iShares NASDAQ 100 ETF (CAD-Hedged) for Canadian Investors

Fund Objective and Strategy

The iShares NASDAQ 100 Index ETF (CAD-Hedged) has a clear investment objective to provide long-term capital growth. It achieves this by aiming to replicate, before fees and expenses, the performance of the NASDAQ-100 Currency Hedged CAD Index. This target index is itself based on the renowned NASDAQ-100 Index, which tracks 100 of the largest domestic and international non-financial securities listed on the NASDAQ stock market. The fund's strategy involves directly holding the underlying stocks of the NASDAQ-100 Index in their respective index weights. A critical component of the fund's mandate is its currency hedge, which seeks to neutralize the impact of exchange rate movements between the U.S. and Canadian dollars on the fund's returns for Canadian investors. This hedging is typically executed using forward currency contracts and other derivative instruments, and it is a defining feature that distinguishes XQQ from unhedged Nasdaq 100 ETFs available in Canada.

Understanding the NASDAQ-100 Index

The NASDAQ-100 Index is the foundation for the XQQ ETF and understanding its construction is key for investors. The index debuted in 1985 and is a market capitalization-weighted index that specifically excludes companies from the financial sector, focusing instead on other major industries. The index methodology results in a heavy concentration in the technology sector, which has historically comprised around 50 percent of the index's total weight, and the performance of the index is driven by the largest constituents, meaning a small number of very large companies have an outsized influence on its returns. The index is rebalanced quarterly and undergoes a full reconstitution annually to ensure it continues to represent the 100 largest eligible non-financial stocks on NASDAQ, and investors cannot buy the index directly, which is why ETFs like XQQ exist to provide that exposure.

The NASDAQ-100 Index is a market capitalization weighted index that tracks 100 of the largest non-financial securities listed on the NASDAQ exchange. It debuted in 1985 and is composed of large cap U.S. stocks. Approximately 50 percent of the index is made up of U.S. technology sector stocks. Investors cannot invest in the index directly and must use funds like ETFs that track it.

• Debuted in the year 1985.
• Tracks 100 of the largest non-financial stocks listed on NASDAQ.
• Uses a market capitalization weighting methodology.
• Has a historical sector composition of approximately 50% technology stocks.
• Is rebalanced on a quarterly schedule.
• Is fully reconstituted on an annual basis.

One of the most resilient and high performing stock market indexes of the last decade has been the Nasdaq 100. It has evolved from the era of the FAANG cohort into a powerhouse fueled by the Magnificent Seven and the global race for Artificial Intelligence supremacy. This structure has made the index a barometer for innovation and growth, particularly in the technology sector. Its performance is driven by the rapid expansion of large cap U.S. technology stocks.

Portfolio Composition and Valuation

The portfolio of the XQQ ETF is a direct reflection of the NASDAQ-100 Index, offering exposure to leading U.S. large-cap companies. The fund provides substantial exposure to U.S. technology leaders, with more than 50 percent of its portfolio invested in giants central to areas like artificial intelligence, cloud computing, and semiconductors, and the portfolio's valuation metrics, such as price-to-earnings and price-to-book ratios, are provided by third-party pricing vendors. It is important to note that these vendor prices are not necessarily the price at which the fund values the holdings for calculating its net asset value, and the calculated values for portfolio weightings are based on the most recent date for which a vendor price is available, which may not be the same as the date of the portfolio snapshot. In specific circumstances, such as for suspended securities, the fund uses its own valuation price, which is a critical detail for understanding how the fund's holdings are reported.

The fund's investment profile can be summarized by several key valuation metrics. The portfolio has a price to earnings ratio of 23.14. It has a price to book ratio of 7.09. It also has a price to sales ratio of 5.42. These metrics are provided by the fund manager.

• Price to Earnings ratio: 23.14 (Fund) vs. 19.24 (Category Average) vs. 19.45 (Index).
• Price to Book ratio: 7.09 (Fund) vs. 4.80 (Category Average) vs. 4.28 (Index).
• Price to Sales ratio: 5.42 (Fund) vs. 3.23 (Category Average) vs. 3.03 (Index).

These figures illustrate that the fund's holdings trade at higher valuation multiples compared to broader category averages. The category average price to earnings ratio is 19.24 and the index average is 19.45. The category average price to book ratio is 4.80 and the index average is 4.28. The category average price to sales ratio is 3.23 and the index average is 3.03. This reflects their growth oriented nature and the market's premium for future earnings potential.

History and Market Context

The NASDAQ-100 Index has been one of the most resilient and high-performing stock market indexes over recent decades, with its evolution driven by the expansion of large-cap U.S. technology stocks from the era of the FAANG companies to more recent market leaders often referred to as the Magnificent Seven. The index's performance has historically been fueled by both rising valuations and corporate earnings growth, and for instance, the semiconductor industry has been a dominant force, with certain constituent companies reaching market capitalizations in the trillions of dollars. The index entered 2026 following a period where corporate earnings became the primary driver of returns, a shift from previous years dominated by valuation expansion, and this underscores the maturing nature of the companies within the index. The iShares CAD-hedged ETF provides a vehicle for Canadian investors to access this dynamic segment of the U.S. market, and the fund itself is among the most popular Nasdaq-100 ETFs in Canada, with assets under management exceeding four billion dollars, making it the second-largest fund of its kind in the country as of 2026.

Trading, Accounts, and Canadian Accessibility

The iShares NASDAQ 100 Index ETF (CAD Hedged) is listed on the Toronto Stock Exchange under the ticker symbol XQQ. It trades in Canadian dollars, providing convenience for domestic investors. This Canadian listing makes the fund easily accessible through any Canadian brokerage account. The fund is eligible to be held in a variety of registered and non registered investment accounts. There is no unhedged version of this specific iShares ETF trading on the TSX, though other providers offer unhedged alternatives.

