Top 7 S&P 500 ETFs In Canada

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S&P 500 ETFs

The stock market has seen a plethora of different types of investment options over time.

However, One of the issues you may run into when investing in stocks is that the stock market may see an increase in volatility at specific points in time, which can cause massive dips in your portfolio if you don’t have enough to withdraw from your investments. With a lack of variety available to individual investors and households, it is important to realize that some unique issues may occur while investing in stocks.

However, if you decide to invest in ETFs, it is possible to avoid these issues entirely. As such, Canadian investors need to take the time and do research to make an educated decision regarding their stock market investments.

The Canadian financial market is unique in the sense that it doesn’t have as many traditional investments available to be purchased on a day-to-day basis by individual investors and households. This typically means that for investors to participate in the stock market, they are required to purchase stocks or exchange-traded funds (ETFs).

As there are limited options for Canadian investors regarding stocks, this article will highlight the 7 best S&P 500 ETFs (exchange-traded funds) in Canada for 2022.

S&P 500 ETFs

What is the S&P 500 index?

The S&P 500 index is a widely used US stock market index that tracks the total market performance of the largest 500 US companies as ranked by both revenues and profits.

The S&P 500 is a gauge of the aggregate health of Canadian investors because it gives them an indication of how a small number of stocks within the market are doing against their US counterparts in a comprehensive sense and how they will perform over time.

For example, whenever the S&P 500 index rises, then it means that these 500 companies have good growth and will return dividends to their shareholders. As long as these companies continue to grow, they will make money and pay dividends over time while they also continue to make profits.

However, there is an essential note that investors need to know before investing in the S&P 500 index.

As these are the largest US companies by revenue and profit, it is extremely likely that if you invest in the S&P 500 index outside of an ETF like the S&P 500 ETF listed below, you will not receive diversification or targeted asset allocation similar to what you would believe you would get from investing in a mutual fund or another type of investment vehicle in Canada.

Therefore, make sure that you are aware of the risk in your investment and that you are prepared to accept the fact that the S&P 500 index is not managed or tracked in any way by a third party.

S&P 500 ETFs

Best Canadian S&P 500 ETFs to Buy in 2022

1. Vanguard Canada S&P 500 Index ETF

Vanguard Canada S&P 500 Index ETF (Ticker: VOO) is the largest ETF in terms of assets. The AUM has a $247 billion market cap with a distribution yield of 1.45%.

Investors can buy this ETF on the TSX under VOO at a meager trading fee of $0.05 per transaction with 100% ownership of the underlying index, and long-term capital growth potential.

VOO ETF boasts an average annualized return of 11.28% since inception in 2010 and has an expense ratio of 0.03%. Making it a popular choice for investors who want to build a core portfolio of stocks that are weighted according to their size in the index and intend to hold their stock for long periods as the ETF tracks the S&P 500 Index.

2. Vanguard S&P 500 index ETF (CAD-Hedged)

Vanguard S&P 500 index ETF (CAD-Hedged) (Ticker: VSP) is a variant of VOO that hedges the currency of its returns. This hedging technique ensures that returns will be made in Canadian dollars instead of US dollars or any other currency.

If you believe that the US dollar is about to strengthen against your currency, you can use this ETF to hedge those potential gains and take advantage of the higher value of your Canadian dollars. This ETF has an AUM of $1.98 billion and trades on the Toronto Stocks Exchange (TSX) under the ticker VSP.

VSP may charge slightly higher fees than the VOO ETF due to the expense ratio of 0.09% compared to 0.03%.

However, If you choose this specific variant of VOO ETF as part of your portfolio, make sure that you fully understand all its characteristics and pay attention to how this could affect your performance if certain developments occur outside your control. For example, if the US dollar strengthens against the CAD and this ETF suffers, as a result, its returns will be lower than expected.

3. Vanguard FTSE Canada All Cap Index (VCN)

Vanguard FTSE Canada All Cap Index (VCN) is one of the two largest ETFs in Canada. It tracks the FTSE Canada All Cap index, which measures the performance of large and mid-size Canadian stocks based on market capitalization. The Fund is about twice as large as its nearest competitor in terms of AUM.

VCN is a popular choice among investors who want to diversify their portfolios with a large variety of stocks. This ETF’s expense ratio stands at 0.06%, and the 20% commission fee applies to all trading.

While this ETF is too large for investors who are looking for a core holding in their portfolio, it does offer some diversification. The index it tracks includes companies from various sectors such as health care, consumer goods, technology, and financial services.

Vanguard FTSE Canada All Cap Index was launched on the TSX under the ticker VCN in 2013 and had an AUM of $4 billion. VCN and VOO were founded as a complement to each other due to their similar track records in the past.

As a long-term investor, you may want a core holding in their portfolio represented by VOO and VCN so they can be prepared for any bear markets or negative returns. The FTSE Canada All Cap index has shown steady performance over the years, and you can see that this ETF adds value to the index. If market conditions are volatile, they may offset each other in market downturns while providing profits during upturns.

S&P 500 ETFs

4. BMO S&P 500 Index ETF

The BMO S&P 500 Index ETF is intended to closely approximate the net costs and performance of the S&P 500 Index. The ETF holds and directly invests in US equities that make up the S&P 500 Index in the same proportion that the index does.

