The SPDR S&P 500 ETF Trust (SPY) is a U.S.-listed exchange-traded fund that tracks the S&P 500 index, a benchmark of 500 large American companies. For Canadian investors, SPY represents one way to gain exposure to the U.S. stock market, but it is traded in U.S. dollars on American exchanges. Canadians also have access to a variety of S&P 500 ETFs listed on the Toronto Stock Exchange, which can simplify currency conversion and offer different features like currency hedging. Understanding these options is important for building a diversified portfolio that includes U.S. equities.
Understanding the S&P 500 Index
The S&P 500 is a market capitalization weighted index created in 1957 that tracks 500 of the largest publicly traded companies in the United States. The index covers all 11 market sectors and represents approximately 80 percent of the total U.S. stock market by market capitalization. Investors cannot invest directly in the index itself, so they use funds like exchange traded funds or mutual funds that aim to replicate its performance. These funds hold a basket of the underlying S&P 500 stocks according to their respective weights in the index. The difference between the actual return of the S&P 500 index and the return of an ETF that tracks it is known as tracking error, which can be positive or negative.
Canadian-Listed S&P 500 ETFs
Several S&P 500 ETFs are listed on the Toronto Stock Exchange and can be purchased through any Canadian brokerage account. These funds provide Canadians with a convenient way to invest in the U.S. market without needing to convert currency for each trade or deal directly with U.S. listed securities. Popular Canadian listed S&P 500 ETFs include the BMO S&P 500 Index ETF (ZSP), the Vanguard S&P 500 Index ETF (VFV), and the iShares Core S&P 500 Index ETF (CAD Hedged) (XSP). These ETFs are designed to replicate, to the extent possible, the performance of the S&P 500 Index net of expenses. They invest directly or indirectly primarily in stocks of U.S. companies to achieve their investment objective.
When evaluating these ETFs, investors should consider several key factors. The management expense ratio is the annual fee charged by the fund, expressed as a percentage of the investment. For Canadian listed S&P 500 ETFs, MERs typically range from about 0.08 percent to 0.10 percent. Another important consideration is whether the ETF is currency hedged or unhedged. An unhedged ETF leaves returns exposed to fluctuations in the USD CAD exchange rate, while a hedged ETF uses financial instruments like forwards to mitigate that currency risk. Tracking accuracy, or how closely the fund's returns match the index, is also a vital metric to review. Investors should also note that distributions from these ETFs are typically paid on a quarterly basis.
Major Canadian S&P 500 ETFs include several options listed on the TSX. The BMO S&P 500 Index ETF (ZSP) is designed to replicate the performance of the S&P 500 Index and charges a management expense ratio (MER) of 0.09%. The Vanguard S&P 500 Index ETF (VFV) seeks to track the S&P 500 Index. The iShares Core S&P 500 Index ETF (CAD-Hedged) or XSP replicates the S&P 500 Hedged to Canadian Dollars Index. Another option is the Horizons S&P 500 Index ETF (HXS), which is noted as a tax efficient alternative for non registered accounts.
- BMO S&P 500 Index ETF (ZSP) has a management expense ratio of 0.09%.
- Vanguard S&P 500 Index ETF (VFV) has a fund expense ratio of 0.08%.
- iShares Core S&P 500 Index ETF (CAD-Hedged) (XSP) seeks to track the S&P 500 Hedged to Canadian Dollars Index.
- Horizons S&P 500 Index ETF (HXS) is structured as a tax-efficient alternative for non-registered accounts.
- The BetaPro S&P 500 Daily Inverse ETF (SPXI) provides inverse exposure to the daily performance of the index.
- These ETFs can be held in all registered and non-registered investment accounts.
Key Features and Costs of S&P 500 ETFs
The management expense ratio is a critical cost to understand because it directly reduces investment returns over time. For example, an ETF with a MER of 0.10 percent would cost approximately 10 dollars annually for a 10,000 dollar investment. This fee covers the ETF manager's trading, operational, administrative, and marketing costs. ETFs trade at market price, not at their net asset value, and investors buy or sell them in the secondary market through a brokerage. In doing so, investors may incur brokerage commissions and may pay more than NAV when buying and receive less than NAV when selling. Some Canadian brokerages offer commission free ETF purchases, though terms vary by platform.
Distributions from Canadian listed S&P 500 ETFs are subject to a 15 percent foreign withholding tax on dividends from U.S. stocks. This tax is withheld before the distribution is paid to the Canadian investor. The only way for a Canadian investor to avoid this foreign withholding tax is by buying U.S. listed S&P 500 ETFs or stocks and holding them in a registered retirement savings plan. For funds held in a tax free savings account or a non registered account, this withholding tax cannot be recovered. The exact tax treatment of distributions for a calendar year is calculated after the fund's tax year end, and investors receive an official tax statement from their broker.
