XEI ETF

Best S&P500 ETF Canada – 2023

In this post, we will go over the Best S&P500 ETFs in Canada. We selected only highly popular ETFs with a minimum asset under management of 1 Billion dollars. First things first, we will go over some definitions and the pro and cons of holding index ETFs.

What’s an ETF?

refer to our previous post: Everything you need to know about ETFs

What’s an Index ETF

There are several types of ETFs. And, index ETFs are the king of the hill. In fact, the first ever ETF introduced to a North American Exchange was an index ETF. Index ETFs offer exposure to a large number of securities and sometimes to a whole stock exchange at a very low cost. Their main goal is to acquire, on your behalf, all the securities that constitute a specific index in order to achieve the same return of the tracked index minus the fees.

Does Index funds pay dividend?

Yes they do. Since Index ETFs holds all shares of companies part of the index, if these companies pay dividends then a dividend will be distributed. See below the performance table, the dividend yield is included.

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Popular US indexes

S&P 500 Index

The S&P 500 Index, or the Standard & Poor’s 500 Index, is a market-capitalization-weighted index of the 500 largest publicly-traded companies in the U.S. 

The S&P 500 is an excellent index because most of its constituents are large established US corporations. It’s well diversified across various sectors of the US economy. The index is widely regarded as the best gauge of large-cap U.S. equities. It can be easily used to express an opinion on the US economy in general. In other words, if you are bullish on the performance of the American economy in the long term, it’s probably the best index for you.

All ETF’s tracking the S&P 500 index will try replicate the index so their holdings will be similar to the table shown below.

Constituents of the S&P 500 index:

CompanyWeight (%)
Apple Inc.5.72
Microsoft Corporation5.25
Amazon.com Inc.3.98
Facebook Inc. Class A2.11
Alphabet Inc. Class A1.84
Alphabet Inc. Class C1.78
Tesla Inc1.52
Berkshire Hathaway Inc. Class B1.45
JPMorgan Chase & Co.1.43
Johnson & Johnson1.27
S&P 500 website

S&P 500 Sector Weighting

  • Information technology: 27.60%
  • Health care: 13.44%
  • Consumer discretionary: 12.70%
  • Communication services: 10.79%
  • Financials: 10.34%
  • Industrials: 8.47%
  • Consumer staples: 6.55%
  • Utilities: 2.73%

Nasdaq 100

The Nasdaq-100 is one of the world’s preeminent large-cap growth indexes. It includes 100 of the largest domestic and international non-financial companies listed on the Nasdaq Stock Market based on market capitalization.

This index is dominated by companies in the Information Technology sector.

CompanyWeight
Apple Inc10.971
Microsoft Corp9.462
Amazon.com Inc8.433
Tesla Inc4.236
Facebook Inc3.801
Alphabet Inc3.645
Alphabet Inc3.32
NVIDIA Corp2.64
PayPal Holdings Inc2.342
Intel Corp2.147
As of March 15th, 2020 Source: Investopedia

Nasdaq 100 Sector weighting

SectorWeight (%)
Information Technology48.39%
 consumer services19.43%
 health care 10.21%
 financials  7.21%
 industrials 6.85%
 consumer goods  5.51%
 utilities  0.81%
 telecommunications 0.72%
 oil and gas 0.55% 
basis materials  0.32%
As of March 15th, 2020 Source: Investopedia

S&P 500 vs Nasdaq 100

S&P 500 is more representative of the US economy. It’s more diversified that the Nasdaq 100 which is heavily tilted towards the tech sector. For a long term investor, an S&P 500 ETF is certainly a cost effective option to both diversify one’s investment and get great return overtime. It’s by far the most used Benchmark, meaning most portfolio managers’ mandate is to beat the S&P 500 Index. And, most of them aren’t able to achieve that target!

