As Canadian investors, we mustn't get drawn into home-country bias and invest most of our portfolio into Canadian equities on the TSX.
Why? The Canadian economy is not large enough and is exposed to too many cyclical industries such as oil and gas, mining, and financials.
Suppose we want to realize more significant returns from our portfolios overall. In that case, we need exposure to the United States, one of the fastest-growing economies in the world and a global superpower.
However, many Canadians don't want to own US stocks directly as they'd rather keep their currency in Canadian dollars. So, many look to Canadian exchange-traded funds to get the job done when it comes to owning the S&P 500 or the NASDAQ.
In this article, we'll be going over some of the best Canadian NASDAQ ETFs to be looking at today. Although they're certainly not as defensive as a Canadian HISA ETF, these NASDAQ ETFs, for the most part, are not as volatile as people make the NASDAQ out to be.
What are the best NASDAQ ETFs in Canada?
|ETF||Price||1 Yr Return|
|BMO NASDAQ-100 Equity CAD-Hedged ETF (TSE:ZQQ)||111.58||35%|
|BMO NASDAQ 100 Equity ETF (TSE:ZNQ and ZNQ.U)||69.51||36%|
|iShares NASDAQ 100 Index ETF CAD-Hedged (TSE:XQQ)||120.37||35%|
|Horizons NASDAQ-100 Index ETF (TSE:HXQ)||61.25||37%|
|Invesco NASDAQ 100 ETF (TSE:QQC)||25.59||36%|
|Horizons NASDAQ-100 Covered Call ETF (TSE:QQCC)||10.83||12%|
|Our Top Pick For 2023 (Click Here)||??||??|
BMO NASDAQ-100 Equity CAD-Hedged ETF (TSE:ZQQ)
BMO Asset Management delivers some of the best ETFs in the country, and its hedged NASDAQ-100 ETF is no different. The fund offers exposure to the NASDAQ-100, all while offering protection from fluctuations in currency from those who want it.
It has assets under management of around $1.5B at the time of writing, making it a sizable fund here in Canada. With a management fee of 0.39%, you'll pay $3.90 per $1000 invested annually to own the fund.
In terms of holdings, it contains some of the largest technology companies in North America. Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Tesla (TSLA), and Alphabet (GOOG) make up the top 5 holdings and nearly 40% of the fund overall.
In terms of NASDAQ-100 ETFs, most will accurately track this holding makeup as they make adjustments based on the underlying index.
In terms of dividends, you won't see much with this or any other Canadian-listed NASDAQ ETF. It yields around 0.35%, nearly negligible unless you have significant capital invested. Exposure to the NASDAQ suits those who want long-term capital appreciation from the tech sector.
Since its inception in 2010, the fund has provided a whopping annualized return of nearly 19%. To give you an idea of dollar figures, $10,000 invested in this fund in 2010 would be just shy of $98,000 now.
With the currency hedging aspect of the fund, this has underperformed the NASDAQ-100 overall, which has put up annualized returns that are around a percent higher.
BMO NASDAQ 100 Equity ETF (TSE:ZNQ and ZNQ.U)
You may be wondering why we are going over what seems to be the same BMO NASDAQ-100 index fund. However, the main difference is that ZQQ is currency-hedged, and ZNQ is not.
Alternatively, you can buy ZNQ in US dollars by searching for ZNQ.U. The unhedged version of BMO's NASDAQ-100 ETF is much smaller, with assets under management of just $320M at the time of writing. However, it has provided much stronger returns over the long term.
The choice to currency hedge or not is a personal decision. However, historically currency fluctuations have levelled out, and if your time horizon is long, in the past, you have been better off not hedging. This is because if currency fluctuations level out, you are ultimately just left to pay the fees to hedge.
Past performance is never indicative of future results. But it is something to consider anyways.
ZNQ has not been around for nearly as long as ZQQ, with an inception date in early 2019. But since then, it has put up annualized returns of about 19.20%. The management expense ratio remains the same at $3.90 per $1000 invested, and the fund also offers a negligible dividend yield of 0.15%.
As mentioned, the decision to buy ZQQ or ZNQ primarily lies with the investor's decision to hedge. Hedging can certainly impact future performance and total returns in general. So, read up as to whether it's right for you.
iShares NASDAQ 100 Index ETF CAD-Hedged (TSE:XQQ)
iShares also has its version of a hedged NASDAQ 100 ETF, trading under the ticker XQQ. The fund is larger than the BMO version, coming in at $1.7B in assets under management at the time of writing.
But its investment philosophy is much the same. The fund seeks to replicate the performance of the NASDAQ-100 while offering a currency hedging feature to protect investors from fluctuations.
The most significant holdings are much the same. You'll see the major tech companies in the top 5, along with companies like Nvidia (NVDA), Pepsi (PEP), Costco (COST) and Meta Platforms (META) rounding out the top 10.
