Canada’s Top Technology ETFs to Buy in September 2022

Posted on September 21, 2022 by Dylan Callaghan

It's no surprise that Canadians are looking for tech exposure. After all, the COVID-19 pandemic has placed a spotlight on "work from home" solutions to keep people safe.

And although life has somewhat returned to normal in a post pandemic environment and tech stocks have taken a hit as of late, the tech sector is still on pace to achieve rapid growth over the next 5-10 years. Having exposure to it will be critical.

In fact, all the pandemic has done is guarantee more rapid adoption of technology here in Canada.

However, buying individual stocks is extremely hard. As such, many Canadians are looking for Canadian tech ETFs to not only get exposure here in Canada but south of the border as well.

In this article, I'm going to go over some Canadian ETFs that can get you single-click exposure to all of the popular technology options in North America.

First, let's start with Canada's number one option.

The top Canadian tech ETFs to buy right now

iShares S&P/TSX Capped Information Tech Index ETF (TSE:XIT)

The iShares Capped Information Tech ETF (TSE:XIT) is arguably the most popular technology ETF here in Canada.

In fact, it's pretty much the only Canadian tech ETF in the country. There aren't a lot of technology companies here in Canada, which is why this is practically the only pure-play Canadian tech ETF on the markets.

In terms of company exposure, you are truly getting the best of the best with this ETF.

Its top 4 holdings are some of the biggest technology companies in the country in Shopify (TSE:SHOP), Constellation Software (TSE:CSU), CGI Inc (TSE:GIB.A) and Open Text Corp (TSE:OTEX).

Despite the recent drawdown, this technology ETF has posted outstanding returns in the last 3, 5, and even 10-year periods. If you have owned this ETF over the last decade you have simply crushed the broader TSX Index.

The ETF has an average annual return of 19.82% over the last 10 years. The two main drivers of this performance have been Shopify and Constellation. Yes, Shopify suffered a very large drawdown in 2022, but let's not forget that $10,000 invested at its 2015 IPO is still worth $150,000 today.

Don't discount the other major player in Constellation Software either. $10,000 ten years ago in Constellation is a cool $274,000 now.

The reason I'm focusing in on these two companies is because a purchase of XIT is essentially a massive bet on both Shopify and Constellation. This is because the two stocks make up over 50% of the funds total holdings.

In fact, the top 5 holdings of this Canadian tech ETF make up over 80% of assets.

The tech ETF is diversifying and continually adding new holdings, like the recent addition Hut 8 Mining Corp (TSE:HUT) and Quarterhill (QTRH), but the exposure is very minimal.

This is by far the best Canadian tech ETF you can buy today if you want pure-play exposure to Canada's top technology companies. Just understand that it comes with a severe degree of concentration risk because of the heavy allocation to two stocks.

In terms of fees, you'll pay $6.10 on every $1000 invested (0.61%) to own XIT. But considering its near 19% average annual return over the last decade, this fee is a non-factor.

TD Global Technology Leaders Index ETF (TSE:TEC)

Canadian tech investors rejoice! We finally have a low-fee option from TD that exposes us to some of the best technology options here in North America, and that is the TD Global Technology Leaders Index ETF (TSE:TEC).

TEC is a relatively new Canadian tech ETF, having been launched in early 2019. The ETF aims to track the Solactive Global Technology Leaders Index ETF and primarily contains mid to large-cap technology companies in North America.

In terms of Canadian exposure, this ETF contains next to none. In fact, the largest Canadian-related option inside of this portfolio used to be Shopify. But due to its large drawdown, it isn't even in the top 25 anymore.

89% of the fund is targeted toward North American technology companies, including some big allocations towards US tech giants Apple (15%) and Microsoft (13%). Overall, it has 272 total holdings.

In terms of the top 10, Apple and Microsoft are the only 2 with double-digit weightings, but this tech ETF contains some of the most prominent companies in the world including Amazon, Facebook, Alphabet, Via, Tesla, NVIDIA and Paypal.

