5 Best S&P 500 ETFs in Canada: Invest in America (2021)

Are you a Canadian investor looking to invest in US securities? One of the most cost-effective method to invest in the S&P 500 index is through Exchange-Traded Funds (ETFs). 

Compared to mutual funds, the lower fees and better liquidity are two reasons why ETFs are gaining so rapidly in popularity. Over $37 billion flowed into ETFs so far this year. 

It’s also no secret that the S&P 500 has outperformed the TSX Index over the long-term. 

By the time you are done reading this list, I am confident you can make a more well-informed decision about which ETF provides you exposure to the US stock market and aligns with your investment goals.

What are S&P 500 ETFs?

The S&P 500 Index is a market capitalization-weighted index that consists of 505 large market capitalization US stocks. The index effectively represents around 80% of the market value of the US stock market. The index is often seen as the closest thing to a default US stock index.

An S&P 500 ETF is considered a low-cost method for investors to gain diversified exposure to the US stock market. It is no secret that the S&P 500 Index had been growing aggressively over recent years.

It seemed like investors only had an upside to gain by investing in the S&P 500 companies. However, the index has been especially volatile in 2020 amid the global health crisis and massive disruptions in the global economy.

With all that said, finding the best S&P 500 ETF in Canada right now can help you leverage the recovery of the S&P 500 Index as global economies stabilize and the US economy begins growing again.

The 5 Best S&P 500 ETFs in Canada

Our neighbors to the south have a significant impact on the global economy and our own. The performance of companies in the US can have an impact on our own. Investing in a basket of stocks that emulates the US stock market’s performance can help you capitalize on its movement.

All the ETFs I have listed the best S&P 500 ETFs in Canada are trading on the Toronto Stock Exchange (TSX). The US stock market might not be in the best shape right now due to the pandemic and other issues. However, getting exposure to the S&P 500 Index can help you benefit from the stock market’s recovery.

1. Vanguard S&P 500 Index ETF 

Ticker: TSX:VFV
Dividend Yield: 1.24%
Assets Under Management: $4.3 billion
MER: 0.09%

The Vanguard S&P 500 Index ETF also seeks to track the performance of a broad US equity index that measures the returns of large market capitalization US stocks to the closest extent possible before fees and expenses. Unlike Vanguard VSP below, VFV is not hedged to the Canadian dollar. VFV is one of Canada’s most popular ETFs among investors who want to invest in US securities.

VSP is a safer investment for Canadians to guard them against weakness in the American dollar. However, it can also keep them from significant gains if the US dollar strengthens relative to the Canadian dollar. Remember that both of them follow the same investment objective. The difference is in currency hedging.

Think of it like this: If you choose VFV over VSP, you are banking on the S&P 500 Index going up and a stronger US dollar. Investing in VSP over VFV is just a bet that the S&P 500 Index will go up. 

2. Vanguard S&P 500 Index ETF (CAD-hedged)

Vanguard Logo Transparent

Ticker: TSX:VSP
Dividend Yield: 1.16%
Assets Under Management: $1.2 billion
MER: 0.09%

The Vanguard S&P 500 Index ETF (CAD-hedged) seeks to track, to the closest extent possible before fees and expenses, the performance of a broad US equity index that measures the returns of large market capitalization US stocks. The index is hedged to Canadian dollars. VSP invests directly or indirectly in stocks of US companies. It uses derivative instruments to hedge the US dollar exposure of the securities within the S&P 500 Index back to the Canadian dollar.

Currency hedging can essentially help the ETF outperform its unhedged counterpart when the American dollar is weakened relative to the Canadian dollar. However, the same currency hedging might not allow the currency hedged ETF to outperform the unhedged ETF. I will explain the merits of investing in the unhedged ETF.

3. BlackRock iShares Core S&P 500 Index ETF (CAD-hedged)

blackrock

Ticker: TSX:XSP
Dividend Yield: 1.19%
Assets Under Management: $7.066 billion
MER: 0.10%

Next up in my list of reviews for the best S&P 500 ETFs in Canada is the BlackRock iShares Core S&P Index ETF (CAD-hedged). The currency-hedged ETF seeks to track, to the extent possible net of expense, the performance of the S&P 500 Index hedged to the Canadian dollar index. This is an ETF designed to offer its investors long-term capital growth by replicating the performance of the S&P 500 Index hedged to the Canadian dollars index.