In terms of fees, you'll pay around the same as the two BMO ETFs, $3.90 per $1000 invested, and the fund does pay a little higher dividend, but still relatively small in the 0.25% range.
Since its mid-2011 inception, the fund has returned 17.27% annualized, whereas the NASDAQ 100 has returned around 18.6%. This is a situation where hedging impacts have caused the fund to lag its benchmark index.
Horizons NASDAQ-100 ETF (TSE:HXQ)
Horizons ETF Management came out with the NASDAQ 100 ETF HXG in early 2016. So although it doesn't have as long of a history as the iShares or BMO variant, this is still an excellent option for those who want exposure to the NASDAQ.
With AUM of around $542M at the time of writing, it is the smallest of the three. However, with a MER of 0.28%, meaning you'll only pay $2.80 per $1000 invested, it's also the cheapest.
The fund does not make any distributions at all. This is intentional, primarily for tax purposes. Although the iShares and BMO variants pay very minimal dividends, if held in a taxable account, it would still trigger a taxable event when paid.
So instead, Horizons chooses not to pay a dividend at all. Distributions from the index are instead reinvested. Of note, this fund is not currency-hedged and has a USD version you can buy trading under the ticker HXQ.U.
Performance-wise, the unhedged nature of the fund has helped it outperform the underlying index. Since its inception, it has historical annual returns of 17.8%, compared to 17.5% of the NASDAQ-100.
Invesco NASDAQ 100 ETF (TSE:QQC)
Invesco is the fund manager for one of the most significant NASDAQ 100 funds in North America, QQQ. It is definitely a giant with over $155B in AUM and 53M in daily volume.
Their Canadian version, QQC, is not quite as large. But it still provides substantial exposure to the index. At the time of writing, it has assets under management of just shy of $750M and some of the best management expenses on this list. You'll pay just $2.00 per $1000 invested.
This fund holds two ETFs, QQQM and QQQ. Both of which are Invesco funds that track the NASDAQ 100. The fund is also unhedged, meaning you are fully exposed to currency movements which will impact the accuracy of it tracking its relevant index.
It pays a 0.63% dividend, arguably the only dividend worth mentioning on this list. In terms of overall performance, it hasn't been around long enough to justify going into it. The fund began trading in mid-2021 and, in total, is up around 19% since its inception.
Remember, the NASDAQ 100 is down nearly 5% over that same timeframe. This will be due to currency fluctuations.
BONUS: Horizons NASDAQ-100 Covered Call ETF (TSE:QQCC)
Income seekers rejoice; we have a fund outside the US-listed QYLD that offers a covered call option for the NASDAQ 100. However, this fund is tiny, with assets under management of $126M.
QQCC tracks the NASDAQ-100 index while deploying a dynamic covered call option writing program. The fund is not hedged, meaning you are fully exposed to fluctuating currencies.
The fund is expected to have a dividend yield in the 11% range at the time of writing and has management fees of around 0.85%, meaning you'll pay $8.50 per $1000 invested.
Performance-wise, you likely will not get much more than the portfolio's yield. The underlying asset tends to depreciate. You will see this with most covered call ETFs as they have a gradually downward trending price.
This ETF will not be for everyone and is only suitable for those who want the income stream. If you're looking to gain exposure to the overall growth of the NASDAQ-100 itself, this likely isn't the route to go down.
Can a Canadian still buy QQQ?
Absolutely. Nothing says you cannot convert your currency to USD and instead own QQQ, an ETF that tracks the NASDAQ-100 Index.
However, there are some CAD-listed ETFs that we will go over in this article that will give you exposure to the NASDAQ-100 without having to exchange currencies.
Is there an ETF that tracks the entire NASDAQ?
The Fidelity NASDAQ Composite ETF is a great way to gain exposure to the entire NASDAQ Index. But keep in mind that no ETF providers here in Canada offer one. The Fidelity fund, which trackers under the ticker symbol ONEQ, is in USD.
Historically, the NASDAQ-100 has been the much more popular route as it contains most of the blue-chip technology stocks in North America. However, ONEQ is undoubtedly a strong alternative if you want exposure to the smaller-cap companies on the index.
How to invest in Nasdaq from Canada?
There are three main ways to invest in the NASDAQ in Canada.
- Buy Canadian-listed NASDAQ index funds
- Exchange your currency and buy US-listed NASDAQ index funds
- Invest in the individual stocks on the NASDAQ to gain smaller exposure
The tax implications of these ETFs
It is essential to understand that holding Canadian-listed ETFs that contain holdings of US stocks or ETFs directly may be subject to withholding taxes on the dividends, even inside of an RRSP. This, in addition to brokerage commissions to buy and sell them, certainly eat into returns.
Although the NASDAQ-100 is not known for its high-income levels, there are still some situations where taxable income will be generated via a distribution. So, it's crucial to determine your income taxes and tax situation before buying any of them.