If you’re looking to invest in a portfolio of stocks that gives you exposure to US-based tech companies trading on the NASDAQ, the BMO NASDAQ 100 Equity Hedged to CAD Index ETF could be an ideal asset for you to consider.
You might not have a great understanding of which companies are ideal in the tech sector and require diversification. BMO ZQQ offers you the opportunity to capitalize on the US tech sector’s growth while providing you a layer of protection by diversifying into other industries.
BMO ZQQ is a popular ETF for passive investing in US-based tech stocks. With this BMO ZQQ ETF review, let’s take a closer look at why you might want to consider investing in the fund.
Invest in the BMO ZQQ ETF to leverage the market movement of US-based tech sector equity securities hedged against the Canadian dollar.
Pros of BMO ZQQ ETF
- It is a low-cost way to passively invest in US-based companies.
- Focuses on the tech sector with diverse exposure to other sectors for stability.
- Provides convenient and efficient exposure to US non-financial equities
- Can be used to express a sector view.
Cons of BMO ZQQ ETF
- The ETF is not geographically diversified.
- It has no exposure to fixed-income securities.
What is BMO ZQQ ETF?
BMO Nasdaq 100 Equity Hedged to CAD Index (ZQQ) is an ETF designed to replicate, to the extent possible, the performance of a modified version of the Nasdaq-listed companies index, net of expenses. The fund invests in and holds the constituent securities of the index in the same manner as they are in the underlying index. The US dollar currency exposure is hedged back to the Canadian dollar.
The underlying index is a modified market capitalization-weighted index that tracks the performance of the 100 largest non-financial equity securities trading on the NASDAQ stock market. Professionally managed by BMO Global Asset Management, the ETF is a medium-risk investment opportunity that can cater to growth-seeking investors who want exposure to US non-financial equities.
What does BMO ZQQ Invest in?
Most ETFs diversify across various sectors, geographical locations, and between fixed-income and equity securities to align with respective investing goals. However, BMO ZQQ focuses primarily in the Information Technology sector.
With almost half of its assets weighted towards tech sector equity securities, BMO ZQQ can be considered a method to reflect on the sector’s growth on the stock market. The ETF also provides investors with exposure to consumer discretionary, communications services, and healthcare services without any to the financial services sector.
BMO ZQQ Asset Allocation
Typically in this section of my BMO ZQQ review, I would discuss the asset allocation split between equity and fixed-income securities. However, BMO ZQQ invests entirely in US-based equity securities without any exposure to fixed-income securities.
The securities in its underlying index do not seek exposure to bonds or any other fixed-income securities, effectively entailing a sense of capital risk in case of stock market crashes.
BMO ZQQ Top Holdings
BMO ZQQ invests in various sectors of the US economy but primarily focuses on the tech sector. Its top ten holdings are all some of the top-performing tech sector giants trading on the NASDAQ stock markets:
As of Dec 30, 2021:
BMO ZQQ Sector Weighting
In this section of my BMO ZQQ review, I will discuss the sector weighting for its fund allocation. The ETF provides investors with exposure to non-financial equity securities trading on the NASDAQ stock markets. Its exposure to US equity securities is diverse, but it focuses primarily on the tech sector.
As of December 2021 as seen in the below chart, the ETF allocates most of its entire assets to holding equity securities from the US tech sector. The second-most substantial holdings come from the consumer discretionary sector. Communications services come in at third. Its least significant exposure is to the utility sector at 0.96%, and it invests nothing in the financial services sector.
BMO ZQQ MER and Fees
BMO ZQQ ETF has a Management Expense Ratio (MER) slightly higher than several other ETFs at 0.39%, but it is not as pricey an ETF to consider others with similar exposure to the tech sector.
Its MER is also significantly lower than any mutual fund product providing similar features and benefits. The average mutual fund fees can be higher than 2%. ETFs like BMO ZQQ offering lower MERs is also an important reason why many Canadians prefer ETFs over mutual funds in recent years.
BMO ZQQ Performance and Returns
Considering the fact that BMO ZQQ has greater exposure to the US tech sector than other industries in the US economy, it is no surprise that the ETF’s performance has boomed over the last few years. However, its exposure to other sectors of the economy, barring financial services, keeps it slightly in line with the rest of the equity market.
The growth of a hypothetical $10,000 since inception shows how its performance has picked up pace since 2018. The ETF saw a sudden dip in 2020 due to the widespread sell-off. However, it quickly recovered and is well past its all-time highs in 2021.
The fund’s focus on one sector makes it more of a medium-risk investment to consider. The risk is also high compared to conservative ETFs because it does not hold any fixed-income securities or equity securities trading on other stock exchanges. It relies mostly on the US tech sector for its growth but provides decent exposure to other sectors of the US economy for relative stability.
BMO ZQQ Dividend Yield
BMO ZQQ provides its investors with payouts annually, provided it reports significant capital gains to support it. Its annualized distribution yield as of Nov 2021 is 0.28%.
iShares XIT is BlackRock’s low-cost index fund that also focuses on tech sector equity securities like BMO ZQQ. The ETF is also a non-geographically diversified ETF because it invests primarily in Canadian equity securities. It may provide investors with more substantial capital growth because its entire asset allocation is towards tech sector securities trading on the TSX, without exposure to other sectors in the Canadian economy.
If you want exposure purely to Canadian tech sector equity securities, iShares XIT could be a viable alternative to BMO ZQQ. You can check out my full iShares XIT ETF review here.
BMO ZQQ vs BMO ZMID
BMO ZMID is another equity ETF managed by BMO Global Asset Management that focuses primarily on US equity securities. Its underlying index is a market capitalization-weighted index that tracks the mid-cap segment of the US equity market.
Unlike BMO ZQQ, the BMO ZMID ETF does not focus primarily on US tech sector equity securities. It provides you diversified exposure to a basket of 400 mid-cap US equities.
If you do not want exposure to Canadian equity securities and seek a portfolio of US equities that don’t focus on just the tech sector, BMO ZMID could be a viable alternative to consider.
How to Buy BMO ZQQ ETF in Canada
The cheapest way to buy ETFs is from discount brokers. My top choices in Canada are:
|Wealthsimple Trade||Get $50 Signup Bonus|
|Questrade||Get $50 Free Stock Trades|
To learn more, check out my full breakdown of the best trading platforms in Canada here.
Is BMO ZQQ a Good Investment For You?
BMO ZQQ is a slightly tricky investment to consider adding to your portfolio. The ETF’s performance over the last five years shows that it can be a fantastic addition for investors seeking immense capital growth.
The tech sector has been booming in recent years. The changing dynamics in our lifestyles and work environments brought on in recent years have also fueled further growth in the tech sector as major operators continue to see a rising demand for their services.
The tech sector has become the major growth driver for equity markets in the US and in Canada. If you seek exposure to tech companies outside Canada, BMO ZQQ could be an excellent way to hedge your bets on it. Additionally, it has zero exposure to any financial services companies that took a severe beating last year.
With the booming tech sector experiencing a constant uptick in recent years, investors have a growing interest in technology companies to experience capital growth. Additionally, many investors are seeking investments outside the financial services sector. US-based tech companies have been prolific over the years.
While I might have my reservations about the lack of geographic diversity in its holdings, BMO ZQQ can be an excellent ETF to consider adding to your portfolio if you seek capital growth. The tech sector is the most significant growth driver in equity markets, and BMO ZQQ provides you with exposure to non-Canadian equities in the tech sector.