Canadian investors in S&P 500 ETFs pay a management expense ratio (MER), which is an annual fee. For Canadian listed S&P 500 ETFs, MERs typically range from about 0.08% to 0.10%. Distributions from Canadian listed S&P 500 ETFs are reduced by 15% due to U.S. foreign withholding tax on dividends. The only way to avoid this withholding tax is by buying U.S. listed S&P 500 ETFs and holding them in a Registered Retirement Savings Plan (RRSP). In a Tax Free Savings Account (TFSA), the 15% U.S. withholding tax on dividends cannot be recovered.
- Management expense ratios for Canadian-listed S&P 500 ETFs range from 0.08% to 0.10%.
- A 15% U.S. withholding tax applies to dividends from U.S. stocks held within the ETFs.
- This withholding tax can be avoided by holding U.S.-listed ETFs like SPY in an RRSP.
- Distributions are characterized into income type at year-end for tax reporting.
- Some distributions may be classified as return of capital, affecting the adjusted cost base.
- ETF units trade at market price, not NAV, which may lead to buying at a premium or selling at a discount.
Registered Accounts for Holding S&P 500 ETFs
Canadian investors can hold S&P 500 index funds in a variety of registered and non registered accounts. The account type chosen affects how investment gains are taxed and can influence the overall efficiency of the investment. A tax free savings account shelters investment gains from Canadian tax entirely, meaning you pay no tax on growth or withdrawals. It is important to note that U.S. dividends paid into a TFSA are still subject to the 15 percent U.S. withholding tax, which cannot be recovered. A registered retirement savings plan provides a tax deduction on contributions, which can lower your taxable income in the year you contribute. Growth within the RRSP is tax deferred until withdrawal.
Non registered accounts offer the most flexibility with no contribution limits or withdrawal restrictions, but all investment gains are taxable according to Canadian tax rules. This includes capital gains, dividends, and interest income. For investors using non registered accounts, certain S&P 500 ETFs are structured to be more tax efficient. For example, the Horizons S&P 500 Index ETF (HXS) uses a corporate class structure and swap agreements to defer taxes, making it a tax efficient alternative for a non registered account. Investors should consult with a tax professional to understand the implications for their specific situation.
Steps to Purchase a Canadian S&P 500 ETF
To invest in a Canadian listed S&P 500 ETF, an investor must first open an account with an online brokerage or work with a financial advisor. The investor needs to decide which type of account is appropriate, such as a TFSA, RRSP, or non registered account. Once the account is funded, the investor can research and select a specific S&P 500 ETF that aligns with their goals, considering factors like the MER, currency hedging, and tracking accuracy. After selecting an ETF, the investor searches for its ticker symbol, such as ZSP or VFV, within their brokerage platform's trading interface. The next step involves entering the trade details, where the investor specifies the number of shares they wish to purchase and chooses an order type.
A market order executes immediately at the current market price, while a limit order allows the investor to set the maximum price they are willing to pay. It is crucial to review all order details before submission, as ETF units trade at market price and not at their net asset value. After the order is executed, the ETF units will appear in the investor's brokerage account. Investors should be aware that the management expense ratio is deducted automatically from the fund's assets, so it is not a separate charge on their account statement. Regular monitoring and potential rebalancing are part of long term portfolio management, and investors may also need to account for distributions which are typically paid quarterly.
To buy a Canadian S&P 500 ETF, you first need an account with an online brokerage. You then need to select a specific ETF by comparing factors like its management expense ratio and whether it is currency hedged. Next, you search for the ETF's ticker symbol on your brokerage platform. Finally, you enter the number of shares to buy and choose an order type, such as a market order or a limit order, before submitting the trade.
- Open an account with a Canadian online brokerage or financial advisor.
- Fund the account with Canadian dollars.
- Research and select a specific S&P 500 ETF based on MER, hedging, and tracking accuracy.
- Search for the ETF's ticker symbol (e.g., ZSP, VFV) in the brokerage platform.
- Enter the number of shares to buy and choose an order type (market or limit).
- Review the order details and submit the trade.
- The purchased ETF units will settle in the brokerage account.
Specialized and Leveraged S&P 500 ETFs
Beyond standard index tracking ETFs, there are more specialized Canadian listed S&P 500 ETFs that use derivatives. These products often have higher fees, more risks, and greater complexity and are generally suited for advanced investors. One example is the BetaPro S&P 500 Daily Inverse ETF (SPXI), which seeks daily investment results that correspond to one times the inverse of the daily performance of the S&P 500 Index. SPXI can serve as a hedging tool for investors with long positions in the S&P 500, allowing them to hedge out daily or short term market risk. It is critical to understand that SPXI seeks to achieve its stated investment objective over a period of time no greater than one day, and holding it for longer can lead to results that differ significantly from the inverse of the index's performance over that period.
Another specialized product is the Horizons S&P 500 Index ETF (HXS), which uses a total return swap structure to provide exposure to the S&P 500. This structure can offer tax efficiency in non registered accounts by deferring capital gains taxes. However, these products carry counterparty risk, which is the risk that the other party in the swap agreement may not fulfill its obligations. Investors considering these specialized ETFs should thoroughly understand the underlying mechanics, the associated costs, and the specific risks involved before investing. These ETFs are not intended for long term buy and hold strategies and are designed for specific tactical or hedging purposes.
