Should Canadian Investors Buy Canadian or US ETFs?

Canadian investors are fortunate to have relatively open access to international, particularly U.S.-based, Exchange Traded Funds (ETFs) for their portfolios.

With both Canadian and American exchanges having hit all-time highs of late, many Canadian investors now may be wondering whether sticking with domestic companies, or investing outside of Canada, in say the U.S. market, is the way to go.

Most investors who have compared and contrasted Canadian and U.S. equity markets will see that U.S. indices have broadly outperformed Canadian indices over the past 10 years. Low interest rates and an increasing rate of technological development and productivity growth in the U.S. has fueled a much stronger recovery from the financial crisis.

For ETF investors looking at index ETFs, which broadly track various indices, whether they be Canadian or American, investing in U.S.-based index ETFs has been the dominant strategy for quite some time.

Many experts believe this trend is unlikely to change, given stronger economic fundamentals in the U.S. like productivity and business investment than in Canada.

For investors considering buying a dividend or income ETF, it may be more advantageous to stick to Canadian ETFs due to various Canadian dividend tax credits and the tax implications of U.S. income in Canada.

With bond yields generally lower in Canada than the U.S., buying high-yielding Canadian stocks could provide a nice income stream in retirement. I’d focus on ETFs that have a dividend growth mandate, as dividend growth should be a primary consideration for anyone looking at dividend quality and the overall quality of the companies in such ETFs.

Invest wisely, my friends.