QQC vs QQC.F: A Comprehensive Comparison for Canadian Investors

For Canadian investors seeking exposure to the NASDAQ 100 index, two popular exchange-traded funds (ETFs) often come into consideration:

Invesco NASDAQ 100 Index ETF (QQC) and Invesco NASDAQ 100 Index ETF CAD-Hedged (QQC.F).

While both ETFs track the same index, they differ in one crucial aspect: currency hedging. This comparison will help you understand the implications of this difference and guide you in choosing the ETF that best suits your investment strategy.

Meta Description: Discover the key differences between QQC and QQC.F ETFs. Learn about their performance, fees, and currency hedging strategies to make an informed investment decision for your NASDAQ 100 exposure.

Quick Comparison: QQC vs QQC.F

What are Index Funds?

Before diving deeper into the comparison, let’s understand what index funds are:

• An index fund is a type of mutual fund or ETF that aims to track the performance of a specific market index.
• These funds hold a diversified portfolio of stocks or other securities that mirror the composition of the chosen index.
• Index funds offer a cost-effective way to achieve broad market exposure and diversification.

For more information on index funds, check out our detailed guide: Index Funds 101.

Benefits of Index Funds:

• Low costs due to passive management
• Broad market exposure
• Reduced risk through diversification
• Transparent holdings

About Invesco

Invesco, the company behind both QQC and QQC.F, has a rich history in the investment management industry:

• Founded in 1935
• Grown into one of the world’s leading independent investment management firms
• Offers a broad range of investment solutions, including mutual funds, ETFs, and alternative investments
• Caters to both individual and institutional investors globally

Invesco’s diverse offerings and global presence have made it a significant player in the ETF market. Learn more about Invesco’s history and investment philosophy on their official website.

In-Depth Comparison: QQC vs QQC.F

1. Currency Hedging

The primary difference between QQC and QQC.F is currency hedging:

• QQC: Not hedged to the Canadian dollar
• QQC.F: Hedged to the Canadian dollar

This difference has significant implications for how these ETFs perform relative to each other, especially during periods of currency fluctuation between the Canadian and U.S. dollars.

2. Management Expense Ratio (MER)

Both QQC and QQC.F have the same MER:

• QQC: 0.20%
• QQC.F: 0.20%

This MER is competitive for ETFs providing exposure to the NASDAQ 100 index. To understand the impact of MER on your investments, read this guide from the Ontario Securities Commission.

3. Dividend Yield

Both ETFs have the same dividend yield:

• QQC: 0.78%
• QQC.F: 0.78%

It’s important to note that the NASDAQ 100 index, which these ETFs track, is heavily weighted towards growth stocks, which typically pay lower dividends compared to value stocks.

4. Withholding Tax Implications

Both ETFs are subject to a 15% withholding tax on dividends from U.S. holdings, regardless of the currency hedging strategy. This is because the underlying assets are U.S. securities. For more information on foreign withholding taxes for Canadian investors, check out this comprehensive guide from Canadian Couch Potato.

5. Performance

• QQC 10-Year Performance (Annualized): 18.58%
• QQC.F 10-Year Performance (Annualized): 17.45%

While past performance doesn’t guarantee future results, it’s worth noting that QQC has slightly outperformed QQC.F over the past decade. This difference can be attributed to the impact of currency fluctuations and the costs associated with hedging. For up-to-date performance data, visit the Invesco Canada website for QQC and QQC.F.

