We are asked what the big difference was between Canadian-listed ETFs vs USA-listed ETFs. We'll explain...
Most Canadian investors looking to build a portfolio of low-cost index ETFs will use products that trade on Canada’s main stock exchange – the TSX. But these Canadian-listed ETFs don’t just invest in the Canadian market. Indeed, you can build a globally diversified portfolio using ETF providers like Vanguard, iShares, and BMO, that track all major stock indexes around the world.

Canadian-listed ETFs are an excellent and affordable way for Canadians to invest for the long-term. But they’re not the only way to invest in ETFs. Cost-conscious investors can find products with lower fees and can reduce or avoid foreign withholding taxes by investing in U.S.-listed ETFs.

This article explains the difference between Canadian-listed ETFs and U.S.-listed ETFs. We’ll also look at when and why an investor would want to use U.S.-listed ETFs in their portfolio.

Canadian-Listed ETFs Explained

ETFs are traded on an exchange just like individual stocks and can track a wide variety of securities and market indices, from Canadian, U.S., and International equities, to corporate or government bonds. A recent trend is to combine all of those asset classes and geographical regions into one balanced ETF, called an asset allocation ETF. You’ll see the variety of ETFs on display in the top 10 Canadian-listed ETFs on the market today:

ETF Name TickerAssets (millions)Asset class
BMO S&P 500 Index ETFZSP$8,347U.S. equity
iShares S&P/TSX 60 Index ETFXIU$7,674Canadian equity
iShares Core S&P/TSX Capped Composite Index ETFXIC$5,302Canadian equity
BMO Aggregate Bond Index ETFZAG$5,143Fixed income
iShares Core S&P 500 Index ETF (CAD-Hedged)XSP$4,913U.S. equity
iShares Canadian Universe Bond Index ETFXBB$4,059Fixed income
iShares Core MSCI EAFE IMI Index ETFXEF$3,187International equity
BMO S&P/TSX Capped Composite Index ETFZCN$3,139Canadian equity
BMO MSCI EAFE Index ETFZEA$3,000International equity
Vanguard Canadian Aggregate Bond Index ETFVAB$2,843Fixed income

As you can see, investors can build a globally diversified, risk-appropriate portfolio using Canadian-listed ETFs. Such a portfolio might include the following ETFs:

  • Canadian equity – XIC
  • S. equity – ZSP
  • International equity – XEF
  • Canadian bonds – ZAG

An investor would weight each ETF according to the percentage of equities and bonds they’d prefer in their portfolio. In the above case, making a traditional 60/40 balanced portfolio could mean: 20% Canadian, 20% U.S., 20% International & 40% bonds.

Keep in mind is that most of us get paid in Canadian dollars and spend Canadian dollars. We put Canadian dollars in our investment accounts. Therefore, it’s no surprise that our investment purchases – including Canadian-listed ETFs – are also in Canadian dollars.

You can easily buy and sell Canadian-listed ETFs using an online brokerage. We recommend Questrade because it’s Canada’s low-cost leader and you’ll get $50 in free trades when you start investing with Questrade. Wealthsimple Trade is also a good option because you can buy and sell stocks and ETFs on any North American exchange – free of charge.

Start investing with Questrade and get $50 in free trades!

Buying U.S. ETFs in Canada

Just like Canadian-listed ETFs are traded on the TSX, U.S.-listed ETFs are traded on an American stock exchange like the New York Stock Exchange (NYSE). Indeed, that’s where Canadian investors will find U.S.-listed ETFs from similar providers such as Vanguard and iShares. To access (or invest in) a U.S.-listed ETF, a Canadian investor simply needs to open an account with a discount brokerage like Questrade or Wealthsimple Trade. From there, you’ll have access to stocks and ETFs traded on both Canadian and U.S. stock exchanges.

While that’s a simple way to buy U.S.-listed ETFs, it’s not the most cost-conscious way to do it. That’s because U.S.-listed ETFs trade in U.S. dollars and a Canadian investor is likely using Canadian dollars. Any discount broker like Questrade will execute your trade, perform the currency conversion, and charge a fee (typically 2.5%) on top of the conversion. Those fees can add up quickly if you’re making a sizeable trade.

Instead, Canadian investors looking to trade U.S.-listed ETFs should open a USD investment account that they can fund with their own U.S. dollars. That way you’re performing trades in the same currency and can avoid additional fees from your broker when converting CAD to USD (or vice versa).