The ETF is a global tech option, with 6.40% of holdings in the Greater Asia region and 6.16% in the Greater Europe region. But make no mistake about it, this is essentially a US technology pureplay.

The ETF has over $1.3 billion in assets under management and daily volume of 26,000 shares. So, liquidity shouldn't be an issue at all for the average retail investor.

Fees are lower than XIT, coming in at 0.39% and the fees are actually somewhat eliminated with the small dividend (0.28% at the time of writing) that the ETF does pay.

Lets not kid ourselves, we aren't buying these Canadian tech ETFs for the distribution. So, it's really nice that it can at least offset the fees to the point where this fund is almost free.

In terms of performance, there isn't much to go off of because the fund is new. Its returns are also going to be skewed because of COVID-19 and the tech surge. I'll want to see half a decade's returns before I judge the true effectiveness of the ETF. But for now, it looks very promising.

BMO NASDAQ 100 Equity Index ETF (TSE:ZNQ)

This is a relatively unknown Canadian tech ETF. Primarily because the hedged version (which is ZQQ by the way if you'd like to look at it) takes all the attention.

But I like unhedged ETFs, as I believe the back end fees and work required to hedge have historically made these currency hedged ETFs underperform. This is why I've included the unhedged version BMO NASDAQ 100 Equity Index ETF (TSE:ZNQ).

The hedged version has outperformed the non-hedged by around 3% over the last couple years. However, the environment has changed somewhat with the high Canadian dollar.

The ETF's top holdings mimic that of, you guessed it, the NASDAQ 100. In fact, the ETF's goal is to simply replicate the performance of the NASDAQ 100 Index.

It has struggled to do so over the last year, but this is still an ETF that has posted outstanding returns since its inception in early 2019, turning $10,000 into $18,580 during that time period.

The ETFs largest and only double digit holding is Apple at 12.5%, and after that we see much the same as TEC in the fact it holds Microsoft, Amazon, Tesla, Alphabet, Facebook, NVIDIA and Paypal.

There are no Canadian companies in this ETF. Shopify would likely be included, but the company trades on the New York Stock Exchange. If you're looking for exposure to the NASDAQ 100 with some relatively low fees, this is an ETF you'll want to take a look at.

With fees of 0.39%, this fund will cost you around $3.90 per $1000 invested. Not bad for single-click exposure to 100 of the best tech companies in North America.

However keep in mind, this unhedged variant is much smaller than its hedged counterpart, with assets under management of only $252 million and average daily volume of 2222, compared to $1.5 billion and 52,000 in average volume for the hedged version.

However, it provides more than enough liquidity for the average retail investor.

Overall, these Canadian tech ETFs provide solid exposure to a variety of markets

If you're looking for Canadian exclusive tech exposure then XIT is going to be the best Canadian tech ETF around.

However, globally TEC provides some very unique exposure and also does so with some pretty low management fees.

And finally, if you're looking for exclusive exposure for tech south of the border and to the NASDAQ 100, the unhedged version of BMO's product should serve you fine. If you feel you still want to be hedged to the Canadian dollar, however, look at ZQQ.

On a side note, if you're looking for tech exposure in international markets, have a look at our top emerging market ETFs in Canada.

These Canadian tech ETFs all sport higher, yet completely reasonable fees due to the fact they are "niche" ETFs and not broad index funds. They require a little more active management, and as such you'll pay for this.

But in all situations, the fees are essentially non factors because of the returns.

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post.

Dylan Callaghan

About the author

Dylan is the co-founder of Stocktrades.ca and an avid self-directed investor. He holds a portfolio of Canadian growth and dividend growth stocks, and believes that anyone, regardless of financial status, stands to benefit from investing in the stock market. His ultimate goal with his writing and the continual development of Stocktrades.ca is to create a resource that helps Canadians, and investors from around the world, make more money and retire earlier.

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