U.S. Tech Sector Rebounds: Canadian ETFs to Invest With
Big tech stocks saw a strong end to the first quarter of 2023 on the backs of stellar earnings reports. Here are three ways Canadian investors can bet on further growth via ETFs.
The first quarter of 2023 has brought renewed vigor to the technology sector, as industry juggernauts like Meta, Microsoft, Apple, and Alphabet reported impressive earnings, outpacing market expectations.
This resurgence comes on the heels of a challenging 2022, during which tech stocks struggled amidst rising interest rates, following a decade of strong growth that fueled overall U.S. market expansion.
While technology stocks already dominate most market cap-weighted U.S. indices, some investors are turning to sector-specific or tech thematic ETFs to further capitalize on continued growth potential.
The main benefit of using a Canadian-listed ETF for U.S. tech exposure is the ability to side-step currency conversion costs. Most U.S. tech stocks also pay little to no dividends, which makes Canadian ETFs holding them fairly tax-efficient from a foreign withholding tax standpoint as well.
Here's a look at three popular Canadian-listed ETFs that allow investors to overweight large-cap U.S. tech stocks. To find more ETFs in this category, consider using the Cboe ETF Screener, which provides a handy list of filters for sector, geography, and more.
Horizons NASDAQ-100 Index ETF (HXQ)
Although not technically a pure-play U.S. tech ETF, HXQ does an admirable job of providing exposure regardless. Its underlying index, the Nasdaq 100 currently holds a 49% weight to technology stocks, along with a 16% weight to the closely related communication sector. Its top 10 holdings currently include the likes of Microsoft, Apple, Amazon, Nvidia, Meta, Alphabet, and Tesla.
Notable to HXQ is its use of a corporate class structure, which makes it very tax efficient. Currently, the ETF does not pay distributions, which makes it ideal for investing in a taxable account. Unlike other Nasdaq 100 ETFs on the Canadian market, HXQ is not currency hedged. Finally, it also comes in at a lower expense ratio of 0.28%, compared to 0.39% for comparable peers.
TD Global Technology Leaders Index ETF (TEC)
TEC tracks the SolactiveGlobal Technology Leaders Index, which holds a portfolio of 268 global technology sector and technology-related equities. In practice though, the ETF's market cap-weighted index results in a substantial 85% allocation to U.S. equities. Hence, the ETF's top 10 holdings mirror that of HXQ, with names like Apple, Microsoft, Amazon, Nvidia, Alphabet, Meta, and Tesla showing up.
That being said, investors looking to avoid the exposure to consumer staples companies in ETFs tracking the Nasdaq 100 may favor TEC for more pure-play technology exposure. Another possible use for TEC is as a tax-loss harvesting partner for a Nasdaq 100 ETF given the similar historical performance yet different index. TEC charges a 0.39% expense ratio.
Evolve FANGMA Index ETF (TECH)
Investors looking to bet on the biggest names in the U.S. tech sector can opt for TECH, which tracks an equally-weighted portfolio of the "FANGMA" stocks – Facebook (now called Meta), Amazon, Netflix, Google, Microsoft, and Apple. While individual shares of these companies may trade at hundreds of U.S. dollars, TECH can be purchased for around $9.00 Canadian per share, making it very capital efficient.
TECH tracks the Solactive FANGMA Equal Weight Index, which as its name suggests holds all six FANGMA stocks in equal-weight allocations, rebalanced quarterly. The ETF is hedged to the Canadian dollar, so fluctuations between the U.S. dollar and the Canadian dollar won't affect its performance as much. So far, the ETF has attracted around $60 million in assets under management.
Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.
