Exchange-traded funds, or ETFs for short, are one of the best investment tools that the modern investor has at their disposal. Many beginner investors simply try to learn how to buy stocks, and don't look at a more passive style of investing like ETFs.
An ETF is an investment fund that tracks a particular sector, index, commodity or basket of stocks, and can be traded on an index just like any other stock.
The beauty of ETFs is that investors can build a diversified portfolio with low investment capital. It is perfect for investors with limited capital or new investors (young and old) who want to diversify their risks and maximize gains.
While Canada has its fair share of ETFs, there are a lot of good ones south of the border as well. Canadian ETFs have one key downside. Their exposure is primarily overweight on 3 sectors due to the makeup of the index:
- Oil and Gas
US ETFs on the other hand have a lot more diversity, as they have stocks in industries like tech and healthcare. In this sense, it makes sense to invest into Canadian S&P 500 ETFs.
The S&P 500 is often referred to as the default index in the United States, and in this article we're going to go over how you can gain exposure to the index via some ETFs.
Here are a list of some of the best S&P 500 ETFs that Canadians can buy
Vanguard S&P 500 Index ETF (TSE:VFV)
The Vanguard S&P 500 Index ETF (TSE:VFV) is one of the most popular ETFs for Canadians when they look to invest in US assets.
This ETF tracks the S&P 500 Index (or any successor thereof). It invests into US companies.
One key point to keep in mind while investing into VFV is that it is NOT tied to the Canadian dollar, it is unhedged. This means that you are betting on a stronger US market and a stronger US dollar. It aims to
“employ a passively managed, full-replicated index strategy to provide exposure of large US companies.”
The top six companies that VFV invests in are:
Trailing returns for the last year are 28.53% and for the last five years are 16.49%.
The MER (management expense ratio) for VFV is one of the lowest around at 0.08%, or $0.80 per $1000 invested, and it is not surprising to see why this is one of the most popular investment tools for Canadians.
Vanguard S&P 500 Index ETF 5 year performance vs S&P 500
iShares Core S&P 500 ETF (NYSE:IVV)
The iShares Core S&P 500 ETF (NYSE:IVV) is one of the largest ETFs around.
Managed by Blackrock, it was launched in 2000 and has over $277 billion in assets under management. $10,000 invested in the ETF during its launch would be worth just over $41,000 on March 31, 2021.
That’s a return of 6.94%, which might not sound very impressive. However, the ETF has delivered fabulous returns recently.
One-year returns are 56.31%, and five-year returns are 16.25%. The goal of IVV is simple. The prospectus says the fund aims to give investors:
- Exposure to large, established US companies.
- Low cost, tax efficient access to 500 of the largest cap US stocks.
- Use at the core of your portfolio to seek long-term growth.
In terms of major exposure exposure, the fund has:
- 26.81% allocated to tech
- 12.7% to healthcare
- 12.51% to consumer discretionary
- 11.45% to the financial sector.
And its top holdings currently consist of much the same as VFV:
- Berkshire Hathaway
In terms of fees, the fund is practically free with total fees of 0.03%, or $0.30 per $1000 invested. This is one benefit to owning S&P 500 index funds. The fees are very low for broad based exposure.
But, lets get back to Canadian S&P 500 index ETFs instead of ones that trade down south.
iShares Core S&P 500 ETF 5 year performance vs the S&P 500
BMO S&P 500 Index ETF (TSE:ZSP)
The BMO S&P 500 Index ETF (TSE:ZSP) invests in and holds the constituent securities of the S&P 500 Index in the same proportion as they are reflected in the index.
So, it's no surprise to again see the likes of Apple, Microsoft, Amazon, Facebook, Alphabet and Tesla in the top 10 holdings of this ETF.
In terms of sector exposure, the largest allocation is towards technology companies at 23.50%, followed by financial services at 14.20%.
As with the other ETFs on this list, its holdings consist of the largest and most liquid US stocks. They also benefit from currency appreciation down south, as this ETF is unhedged.
The ETF has returned 28.3% in the trailing 12 months and 16.57% in the last five years.
Constituent securities must pass minimum float-adjusted and liquidity screens to qualify and maintain membership in the Index. Index weights are reviewed quarterly.
$10,000 invested in the ETF on May 1, 2016 would be worth $21,482 today, up 115%. ZSP is managed by BMO Global Asset Management, and has total fees of around 0.08%, or $0.80 per $1000 invested.
BMO S&P 500 Index ETF 5 year performance vs the S&P 500
Vanguard S&P 500 Index ETF (CAD-hedged) (TSE:VSP)
The Vanguard S&P 500 Index ETF (TSE:VSP) is the second Vanguard ETF on this list.
The ETF is CAD hedged and seeks to track, to the extent reasonably possible and before fees and expenses, the performance of a broad US equity index that measures the investment return of large-capitalization US stocks.
Unlike the previous ETF VFV, this ETF is hedged to the Canadian dollar. Currently, this Vanguard ETF seeks to track the S&P 500 Index (CAD-hedged) (or any successor thereto).
The way this ETF gets exposure to the S&P 500 is holding the underlying US listed ETF VOO. This is exactly why when you look at VSP on something like Yahoo Finance, it has only a single holding, VOO.
Before I start sounding like a broken record in terms of holdings and allocations, VOO has much the same as any other ETF on this list.
The ETF also uses derivative instruments to seek to hedge the US dollar exposure of the securities included in the S&P 500 Index back to the Canadian dollar.
An investment of $10,000 in May 2016 would have returned $19,795 on March 31, 2021. Management fees are similar to other funds on this list, coming in at $0.80 per $1000 invested, or 0.08% annually.
Vanguard S&P 500 Index ETF (CAD-hedged) 5 year performance vs the S&P 500
Horizons S&P 500 Index ETF (TSE:HXS) & (TSE:HXS.U)
This is an outperformer on the ETF scale when it comes to Canadian S&P 500 ETFs.
The Horizons S&P 500 Index ETF has both a Canadian dollar version (TSE:HXS) and a US dollar version (TSE:HXS.U).
Which one you choose will ultimately depend on where you see each currency heading into the future.
The performance of HXS.U directly corresponds to the performance, in US dollar terms, of the S&P 500 Index, net of expenses.
The performance of the HXS will generally, but not directly, correspond to the performance, in Canadian dollar terms, of the S&P 500 Index, net of expenses.
The difference in the performance of the CAD units in Canadian dollar terms is solely a result of the differences in daily currency rates rates used by the ETF and the Index provider to determine the net asset value and Index level respectively, in Canadian Dollar terms.
The ETF has returned 28.37% in a year and 16.46% in 5 years. Since its inception in 2010, $10,000 invested in it would have given you a return of $50,563 on March 31, 2021. The S&P 500 ETF has the highest fees on this list, however they're still relatively cheap, coming in at 0.1%, or $1 per $1000 invested.