Canada vs. US. Not Tariffs, We’re Talking ETFs

As if winter wasn’t cold enough in North America, proposed US tariffs on Canada are cooling relations between the two historically friendly nations. While Mexico and China are also in the crosshairs this time around, only one of those nations has a thriving ETF market: Canada. 

The asset management market in the Great White North is not nearly as robust or tenured as in the US (to be fair, no one’s is), but with more than 1,500 funds in a wide and increasing array of investment styles, there’s more to the Canadian exchange-traded fund market than may meet the eye. There are also some 160 ETFs that have over $1 billion in assets, mostly trading on the Toronto stock market. (If you see a symbol with a “.TO” after it when looking up ETFs, you know you are shopping north of the border.)

That’s all leaving investors with a fair amount of curiosity about Canada and whether the geopolitical landscape may open up new investing opportunities.

Canada ETFs, Eh?

Canada’s not all maple syrup. The big advantage to trading Canadian funds is that they let investors hedge currency risks. While some funds are denominated in US dollars, plenty more are offered in Canadian-dollar format, which is ideal for people who like to invest in the US markets but don’t want to do it in US currency. That’s especially true recently since the US dollar has been on such a strong run.

The oldest Canadian ETF is the $16.8 billion iShares S&P/TSX 60 Index (XIC.TO) that debuted back in 1999. But, other products have gotten much larger since. The three most popular Canadian ETFs all clock in at around $23 billion in assets:

• PIMCO’s Monthly Income ETF Series (PMIF.TO) invests in US Treasury and agency bonds, but converted to Canadian dollar terms. Thus, when the US dollar strengthens versus the Canadian dollar, this fund’s return is impacted negatively. The opposite is also true, making this a way for investors anywhere to use future US dollar weakness to boost their return on bonds.
• The Vanguard S&P 500 Index ETF (VFV.TO) is particularly interesting. It debuted back in 2012, and has outperformed its US counterpart (VOO) by 230% cumulatively since that time. That’s because even though the fund simply owns VOO, when translated from the strong US dollar into Canadian dollars, there’s a performance boost. The Canadian dollar (which can be tracked in the US via the ETF symbol FXC) has declined 28% versus the US currency over that same time period.
• BMO S&P 500 Index ETF (ZSP.TO) operates more traditionally, in that it owns the stocks in the S&P 500 directly.

US investors will find familiar names in Canada such as iShares, Vanguard, Fidelity, First Trust, and Global X, as well as local firms like BMO, Scotia and CIBC.

Same, But Different. Perhaps ETFs traded in Canada will remain primarily of interest to Canadian citizens. But, if the US economy and dollar weaken significantly (tariffs included), investors might find relative comfort investing in a set of overlapping ETFs, in a separate but similar North American nation. History will tell.