Understanding Currency Exposure in QQC and QQC.F

Currency exposure is a key factor in distinguishing between QQC and QQC.F:

1. QQC (Unhedged):
   • Exposes investors to fluctuations in the CAD/USD exchange rate
   • When the U.S. dollar strengthens against the Canadian dollar, QQC’s returns in Canadian dollar terms increase (and vice versa)
   • Provides dual exposure: to the NASDAQ 100 index and to the U.S. dollar
2. QQC.F (Hedged):
   • Uses financial instruments to neutralize the impact of CAD/USD exchange rate fluctuations
   • Aims to provide returns that more closely match the NASDAQ 100’s performance in U.S. dollar terms, when converted to Canadian dollars
   • Eliminates both positive and negative impacts of currency fluctuations

The “wrapper” and “candy” metaphor:

• Both ETFs trade in Canadian dollars (the “wrapper”)
• They hold U.S. dollar securities (the “candy”)
• QQC’s value changes with CAD-USD exchange rate fluctuations
• QQC.F uses hedging to minimize these currency-related value changes

For a more detailed explanation of currency hedging in ETFs, check out this article from the Canadian ETF Association.

Choosing Between QQC and QQC.F

The decision between QQC and QQC.F depends on several factors:

1. View on Currency: If you believe the Canadian dollar will strengthen against the U.S. dollar, QQC.F might be preferable. If you expect the opposite, QQC could be a better choice.
2. Portfolio Diversification: QQC provides exposure to both the NASDAQ 100 and the U.S. dollar, which can be beneficial for diversification in a Canadian-heavy portfolio.
3. Investment Horizon: For long-term investors, the impact of currency fluctuations may even out over time, making QQC a simpler choice.
4. Risk Tolerance: If you’re concerned about short-term volatility due to currency movements, QQC.F might provide more stability.
5. Tax Considerations: The tax implications of currency gains or losses with QQC versus the potential higher turnover in QQC.F due to hedging activities should be considered.

For a detailed guide on how to choose the right ETF for your portfolio, check out this resource from the Canadian Securities Administrators.

FAQs

1. Q: Can I hold QQC or QQC.F in my TFSA? A: Yes, both QQC and QQC.F can be held in a TFSA. However, you’ll still be subject to the 15% withholding tax on dividends from U.S. holdings.
2. Q: How often do QQC and QQC.F rebalance their portfolios? A: As index ETFs tracking the NASDAQ 100, both QQC and QQC.F rebalance as needed to match changes in the index composition. This typically happens quarterly when the NASDAQ 100 itself is rebalanced.
3. Q: Are QQC and QQC.F suitable for beginner investors? A: Yes, both ETFs can be suitable for beginner investors due to their broad diversification and exposure to well-known tech companies. However, beginners should understand the implications of currency hedging and the concentration risk in the technology sector before choosing between the two.
4. Q: How do QQC and QQC.F compare to buying U.S.-listed NASDAQ 100 ETFs like QQQ? A: QQC and QQC.F offer the convenience of trading in Canadian dollars and on Canadian exchanges. However, U.S.-listed ETFs like QQQ may have lower MERs and can be more tax-efficient when held in RRSPs. For a detailed comparison, read this article from Canadian Couch Potato.
5. Q: Does the difference in performance between QQC and QQC.F indicate that one is better than the other? A: Not necessarily. The performance difference is largely due to currency movements and hedging costs. In periods when the Canadian dollar strengthens against the U.S. dollar, QQC.F may outperform QQC, and vice versa. The “better” choice depends on your view of future currency movements and your investment goals.

Conclusion

Both QQC and QQC.F offer Canadian investors excellent exposure to the NASDAQ 100 index, which includes many of the world’s leading technology companies. QQC provides unhedged exposure, allowing investors to benefit from potential U.S. dollar appreciation, while QQC.F offers a currency-hedged option that may provide more stability in terms of Canadian dollar returns.

When making your decision, consider your investment goals, risk tolerance, and view on currency movements. Remember that while both ETFs track the same index, their returns can differ significantly due to currency effects.

For more insights on investing in U.S. markets from Canada, read this guide from Morningstar.

Call to Action: Ready to invest in the NASDAQ 100? Consider opening an account with a Canadian online broker that offers commission-free ETF trading, such as Questrade or Wealthsimple Trade. Always do your own research and consider consulting with a financial advisor before making investment decisions.