the index is heavily skewed towards technology, it also includes companies from various other sectors like communications and consumer discretionary, all of which are leaders and innovators in their respective fields.
A compelling option for Canadian investors to access this growth-focused index is through BMO NASDAQ 100 Equity Hedged to CAD Index ETF (TSX:ZQQ).
ZQQ offers a direct pathway to the performance of the Nasdaq-100 while mitigating the currency risk typically associated with investing in U.S. securities. This is because ZQQ is hedged to the Canadian dollar, meaning the ETF takes steps to neutralize the impact of fluctuations in the USD/CAD exchange rate.
Additionally, ZQQ charges a management expense ratio of 0.39% per annum, which is a consideration for investors when evaluating the cost efficiency of this ETF. This fee covers the costs associated with managing and operating the ETF, including the currency hedging strategy.
Value: Dow Jones Industrial Average
For value investors seeking a conservative approach, the Dow Jones Industrial Average (DJIA) offers an excellent avenue to access blue-chip stocks, particularly from sectors like consumer staples, healthcare, and industrials.
The DJIA is one of the oldest and most well-known stock indices in the world, representing a broad spectrum of companies that are considered industry leaders and are typically financially robust.
The DJIA operates with a price-weighted methodology, which means that the index is calculated based on the prices of its constituent stocks, rather than their total market capitalization. This unique feature distinguishes the DJIA from other major indices, like the S&P 500, which are market-cap weighted.
For Canadian investors looking to gain exposure to the DJIA, BMO Dow Jones Industrial Average Hedged to CAD Index ETF (TSX:ZDJ) is an attractive option.
ZDJ provides access to the same blue-chip stocks that comprise the DJIA, with the added benefit of being currency-hedged to the Canadian dollar. Again, this hedging strategy mitigates the impact of fluctuations in the USD/CAD exchange rate on the returns, making it a suitable choice for those wary of currency risk.
Moreover, ZDJ is a cost-effective choice with an expense ratio of only 0.26%. This relatively low fee makes it an appealing option for value investors who are mindful of the costs associated with their investments
