In this post, we will review a popular index ETF on the TSX: the BMO S&P 500 Index (ZSP Stock). We will first explain what’s an index ETF. Then, we will discuss ZSP’s historical performance, fees and holdings. Finally, we will compare ZSP against similar ETFs.
What’s an index ETF
There are several types of ETFs. Index ETFs are the king of the hill. The first-ever ETF introduced to a North American Exchange was an index ETF. Index ETFs offer exposure to many securities and sometimes to a whole stock exchange at a meager cost. Their main goal is to acquire, on your behalf, all the securities that constitute a specific index to achieve the same return of the tracked index minus the fees.
Advantage of Index ETFs
One significant advantage of owning an index ETF is low fees. The manager is simply replicating the index’s performance either by acquiring directly or indirectly (using derivatives) the constituents of the index. There is no additional effort involved in the selection process, thus no need to generously compensate the portfolio manager. It might also be pertinent to know that empirical studies have consistently shown that active portfolio managers rarely beat the S&P 500 index in the long term. In other words, only a few managers can outguess the market in the long run.
ZSP Investment objective
The BMO S&P 500 Index ETF seeks to track the performance of a broad U.S. equity index that measures the investment return of large-capitalization U.S. stocks. 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.
ZSP-U is a Canadian ETF however it only trades in US $.
ZSP is a Canadian ETF that trades in Canadian $ and is not hedged against currency risk.
The S&P 500 is an excellent index because most of its constituents are large, established US corporations. Besides, It’s well-diversified across various sectors of the US economy. The S&P 500 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.
ZSP-U vs ZSP which one to choose
If you are uncertain between a hedged, unhedged or US $ ETF, please refer to the table below:
|Scenario 1: Value of Canadian|
|Scenario 2: Value of Canadian|
|Non hedged ETF||Index return|
Minus foreign exchange loss
Plus foreign exchange gains
|Hedged ETF||Index return||Index return|
|US $ ETF||Index Return|
The investor chooses when to convert
The investor chooses when to convert
MER and Asset under management
|VFV||Vanguard S&P |
|XUS||Ishares Core S&P |
|ZSP||BMO S&P |
VFV has one of the lowest Management Expense Ratio in its category at 0.08%. The difference with other similar ETFs remain really small though.
Historical performance ZSP Stock
Since all three ETFs track the same index and it’s understandable they will have very close performance.
ZSP Stock: Morningstar rating
ZSP Stock Profile
ZSP Stock 52 weeks high and low
ZSP Dividend history
|Distribution Period||Ex-Dividend Date||Pay Date||Cash Distribution Per Unit|
Dividend: Tax implications for owning ETFs
There are so many possible structures for an ETF. Below, we will discuss mainly three common structures:
if held in an investment account (non registered)
- Type 1: Canadian ETFs that invest in US or international stocks directly. There is 15% withholding tax that will impact the fund’s return;
- Type 2: Canadian ETFs that invest in US ETFs which invests in US stocks. There is 15% withholding tax that will impact the fund’s return;
- Type 3: Canadian ETFs that invest in US listed ETFs which invest in international stock. This is the structure that’s the least interesting for investors from a taxation perspective. 2 Taxes will be applied by the foreign country first and then the US.
if held in registered account: TFSA, RESP, RRSP
|Canadian ETF: 1$ dividend scenario||Taxes||Dividend received|
|1- Holding US or International stocks directly||-0.15$ (withholding tax from US or foreign jurisdiction) Creditable||0.85$|
|2- Holding US listed ETFs that invest in US stocks||-0.15$ (withholding tax from US or foreign jurisdiction) Creditable||0.85$|
|3- Holding US listed ETFs that invest in International stocks||-0.15$ (withholding tax from foreign jurisdiction) Non creditable -0.13 (withholding tax from US) Creditable||0.72$|
The chart is designed for illustrative purposes only and is subject to change. Please consult a tax specialist for more information.
ZSP ETF Holdings
|5.98%||APPLE INC||Information Technology|
|5.54%||MICROSOFT CORP||Information Technology|
|2.30%||AMAZON.COM INC||Consumer Discretionary|
|1.73%||BERKSHIRE HATHAWAY INC||Financials|
|1.63%||ALPHABET INC||Communication Services|
|1.57%||UNITEDHEALTH GROUP INC||Health Care|
|1.46%||JOHNSON & JOHNSON||Health Care|
|1.45%||ALPHABET INC||Communication Services|
|1.42%||EXXON MOBIL CORP||Energy|
|1.23%||JPMORGAN CHASE & CO||Financials|
ZSP Sector allocation
- Information Technology 26.54%
- Health Care 15.09%
- Consumer Discretionary 11.76%
- Financials 10.97%
- Communication Services 8.09%
- Industrials 7.85%
- Consumer Staples 6.90%
- Energy 4.51%
- Utilities 3.08%
- Real Estate 2.72%
- Materials 2.49%