Canadian investors can hold the iShares NASDAQ 100 Index ETF in various registered and non registered investment accounts. It is eligible to be held in a Tax Free Savings Account, or TFSA. It is also eligible for a Registered Retirement Savings Plan, or RRSP. This broad eligibility allows investors to incorporate this U.S. equity exposure into their overall investment strategy.

• Tax-Free Savings Account (TFSA)
• Registered Retirement Savings Plan (RRSP)
• Registered Retirement Income Fund (RRIF)
• Registered Education Savings Plan (RESP)
• Non-registered cash or margin account

This broad eligibility provides flexibility for both short term and long term financial planning. Investors can use the fund for different savings goals and tax planning scenarios. Holding the fund in a TFSA allows any growth or distributions to be tax free. Holding it in an RRSP allows for tax deferred growth.

Distributions and Tax Considerations

The fund may make distributions to unitholders, which are characterized into specific income types at the end of each calendar year, and the total distribution figure includes all distributions declared year-to-date. It is important for investors to understand that distributions are not always paid in cash, as the fund may issue distributions that result in additional units being issued to investors, known as reinvested distributions. For tax purposes, investors must add the amount of these reinvested distributions to the adjusted cost base of the units they hold, and the exact tax treatment of all distributions for a given year is finalized after the fund's tax year-end. Investors receive an official tax statement from their brokerage detailing the type of income to report, such as eligible dividends, other income, or capital gains, and this annual statement provides the complete picture for tax filing, rather than individual distribution announcements.

Key tax related processes for the fund's distributions include year end characterization of income types. The exact tax treatment of the distributions for a calendar year is calculated after the fund's tax year end. Investors will receive an official tax statement from their broker detailing the type of income to report. Distributions that are not paid in cash but result in additional units should be added to the adjusted cost base of the units held.

• Characterization of income type occurs at year-end.
• Distributions can be paid in cash or reinvested as additional units.
• Reinvested distributions must be added to the investor's adjusted cost base.
• The final tax treatment is calculated after the fund's tax year-end.
• An official tax statement is provided by the investor's broker annually.

This process ensures investors have the correct information for reporting investment income to the Canada Revenue Agency. It highlights the importance of reviewing the annual tax slip from their broker. Investors should not rely solely on interim distribution notices. The official statement details the type of income to report for tax purposes for the entire year.

Key Risks and Considerations for Investors

Investing in the iShares NASDAQ 100 Index ETF (CAD-Hedged) involves several risks that investors must consider, with the primary risk being market risk, as the fund's value will fluctuate with the performance of the underlying NASDAQ-100 Index, which is concentrated in the technology and growth sectors. This sector concentration risk means the fund may be more volatile than a more diversified portfolio, and although the fund is currency-hedged, the hedging strategy is not perfect and involves costs that can lead to tracking error, meaning the fund's return may not perfectly match the index's return after accounting for the hedge. Hedged ETFs tend to incur higher tracking errors due to the cost of currency hedging itself, and other risks include liquidity risk, although this is mitigated by the fund's large size and active trading on the TSX. There is also counterparty risk associated with the derivatives used for currency hedging, and furthermore, for securities where trading has been suspended, the fund's calculated values may be based on its own valuation price rather than a market quote, which can introduce valuation uncertainty.

Comparison with Other Canadian Nasdaq 100 ETFs

Canadian investors have several options for gaining exposure to the NASDAQ-100 Index through ETFs, with the primary distinction among these funds being whether they are currency-hedged or unhedged. The iShares XQQ fund is a currency-hedged product, and in contrast, an unhedged ETF would see its returns directly affected by changes in the USD/CAD exchange rate, adding another layer of volatility. Hedged ETFs like XQQ aim to remove this currency effect, though they tend to incur slightly higher costs that can impact tracking efficiency, and another major competitor is the BMO NASDAQ 100 Equity Hedged to CAD Index ETF, which trades under the ticker ZQQ and holds over $2.25 billion in assets. While both XQQ and ZQQ are hedged, they are managed by different financial institutions, and some providers also offer leveraged, inverse, or enhanced income versions of Nasdaq ETFs, but these are generally more complex, costlier, and carry significantly higher risk.

The selection of major Canadian listed Nasdaq 100 ETFs includes key funds from different providers. The BMO NASDAQ 100 Equity Hedged to CAD Index ETF trades under the ticker ZQQ. The iShares NASDAQ 100 Index ETF (CAD Hedged) trades under the ticker XQQ. There is also an iShares NASDAQ 100 Index ETF that is unhedged, which trades under the ticker XQQU. The BMO NASDAQ 100 Equity Index ETF is an unhedged counterpart that trades under the ticker ZNQ.

• iShares NASDAQ 100 Index ETF (CAD-Hedged) (XQQ): Over $4 billion in assets, CAD-hedged, no unhedged iShares version on TSX.
• BMO NASDAQ 100 Equity Hedged to CAD Index ETF (ZQQ): Over $2.25 billion in assets, CAD-hedged.
• BMO NASDAQ 100 Equity Index ETF (ZNQ): The unhedged counterpart to ZQQ.
• iShares NASDAQ 100 Index ETF (XQQU): An unhedged version, but this ticker typically references a U.S.-listed fund.

This variety allows investors to choose based on their view of currency movements and cost preferences. It is important to compare management expense ratios when making a selection. Investors should also consider the tracking error history of the ETFs. These funds offer both currency hedged and unhedged exposure to the Nasdaq 100 index.

Frequently asked questions

Sources and further reading

1. iShares NASDAQ 100 Index ETF (CAD-Hedged) - XQQ rbcgam.com
2. Top Canadian Nasdaq ETFs of 2026 fool.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.