Common Considerations and Potential Mistakes
One common consideration is the impact of currency fluctuations on unhedged S&P 500 ETF returns. If the Canadian dollar strengthens against the U.S. dollar, the returns from an unhedged ETF measured in Canadian dollars will be reduced. Conversely, if the Canadian dollar weakens, the returns will be enhanced. Hedged ETFs aim to remove this variable, but they tend to have slightly higher tracking error due to the cost of the hedging strategy. Another frequent oversight is not accounting for the foreign withholding tax on dividends, which applies regardless of whether the ETF is held in a TFSA or a non registered account. Only holdings within an RRSP can reclaim this tax when using U.S. listed securities.
Investors may also mistake the distribution yield as a guaranteed return, but distributions from an ETF are not guaranteed and can fluctuate. The distributions are characterized into income type at year end, and the total includes all distributions declared year to date. Some distributions may be classified as return of capital, which represents the distribution amount that is paid back to investors and can affect the adjusted cost base of the investment. Failing to reinvest distributions can significantly impact long term compounding growth. Finally, chasing past performance is a common mistake, as historical returns do not guarantee future results. A disciplined, long term approach with regular contributions is often more effective than trying to time the market.
Frequently asked questions
Can I buy the SPY ETF in Canada?
Yes, Canadian investors can buy the SPDR S&P 500 ETF Trust (SPY). It is a U.S. listed ETF traded in U.S. dollars on American exchanges like the NYSE. To purchase it, you typically need a brokerage account that allows trading on U.S. exchanges and you may need to convert Canadian dollars to U.S. dollars. Many Canadian investors opt for Canadian listed S&P 500 ETFs on the TSX to avoid currency conversion for each trade and to trade in Canadian dollars during Canadian market hours.
What is the difference between hedged and unhedged S&P 500 ETFs?
A currency hedged S&P 500 ETF uses financial derivatives like forward contracts to mitigate the impact of exchange rate fluctuations between the U.S. dollar and the Canadian dollar on your returns. An unhedged S&P 500 ETF does not employ this strategy, so your returns in Canadian dollars will be affected by changes in the USD CAD exchange rate. Neither approach is inherently better, the choice depends on an investor's view on future currency movements and their investment time horizon. Hedged ETFs typically have slightly higher management fees due to the cost of the hedging strategy.
How is the 15% U.S. withholding tax applied?
A 15 percent U.S. withholding tax is applied to dividends paid by U.S. stocks held within a Canadian listed S&P 500 ETF. This tax is deducted before the ETF distributes the net dividend to Canadian unitholders. The tax applies when the ETF is held in a TFSA or a non registered account. If you hold a U.S. listed S&P 500 ETF like SPY within an RRSP, this withholding tax is generally waived under the Canada U.S. tax treaty. The tax is not an additional charge you pay separately, it is withheld at source, reducing the amount of the distribution you receive.
What is a management expense ratio (MER) for these ETFs?
The management expense ratio is the annual fee charged by the ETF, expressed as a percentage of the fund's average net assets. It covers investment management fees, operating costs, and other administrative expenses. For Canadian listed S&P 500 ETFs, MERs typically range from about 0.08 percent to 0.10 percent. This fee is deducted from the fund's assets daily, so it reduces the net asset value and your overall return. A lower MER means more of the index's return is retained within your investment, which can have a significant positive effect on compounding over long periods.
In which accounts should I hold S&P 500 ETFs?
S&P 500 ETFs can be held in registered accounts like TFSAs and RRSPs, as well as in non registered accounts. Holding them in an RRSP is particularly efficient for U.S. listed ETFs like SPY, as it allows you to avoid the 15 percent U.S. dividend withholding tax. For Canadian listed ETFs, the TFSA shelters all Canadian tax on growth, but the U.S. withholding tax still applies. Non registered accounts offer no tax sheltering, so capital gains, dividends, and interest are taxable, but they have no contribution limits. The best account depends on your overall financial plan, contribution room, and tax situation.
Are there leveraged or inverse S&P 500 ETFs in Canada?
Yes, there are specialized ETFs in Canada that provide leveraged or inverse exposure to the S&P 500. An example is the BetaPro S&P 500 Daily Inverse ETF (SPXI), which seeks daily investment results that correspond to one times the inverse of the daily performance of the S&P 500 Index. These products use derivatives like swaps and are designed for short term trading or hedging purposes, not long term buy and hold investing. They reset daily, which can cause their long term performance to deviate dramatically from simply being the inverse of the index, and they carry higher risks and costs than standard index tracking ETFs.
Sources and further reading
- (VFV) Vanguard S&P 500 Index ETF vanguard.ca
- iShares Core S&P 500 Index ETF (CAD- Hedged) - XSP rbcgam.com
- Top S&P 500 ETFs in Canada 2026 fool.ca
- How to invest in the S&P 500 in Canada | 2026 guide wealthsimple.com
- SPXI, BetaPro S&P 500® Daily Inverse ETF betapro.ca
This article explains how things work and is not financial, tax or legal advice. Rules, limits and rates change, so check the current figures with the Canada Revenue Agency, your province or your financial institution before you act.