It’s almost embarrassing how little exposure the Canadian stock market has to technology and health care.
The solution: Make sure you have a U.S. equity fund in your portfolio. The combined share of tech and health care share in the S&P/TSX Composite Index is about 7 per cent; for the S&P 500 Index, it’s 43 per cent.
The benefits of diversification sometimes seem more theoretical than real – the so-so returns of international stocks are a good example. But tech and health care drive performance. The S&P 500 has a 10-year annualized total return of 15.5 per cent in Canadian dollars, compared to 7.9 per cent for the S&P/TSX Composite.
For help in finding a U.S. equity ETF, consider the 10 different choices presented in this third instalment of the 2023 Globe and Mail ETF Buyer’s Guide. Drop any one of them into a portfolio and you’ve looked after your U.S. equity exposure. You could certainly complement these funds with funds covering specific sectors or different strategies, but you don’t need do.
When comparing U.S. fund returns, it’s important to be aware of the impact of currency hedging. With hedging, your U.S. returns won’t be undermined when Canada’s dollar rises, nor will they be enhanced when the dollar falls. Unhedged funds do better when our dollar is falling, and lag when it rises.
Some investment pros believe there’s no point in hedging if you have a long-term time horizon. As a result, this guide focuses on unhedged U.S. equity funds, while also listing the ticker symbol for the hedged version of the same product for each.
This year’s ETF Buyer’s Guide has so far covered Canadian equity and bond funds. Still to come: international and global equity funds, Canadian dividend funds and asset allocation funds.
Click here to download an Excel version of the guide.
Notes: Market data as of Mar. 13, 2023. Returns to Feb. 28, 2023. Source: Rob Carrick; Globeinvestor.com, TMX Money, ETF company websites
Here’s a look at the technical terms used in the guide:
Assets: Shown to give you a sense of how interested other investors are in a fund.
Management expense ratio (MER): The main annual cost of owning an ETF on a continuing basis; returns are shown on an after-fee basis.
Trading expense ratio (TER): The cost of trading commissions racked up by the managers of an ETF; add the TER to the MER for a fuller picture of a fund’s cost. Most of the U.S. equity ETFs included here don’t do enough trading to generate much of a TER.
Dividend yield: U.S. dividend yields tend to be lower than those in Canada, so don’t expect much in the way of income from most U.S. equity ETFs.
50-day trading volume: Average number of shares traded daily over the previous 50 days; it’s easier to buy and sell at competitive prices if an ETF is heavily traded.
Number of holdings: Gives you an indication of whether a fund offers broad stock market coverage, or holds a more concentrated portfolio that may behave differently than benchmark indexes.
Sector weightings: Included to help you verify how well a U.S. equity ETF will diversify your Canadian holdings with more exposure to sectors such as tech and health care.
Launch date: The older an ETF is, the more likely it is that you can look back at a history of returns through good markets and bad.
Stay informed about your money. We have a newsletter from personal finance columnist Rob Carrick. Sign up today.