XSP is a medium risk ETF similar to VSP. However, VSP may present itself as a better ETF for Canadians seeking CAD-hedged exposure to US stocks due to its lower management fees and MER. XSP is still a low-cost ETF, but its higher management fees make it give way to VSP as a better ETF to consider.

4. BMO S&P 500 Index ETF (CAD-Hedged)

BMO

Ticker: TSX:ZUE
Dividend Yield: 1.35%
Assets Under Management: $10.88 billion
MER: 0.09%

The BMO S&P 500 Index ETF has been designed to replicate, to the closest extent possible net of expenses, the S&P 500 Index’s performance. The ETF directly invests in and holds the US securities that comprise the S&P 500 Index in the same proportion as they are reflected in the Index.

The holdings of this ETF consists of some of the most significant and liquid US stocks. The currency-hedge allows investors to benefit from local currency appreciation while providing them with exposure to a broadly diversified portfolio of US companies. A major benefit of investing in ZUE is that it is professionally managed by BMO Global Asset Management.

5. Horizons S&P 500 Index ETF

horizons logo

Ticker: TSX:HXS
Dividend Yield: 0.00%
Assets Under Management: $2.22 billion
MER: 0.10%

Horizons S&P 500 Index ETF is the odd one out from my list of the best S&P 500 ETFs in Canada. This is a unique entry because it is a synthetic ETF. Horizons HXS also seeks to replicate, to the extent possible, the performance of the S&P 500 Index net of expenses.

However, the ETF does not actually own any of the US securities that comprise the S&P 500 Index. Instead, the securities are built into the share price of Horizons HXS. The ETF is provided with the returns of the index through a Canadian bank instead of owning any stocks. Due to the arrangement, there are no dividends involved, but Canadian investors can have several tax advantages. The capital gains are taxed at more favorable rates than dividends, depending on your marginal tax rate.

However, I would not recommend holding HXS in a registered account because there is a 0.30% swap fees. It is a more complicated product that has its advantages, but I would advise discussing it with an accountant before investing in the ETF.

How to Buy S&P 500 ETF in Canada

My two favourite ways to buy ETFs in Canada are the following:

  • Questrade – Canada’s leading discount broker, I use Questrade to trade most of my stocks. It has a desktop and mobile trading platform. All Canadian ETF purchases are commission-free, but be aware that selling ETFs will cost a small fee. With this special offer, you can also get $50 of free stock trades here.
  • Wealthsimple Trade – If you don’t mind buying and selling ETFs on your mobile device, Wealthsimple Trade is the best platform to use. All Canadian stock and ETF buys and sells are commission-free. Get a $10 signup bonus when you sign up here

Conclusion

S&P 500 ETFs can provide you with a more convenient way to invest in a group of American companies without the hassle of researching and picking individual stocks. The different ETFs I’ve listed above can help you pick a basket of companies based on your investment goals.

There isn’t too much difference in performance, and it comes down to personal preference of company for the ones that you choose. The main choice you will have to make is if you want a currency-hedged version of the S&P 500 ETF or not. 

I personally prefer Vanguard or iShares, but in this case, I believe that any of these companies will get the job done. The underlying index represents most of the total US equity market. These ETFs give me a low-cost solution to invest in these American companies.

Of course, your preference can vary, based on your investment goals. Which of these do you think is the best S&P 500 ETF in Canada? Do you think I could add more to this list? Let me know in the comments below.

Best S&P 500 ETFs in Canada

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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6 thoughts on “5 Best S&P 500 ETFs in Canada: Invest in America (2021)”

  1. What about VOO with a .03% expense ratio, where would this rank compared to the mentioned ETF’s? Thanks for the great content!

    Reply
      • Amazing thank you for the response. I trade on wealthsimple Trade for my TSF as opposed to Questrade, and I see that Walthsimple does not offer the US version of cross listed securities and thus I could not do the norberts gambit. Do you feel the lower MER of VOO is worth opening a second TFSA with Questrade to be able to do the NG, or is it better to simply go with VFV in my current Wealthsimple Trade account? Again thank you for the info, I have passed on your blog and PERSONAL
        FINANCE RESOURCES FOR CANADIANS to my staff and family, glad to have found you!

        Reply
        • Hey Stephen, thanks for the kind words! Unless the amount you’re planning to buy of VOO is quite large (50,000 or more) I wouldn’t bother with Norbert’s Gambit, it’s complicated and I think investing should be as simple as possible.

          Reply

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