U.S. equity was more controversial, as about half the panelists felt that Canadian investors continue to be woefully overweight Canada and in particular underweight U.S. technology, which is the single largest sector in the S&P 500. The panel did agree to add a fourth pick to the U.S. all-cap space, again from BMO: BMO S&P 500 Index ETF (CAD), ticker ZSP. As the Forstrong team observed, ZSP’s fee of 0.08 is the same as VFV’s and the fund now has the most assets of the four core US ETFs.
However, the panel could not agree on adding the hot technology sector to the All-Star lineup. Mark Yamada, Yves Rebetez and I all plumped for the Powershares QQQ Index ETF CAD Hedged (QQC.F/TSX), which is one of the lowest-cost TMX-traded U.S. tech funds (0.32% management fee); and for taxable portfolios the Horizons Nasdaq100 Index ETF (HXQ, fee 0.25%).
Investors are, of course, free to add these themselves. As Yamada argues, Canadians are impacted by technology that is not represented in our domestic indexes. “Our aging economy is increasingly dependent upon technology for productivity gains and our home-grown players like CGI, Constellation Software and Open Text are very different than the more integrated Apples, Amazons, Microsofts, Facebooks and Alphabets.”
The S&P 500 has a 25% infotech exposure but Yamada argues that 30% or more of all equity exposure should be in technology: “at the very least, more than the 3.5% that is in the S&P TSX Composite index.” Volatility of the S&P 500 and the NASDAQ 100 has been the same for the last five years, he observes, although that may well change over time.
Yves Rebetez concurred but added that Canadians also need to beef up their pharma/biotech and consumer exposure: “While the All-Star mandate is to keep investors committed to the basic building blocks, Canadian investors who succumb to home-country bias are grievously underweight technology, and these Nasdaq ETFs address that gap elegantly.”
|US EQUITIES||Ticker||Management Fee||# of Holdings||Description|
|iShares Core S&P US Total Market Index ETF||XUU||0.07||3459||Second year on list, having replaced VUN because of slightly lower cost|
|Vanguard S&P 500 Index ETF||VFV||0.08||507||Provides unhedged exposure to the S&P500 at a very low cost|
|Vanguard S&P 500 Index ETF (CAD-hedged)||VSP||0.08||507||Provides currency-hedged exposure to the S&P_500 at no extra cost|
|NEW! BMO S&P500 Index ETF (CAD)||ZSP||0.08||505||Alternative to VFV; tied on fee; fund size is largest among 4 US Core ETFs|