Some of the largest and most liquid US stocks are among this ETF’s holdings. The currency hedge gives investors exposure to a widely diversified portfolio of US companies while allowing them to profit from appreciation in their local currency.

 BMO S&P 500 Index ETF (Ticker: ZSP) was launched in 2012 and had an AUM of $9.1 billion. It is an attractive choice for investors who want to buy VOO or VSP ETFs but are looking for an alternative that charges lower fees.

BMO’s annual expense ratio stands at 0.09%, and free commission applies to all transactions made above 80 ETFs in your portfolio.

5. iShares S&P/TSX 60 Index ETF (XSB)

The iShares S&P/TSX 60 Index ETF (XSB) aims to track the returns of the S&P/TSX 60 index, which tracks the largest publicly traded companies in Canada that have market capitalizations of $2 billion or more. The Fund was launched in 2013 and has an AUM of $4.1 billion, which is more than the total AUM of its closest competitors.

The objective of the currency-hedged ETF is to mirror the performance of the S&P 500 Index hedged to the Canadian dollar index as closely as feasible after expenses. This type of ETF mimics the performance of the S&P 500 Index hedged to the Canadian dollar index to provide investors with long-term capital growth.

Like VSP, XSP is a medium-risk ETF. But because of its reduced management costs and MER, VSP would be a preferable ETF for Canadians looking for CAD-hedged exposure to US stocks. XSP is still a cheap ETF, but VSP is a better option to take into account because of its higher management fees.

6. Horizons S&P/TSX 60 Equal Weight Index ETF (HXT)

Horizons S&P/TSX 60 Equal Weight Index ETF (HXT) was launched in 2010, and it has an AUM of $2.9 billion. It has an expense ratio of 0.05% and a management fee of 0.03%, which is almost the same as VOO, VSP, and ZSP.

This Fund follows the price variation of the S&P/TSX 60 index, which consists of Canada’s most prominent companies by market capitalization. To track this index, this Fund utilizes equal-weight ETFs that are weighted based on their market capitalization as opposed to equal parts.

HXT builds its portfolio using derivatives, such as swaps. It makes investments in large-cap company growth and value stocks. With the aim of following the S&P/TSX 60 Index’s performance (Total Return), It buys equities of firms with operations across a variety of industries both directly and through derivatives.

7. Vanguard Canada S&P 500 Index ETF (VFV)

Vanguard Canada S&P 500 Index ETF (VFV) primarily invests in large-cap Canadian stocks and is designed to track the index’s performance. Vanguard Canada S&P 500 Index ETF (VFV) can be used as a long-term investment or as a short-term safe haven for your portfolio. It offers low fees, exchange-traded funds, flexibility, and liquidity with investor meetings that occur twice per year.

The Fund was established on November 02, 2012, by Vanguard Group Inc. as a Canadian-based ETF, which is also based on the S&P 500 Index. The management fee for Vanguard Canada S&P 500 Index ETF (VFV) is 0.05%.

S&P 500 ETFs

How to Invest in S&P 500 ETFs in Canada?

  1. Choose between ETFs and mutual funds: ETFs are managed funds that track the index performance, such as the S&P 500 stock market index. Generally, ETFs are easier to purchase because you can buy shares and trade them on the stock market. On the other hand, mutual funds tend to involve more management and may offer a higher level of transparency regarding your holdings and how your investments are performing. With mutual funds, you are not given direct access to trade them on an exchange like with ETFs.

  2. Open a trading account: You can open a brokerage account and deposit funds into it. You can choose between an online trading account that requires you to do the actual trading or an in-person dealer branch where your broker will help you determine which Fund or ETFs to purchase with your capital. You can also choose between transaction commissions, which are charged every time you buy or sell stocks/ETFs, and annual fees.

  3. Decide how many funds you want: If you simply want to invest in one index, then it would be easy to buy one ETF. Otherwise, you can buy a combination of funds with your account. If you want to get started right away, then it might be wise to stick with one ETF and just buy it. If you plan, however, on investing for a while or just want the flexibility to adjust your unit prices, I suggest purchasing three different mutual funds that track indices.

  4. Choose an index provider: Many different index providers in Canada offer different indexes based on the price level of their market capitalization and the quality/liquidity level of their shares regularly.

  5. Buy the ETF or mutual Fund: You can purchase your shares during the exchange’s regular trading hours. Once you purchase your ETF or mutual Fund, then you want to keep your eye on how they are doing and adjust them accordingly. If you do not decide to adjust them, then they should automatically increase value because they are tracking the S&P 500 index.

Final Words

There are no front-runners in the Canadian ETF market, but there are some great options that have consistently outperformed the benchmark index over the past few years. The stocks listed above have strong track records that have proved to be reliable and resilient investment vehicles over time by generating high returns year after year and low volatility over the past decade, making them suitable for long-term investors.

With many options available to investors, it is essential for Canadians to carefully consider these different options and make sure that they do their research to make good decisions regarding their investment choices.

Thanks for reading! Please let me know your thoughts and comments below. 

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