Tech ETF Versus Individual Stocks Holdings
I have been searching for the 5 Best Technology ETFs in Canada which mostly track US and CAD technology stocks. After all, I work in technology and have a passion for it so holding tech stocks should be part of my growth plan.
The disadvantage of technology ETFs is their MER which is fine considering the exposure and peace of mind holding in local CAD rather than USD. The other negative part of holding technology ETFs or Stocks is the fact that they barely pay any dividends, but the growth beats every dividend paying stock.
If there is MER, why am I going to hold an ETF? Two reasons basically. Firstly, I hate going through currency conversion which makes me pay extra fees nor I am a fan of some complicated buy and sell methods (Norbert Gambit) with a week or so waiting to get the funds in my desired currency.
The second reason is that history repeats itself. Blackberry is a lesson to remember. Hence, I prefer holding an ETF with more stocks exposure than holding handful number of companies. I will never know what company will be the next Amazon or Shopify so no point on even trying.
So there goes the story! Below I am going to list what I found as my 5 Best Technology ETFs in Canada.
Also, if you’d like to know how my story started and what my plans are, please read my Jan-Feb 2021 Net Worth and Income Update.
You can also check out my detailed analysis of XAW and VXC versus holding underlying funds directly on Best & Most Tax Efficient US & International ETFs Listed on TSX
TEC – TD Global Technology Leaders Index ETF
TEC is a pure technology ETF developed by a German company called Solactive. Currently, TEC seeks to track the Solactive Global Technology Leaders Index (CA NTR), an index which tracks the performance of securities of global mid- and large-capitalization issuers that are related to technology.
In addition to technology, CA NTR also includes companies that belong to other subsectors but are engaged in technology-related themes such as Cyber-Security, the Internet of Things, E-Commerce, Robotics & Automation, Artificial Intelligence, Autonomous Vehicles, Cloud, and Big Data.
This ETF holds 248 international stocks and not surprisingly, the top 30 stocks weight more than 70% of the total ETFs holdings. Also, as seen below, Canadian tech giant Shopify’s weight is only 0.76%. Open Text is very low on the list with only 0.07%.
|Facebook Inc Cl A||3.84%|
|Alphabet Inc Cl A||3.80%|
|Alphabet Inc Cl C||3.66%|
|Tesla Motors Inc||2.76%|
|Visa Inc Cl A||2.21%|
|PayPal Holdings Inc||1.70%|
|Adobe Systems Inc||1.28%|
|ASML Holding NV||1.28%|
|Cisco Systems Inc||1.10%|
|Accenture PLC Cl A||1.00%|
|Texas Instruments Inc||0.94%|
|Applied Materials Inc||0.63%|
The current dividend yield is 0.63% which covers the MER and TER of 0.44%. ETF facts can be found here on TD’s official site.
One important note is that this ETF is not an actively managed one. However, it gets reviewed once a year and can be modified by removing or adding new stocks.
XIT – iShares S&P/TSX Capped Information Technology Index ETF
XIT only seeks Canadian Information Technology companies which means you won’t see any Apple, FB, Amazon, or Google in XIT. However, it comes with an interesting semi-Annual distribution. Last distribution in Dec 2020 was $0.096. However, these distributions are neither predictable nor reliable so don’t count on them.
The ETF holds only 16 stocks. After all, it is only after Canadian Capped IT stocks which aren’t that many. Hence, its 0.61% MER is really heavy considering the ETFs simple holdings.
Here are the top 10 Holdings. Interestingly but as expected, the top 4 counts for 80% of the ETF’s total weight.
I am not willing to pay 0.61% MER to hold this ETF and prefer to buy SHOP, CSU, OTEX, LSPD, KXS, and CLS individually. I actually bought 10 LSPD 2 days for $69.00 / share.
QQC.F – Invesco QQQ Index ETF (CAD-Hedged)
QQC seeks to replicate the performance of the NASDAQ – 100 Currency Hedged CAD Index. As the name says, this is not a pure technology ETF but rather after the best 100 (To be precise 103 currently) NASDAQ companies with a 0.78% distribution yield and an interesting 1.28% dividend yield. QQQ’s MER is 0.26%.
The CAD hedged part can be tricky. It basically means no dollar gain or loss for CAD-USD fluctuations. If CAD rises against USD, this will be beneficial. However, if CAD loses value, it might eliminate the benefit of distributions and yield. Depends on the Oil price, CAD might keep rising (Or the opposite).
QQC’s top 10 holdings are listed below which count for 51.21% of the total fund’s weight. Considering its 48.11% Information Technology and 19.80% Telecommunication Services holdings, it is fair to say this ETF can be counted as a mostly technology ETF.
