In a recent column, you suggested: “For greater exposure to tech, and better diversification, you might consider adding a simple Canadian-listed S&P 500 ETF to your portfolio. That’s what I do personally, and I’ve been pleased with the results.” What specific exchange-traded funds should your readers consider?
There are several Canadian-listed S&P 500 ETFs to choose from. Three of the largest are the BMO S&P 500 Index ETF (ZSP-T), the iShares Core S&P 500 Index ETF (XUS-T) and the Vanguard S&P 500 Index ETF (VFV-T). Collectively, these funds manage roughly $60-billion of assets, reflecting their popularity with Canadian investors.
Apart from having different names, these ETFs are essentially the same. All three trade in Canadian dollars, which means you don’t have to convert your loonies into U.S. currency to buy them. They charge the same management expense ratio of 0.09 per cent. And they have identical five-year annualized total returns of 15.8 per cent, including dividends.
For investors who aren’t comfortable with currency risk, each ETF also has a hedged version that uses forward contracts to offset fluctuations in the Canada-U.S. exchange rate.
Hedging would, in theory, minimize the damage if the Canadian dollar were to suddenly rise. If the Canadian dollar falls, on the other hand, a hedged ETF will typically underperform a non-hedged ETF. That’s what happened over the past five years, when the loonie fell from about 81 US cents down to its current level of about 72.7 US cents.
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The currency-hedged S&P 500 ETFs from BMO (ZUE-T), iShares (XSP-T) and Vanguard (VSP-T) posted annualized total returns averaging about 12.8 per cent – roughly three percentage points below their non-hedged counterparts.
Hedging is a personal decision. If you’re going to lie awake worrying that the loonie is about to go on a tear – which would depress the value of U.S. assets priced in Canadian dollars – then by all means choose a hedged ETF. Just keep in mind that hedging isn’t perfect, especially in volatile markets, and there are modest costs involved that could affect performance.
Whether you choose a plain-vanilla or hedged ETF, remember to stay focused on the long term and try to ignore the geopolitical noise. Around this time last year, many Canadians were wondering if it was time to dump U.S. assets because of President Donald Trump’s erratic trade and other policies. The S&P 500 went on to post a total return of nearly 18 per cent in 2025.
I’m not saying 2026 will bring more of the same. But the large-cap U.S. companies that comprise the S&P 500 aren’t going away, and an index ETF is the easiest way to add them to your portfolio.
I switched to dividend investing about 10 years ago for all the reasons you often mention, but there is one area I would really be interested in learning more about: exit strategies. I struggle to know when to sell, particularly when historically solid companies like Algonquin Power & Utilities Corp. (AQN-T), BCE Inc. (BCE-T), and Telus Corp. (T-T) start to tank. I know there is no crystal ball, but any advice you can give about red flags or factors investors should consider would be educational and appreciated.
If it makes you feel any better, lots of investors − including yours truly – took a hit on the stocks you mentioned. Unless you want to put all of your money into guaranteed investment certificates yielding 3 per cent, you’re going to have to accept that investing entails some risk. Risk is the reason stocks, as an asset class, generate higher returns than GICs or government bonds, and it’s not realistic to expect you’ll go through life without slipping on an investing banana peel from time to time. This is precisely why diversification is so important.
That said, there are a few red flags to watch out for.
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For dividend stocks, in particular, one of the most obvious warnings signals is a yield that climbs significantly above its long-term historical average. BCE, for example, yielded well into the double digits before it slashed its payout by 56 per cent in May, 2025. But there were signs that all was not well months earlier. In November, 2024, BCE put dividend hikes on hold – an ominous sign that prompted me to sell my shares personally and in my model portfolio.
A rising yield − which is really just the flip side of a falling share price – doesn’t happen in a vacuum. There are usually fundamental issues at play as well, such as stalled or declining revenue and earnings, increasing competition, repeated missed guidance, analyst and credit-rating downgrades, a ballooning payout ratio, and sudden executive departures.
Analyzing all of these factors takes time and expertise. When researching my columns, I lean on reports from analysts with far deeper knowledge than I have to assess the health of companies.
Sometimes, however, no amount of research can spot a train that’s about to jump the tracks. In Algonquin’s case, investors and analysts were blindsided when the utility operator slashed its earnings forecast in November, 2022, citing rising costs for variable-rate debt, among other factors. The stock skidded more than 30 per cent over the next two days – a clear indication the market was taken by surprise.
You win some, you lose some, as the saying goes. But if you maintain a properly diversified portfolio, your winners should vastly outnumber your losers over the long run.
E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.