We discussed the advantages of owning an S&P 500 Index, now time to tackle its drawbacks. The S&P 500 as its the case of most indexes can be volatile. When a manager is in charge, he can try to mitigate risk during tough times but with an index fund there is no one in charge. You are at the mercy of capital markets. If you can weather storms and stay put you should be able to achieve great long term results. Here is a look at the annualized average returns of the S&P 500 for the period ending June 30, 2019:

S&P500 Historical performance

Market indexS&P 500
1-year return3.40%
15-year average8.37%
10-year average10.90%
15-year average6.75%
As of the end of September 2019

The businesses that make up the S&P 500 index are a blend of large cap that can be either categorized as Growth or Value stocks. So, by investing in this Index, you will have no exposure to mid or small caps. In addition, If you’re seeking a dividend income, there is definitely other ETFs that can better respond to your needs.

What’s the Nasdaq100?

The Nasdaq 100 Index is a basket of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange. The index itself is not representative of the US economy rather a great way to get exposure to one of the most dynamic and innovative sector (Information Technology). What’s particular for the Nasdaq 100 is that it has no exposure to the US financial sector.

“The index leans heavy towards innovative companies that have become our ‘modern-day industrials,’ and accelerated by the pandemic, they play an even greater role in our daily lives. These include names like Apple, Alphabet and Amazon, as well as Netflix, Zoom and DocuSign. Biotech companies, including vaccine maker Moderna, are also well-represented,” According to Nasdaq website’s.

Annual performance of Nasdaq 100

YearAnnual performance
202048.88%
201939.46%
20180.04%
201732.99%
20167.27%
20159.75%

    

Comparison of the best S&P 500 ETFs (MER, Yield, Fund size and Beta)

Now that we are done with the definitions, below are the Best Canadian Index ETFs list. We will focus in our comparison on the largest ETFs in Canada in terms of the Asset Under Management.

ETFs tracking the S&P 500MER
BMO S&P 500 Hedged
to CAD Index –ZUE
0.09%
Horizons S&P 500
Index – HXS
0.10%
Horizons S&P 500
Index USD – HXS.U
0.10%
iShares Core S&P
500 Index – XUS
0.10%
iShares Core S&P 500
Index (CAD-Hedged) – XSP
0.10%
iShares Core S&P 500
Index USD – XUS.U
0.10%
Vanguard S&P 500
Index – VFV
0.09%
Vanguard S&P 500 Index
(CAD-hedged) – VSP
0.09%
Best S&P500 ETF Canada
  • Comments:
  • The MER is almost the same for all the selected ETFs above;
  • ZUE has the highest dividend yield;
  • XSP is by far the most popular fund in terms of Asset under management. This provides high liquidity for this ETF;
  • XUS and XUS.U have the lowest volatility. Hedged ETFs have high volatility but also high returns in comparison to Non Hedged ETFs.

Comparison: S&P 500 Index ETFs (Performance)

  • ETFs that are US denominated (XUS.U, HXS.U ) or CAD Hedged (VSP, ZUE, XSP) have outperformed this past year non Hedged ETFs (HXS, VFV, HXS);
  • Long term 5 years: the performance of the selected ETFs is within the same range;

Comparison of Nasdaq ETFs (MER, Yield, Fund size and Beta)

ETFs tracking the NasdaqMER
BMO Nasdaq 100 Equity
Hedged to CAD Index – ZQQ
0.39%
iShares NASDAQ 100
Index ETF (Hedged) – XQQ
0.39%
  • MER is identical for these two popular ETFs;
  • The volatility is similar since both are tracking the same index and they are both Hedged.

Comparison: Nasdaq Index ETFs (Performance)

Name1 Y
(%)
3 Y
(%)
5 Y
(%)
ZQQ-20.2314.0417.37
XQQ-20.1714.1017.48
Source: Yahoo finance – as of July 11th – Total monthly returns

Disclaimer

The data on this website is for your information only. It does not constitute investment advice, or advice on tax or legal matters. Any information provided on this website does not constitute investment advice or investment recommendation nor does it constitute an offer to buy or sell or a solicitation of an offer to buy or sell shares or units in any of the investment funds or other financial instruments described on this website. Should you have any doubts about the meaning of the information provided herein, please contact your financial advisor or any other independent professional advisor.

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