XQQ – iShares NASDAQ 100 Index ETF (CAD-Hedged)
XQQ exposures to 100 (106 to be exact at the time of writing) of the largest non-financial companies listed on The Nasdaq Stock Market based on market cap. XQQ’s MER is 0.39% with a 0.27% distribution yield.
As shown below, XQQ is almost identical to QQC in holding and sector allocation. Similar to QQC, with its large exposure to Information Technology and Telecommunication, can be considered a mostly technology ETF.
IYW – iShares U.S. Technology ETF
IYW is the US version of XIT with a huge exposure difference where it holds 160 US Stocks (Versus XIT’s 16 Canadian stocks). IYW is traded on NYSE and is in USD but I had to mention it here.
IYW has a 0.55% trailing yield and a 0.43% MER. The ETF’s top 10 holdings count for 62.64% of its total weight. Holding US listed ETF in USD holding US stocks directly is the best way to avoid the 15% withholding tax in RRSP but it comes with the disadvantage of converting money from CAD to USD.
Growth and Performance Comparison of the Mentioned 5 Tech ETFs
These are the best technology ETFs that I could find in the market. To understand them better, we need to compare their performance as well. The 5 year comparison isn’t fair as TEC started in 2019. QQC is missing a year as it started in 2017. But here goes the chart. Very interestingly, XIT which only tracks TSX 16 technology stocks had the highest growth 247.32%. Remember when I said, I won’t even consider this ETF?
To make a more judgmental decision and considering all the markets ups and downs during the past year, I think a 1 year performance might be a better way to go.
As shown below, all the ETFs had an almost similar growth ranging from 48% to 59%. Of course, this includes the recent melt down of Technology stocks. Again, very interestingly, XIT is the winner with a 59.63% growth while TEC lost the game with 48.07% growth.
From all the above, I eliminate XQQ as it is similar to QQC but with a much higher MER and lower yield. I also remove IYW as it is in USD and doesn’t include companies like TESLA or AMAZON. I consider these companies are Technology companies. Amazon’s AWS is a pure cloud service which is technology related same as Tesla’s AI technology.
We now have 3 ETFs to compare. TEC, XIT, and QQC.F
I believe, XIT’s exposure isn’t worth its MER despite its growth. One can hold individual stocks and avoid paying the MER. Also, companies like Shopify might not be able to perform how they did in 2020 due to the pandemic. We might see a slower (but steadier) growth in 2021 and upcoming years.
I think the businesses who needed SHOP used the company’s services in 2020. They will continue to rely on SHOP but onboarding new clients won’t be anything like last year. Therefore, I eliminate XIT from the equation and prefer to hold the underlying top stocks directly.
Between QQC.F and TEC, I did the top stocks comparison in below table. Do you see how close they are? We are missing companies like Visa, MasterCard, Salesforce, Sony, Oracle, SAP, and IBM. All these companies are covered under XAW which holds them in IVV and XEF.
|Adobe Systems Inc||1.28%||1.78%|
|ASML Holding NV||1.28%||0.34%|
|Cisco Systems Inc||1.10%||1.64%|
|Accenture PLC Cl A||1.00%||0.00%|
|Texas Instruments Inc||0.94%||1.30%|
|Applied Materials Inc||0.63%||0.87%|
Final Thoughts and Picking 1 Best Tech ETF in Canada
Technology stocks are a must to own for any growth seeker investment plan. For me, I will buy Canadian technology stocks individually. For international stocks, they will be a small part of holding XAW. I’d have loved to raise my stake in companies like SAP and Oracle, but I am bound to the limitations of holding an ETF with international stock (And I don’t want to buy them in their own international currency).
Choosing between TEC and NASDAQ’s top 100, I prefer NASDAQ QQC.F ETF. The reason is because I get broader exposure by owning PepsiCo, Starbucks, Booking Holdings (My favorite Hotel Booking), Gilead, and even Trip.com with a 0.1749% weight to be a reminder of good old days of traveling! ☹
By holding QQC.F, I avoid the tax complications (2 layers) that comes with holding TEC and its underlying German investment company with a 15% international exposure. I also increase my exposure to the great growth companies listed under XAW’s IVV ETF which I am buying weekly.
In addition, QQC.F comes with a 0.78% distribution yield and an interesting 1.28% dividend yield. Its MER is 0.26% which is almost close to XAW’s 0.22% MER (Before Tax).
And finally, who doesn’t prefer a company’s ETF which gives back fairly. A reinvested $3.72972 Capital Gain (Considering the stock price of $101.64) is a treat to an investor.
IT IS YOUR TURN! WHAT ARE YOUR THOUGHTS? MAYBE I AM MISSING SOMETHING. DO LET ME KNOW!