Parity is a rarity for the Canadian and U.S. dollars, so be sure you take advantage as an investor.
A Buy American strategy is what’s called for here. If you want exposure to the U.S. stock market, buy exchange-traded funds and individual stocks listed on the New York Stock Exchange and Nasdaq.
Most times, buying U.S.-listed stocks puts you at risk of a rising Canadian dollar CAD/USD-I killing your returns. As our dollar moves higher, it shrinks the value of assets priced in U.S. dollars. It’s this phenomenon that explains the proliferation in recent years of ETFs and mutual funds that use hedging to keep currency fluctuations at bay.
Avoid these hedged products today. With our dollar near parity, long-term trends suggest there’s more downside for the currency than upside. Just as a rising dollar hurt your returns, so will a falling currency add to your gains.
In this edition of the Portfolio Strategy column, we look at NYSE-listed ETFs that provide broad exposure to the U.S. stock market. Next week, we’ll cover U.S. stocks.
Emerson Blackman's U.S. ETF Picks
Mr. Blackman is an adviser with Dundee Securities in Mississauga, Ont., who uses ETFs in client portfolios.
| ETF | Ticker | MER % | $ Price | YTD % price chg | Dividend yield % |
| iShares S&P 500 Index Fund | IVV | 0.09 | 124.23 | 11.1 | 2.0 |
| iShares Dow Jones Dividend Select Index Fund | DVY | 0.40 | 49.33 | 12.3 | 3.4 |
| PowerShares FTSE RAFI US 1000 Portfolio | PRF | 0.39 | 54.72 | 15.3 | 1.5 |
| PowerShares Dividend Achievers Portfolio | PFM | 0.50 | 13.90 | 11.5 | 2.2 |
| PowerShares QQQ | QQQQ | 0.20 | 54.14 | 18.3 | 0.8 |
“We're saying to clients that the Canadian dollar is strong right now, so buying U.S. assets is cheaper than it would be if the dollar were weak,” Mr. Blackman said. He likes the idea of getting exposure to the U.S. market through dividend-focused ETFs, but he cautions that the dividend tax credit won't apply in non-registered portfolios. Mr. Blackman notes that IVV is a traditional index ETF in that it weights stocks by size, whereas PRF uses a different approach that gives a higher weighting to undervalued stocks. Mr. Blackman said he will combine IVV and PRF in some cases. As for QQQQ, it was wildly popular a decade ago as a way to play the U.S. tech sector. Mr. Blackman said he has a few clients who have asked about it lately. “It's been beaten to death, but when you check out the returns of late they're starting to look OK.”
Vikash Jain's U.S. ETF Picks
Mr. Jain is a portfolio manager with archerETF Portfolio Management
| ETF | Ticker | MER % | $ Price | YTD % price chg | Dividend yield % |
| iShares S&P 100 Index Fund | OEF | 0.20 | 55.67 | 8.2 | 2.3 |
| iShares S&P 500 Index Fund | IVV | 0.09 | 124.23 | 11.1 | 2.0 |
| Vanguard Small-Cap ETF | VB | 0.14 | 71.75 | 25.1 | 0.9 |
| iShares Russell 2000 Index Fund | IWM | 0.20 | 76.79 | 23.0 | 0.9 |
You're no doubt familiar with the S&P 500, which is a widely followed benchmark for the U.S. stock market even though it includes only large companies. The S&P 100 index, tracked by OEF, is even more skewed to big companies, and that's why Mr. Jain likes it. “These are companies that derive a large proportion of their earnings internationally,” he notes. As such, they'll benefit from the weak U.S, dollar in a couple of ways. One, their goods will be cheaper and thus more competitive in the global marketplace and, second, they will gain when their foreign earnings are converted back into U.S. dollars. For exposure to small-size companies, Mr. Jain likes the low fees and low portfolio turnover of VB. Low portfolio turnover means fewer realized capital gains, which in turn means lower taxable distributions to shareholders.
Adrian Mastracci's U.S. ETF Picks
Mr. Mastracci is a portfolio manager with KCM Wealth Management Inc. in Vancouver