Here are the top 10 largest U.S. listed ETFs:

ETF Name TickerAssets (millions)Asset class
SPDR S&P 500 ETFSPY$254,354U.S. equity
iShares Core S&P 500 ETFIVV$176,008U.S. equity
Vanguard S&P 500 ETFVOO$129,092U.S. equity
Vanguard Total Stock Market ETFVTI$126,524U.S. equity
Invesco QQQQQQ$94,765U.S. equity (NASDAQ 100)
iShares Core U.S. Aggregate Bond ETFAGG$70,697Fixed income
Vanguard Total Bond Market ETFBND$51,134Fixed income
iShares Russell 1000 Growth ETFIWF$48,129U.S. equity
Vanguard Growth ETFVUG$46,640U.S. equity
iShares iBoxx $ Investment Grade Corporate Bond ETFLQD$46,548Fixed income

Difference Between Canadian-listed ETFs and U.S.-Listed ETFs

Aside from being listed on different stock exchanges, and being traded in different currencies, the main reason for a Canadian investor to use a U.S.-listed ETF is to save on fees.

Canadian investors pay some of the highest investment fees in the world, typically thanks to our expensive mutual funds that charge a 2% management expense ratio (MER) or more. Our Canadian-listed ETFs are much cheaper than mutual funds, but Canadian investors still get short-changed on fees compared to our U.S. counterparts. Read more about Index Funds vs. Mutual Funds.

If you want to cut your fees to the bone, you’ll want to eventually add U.S. listed ETFs to your portfolio to save on MER and on foreign withholding taxes (which I’ll get to later in the article).

Take the Vanguard Total World Stock ETF (VT), which comes with a MER of just 0.08%. With just this one ETF, an investor can get exposure to more than 8,400 stocks from all over the world. Compare that to one of the only all-in-one global stock ETFs available on a Canadian exchange – Vanguard’s VEQT – which comes with a MER of 0.25%. That’s more than three times the cost of the U.S.-listed ETF.

Foreign Withholding Taxes

Most investors should be perfectly content with building a portfolio of Canadian-listed ETFs. After all, you can keep things extraordinarily simple by purchasing one asset allocation ETF, such as VBAL, VGRO, or VEQT, and getting global diversification and automatic rebalancing with just one product.

But investors should know that there are other costs in addition to the management expense ratio or MER that are incurred inside any ETF that’s tracking a U.S. or International stock index. This is called foreign withholding taxes, and it’s essentially a 15% tax on dividends paid to foreign investors.

Let’s go back to Vanguard’s All Equity ETF (VEQT). It comes with a MER of 0.25% but also an estimated foreign withholding tax of 0.22% – bringing the total cost to 0.47%.

This doesn’t make much of a difference for new investors starting out with a few thousand dollars, or, even for portfolios valued at less than $200,000. But at $200,000+ these fees can start to add up in a hurry – totalling $500 or more each year.

Foreign withholding taxes are not recoverable inside an RRSP or TFSA, but they are recoverable inside a taxable (or non-registered) account by filing for a foreign tax credit using Schedule 1.

However, these taxes are recoverable in an RRSP if an investor holds U.S.-listed ETFs. And for that reason, many Canadian investors choose to hold U.S.-listed ETFs inside their RRSPs to not only save on foreign withholding taxes but to save on MER as well.

Norbert’s Gambit

Savvy investors who want to trade in U.S. dollars get around the currency conversion fees imposed by their discount brokerage through a manoeuvre called Norbert’s Gambit. It’s the cheapest way to convert USD and CAD currency at a discount brokerage.

The process can vary widely between brokers. First, you’ll need the ability to open a USD account. You’ll also want to know how long it will take for the currency conversion trade to settle. Some brokers take 2-3 business days, while others (like RBC Direct) can do the entire Gambit on the same trading day.

To perform Norbert’s Gambit, you need to buy, journal, and then sell shares of a security that is traded in both USD and CAD dollars. The specific ETF used for Norbert’s Gambit is called the Horizons US Dollar Currency ETF. It trades in Canadian dollars as DLR.TO, and in U.S. dollars under DLR.U.TO.

An investor looking to convert CAD to USD would buy DLR in their Canadian investment account, convert it to DLR.U in their U.S. dollar account, and then sell the ETF to receive USD. Reverse the process to go from USD to CAD.

The higher the dollar amount exchanged, the larger benefit you’ll receive from performing Norbert’s Gambit.

What is the Difference Between a US-Listed S&P 500 ETF and a Canadian-listed S&P 500 ETF?

Canadian-listed ETFs that track the S&P 500 include BMO’s ZSP, Vanguard’s VFV, and iShares XUS. These funds are super cheap, with average MER hovering around 0.09% for each ETF.

Similarly, Canadian investors can find ETFs tracking the S&P 500 on the NYSE. These products include SPDR’s SPY, iShares’ IVV, and Vanguard’s VOO. The MER of these products is slightly cheaper, with VOO at 0.03%, IVV at 0.04%, and SPY at 0.09%.

Besides cost, the main difference between a U.S.-listed S&P 500 ETF and a Canadian-listed S&P 500 ETF is the currency used to invest. It takes USD to invest in U.S.-listed ETFs, while investors would purchase Canadian-listed ETFs in CAD.

The only reason for a Canadian investor to hold the U.S.-listed version of an S&P 500 ETF is to save on foreign withholding taxes inside his or her RRSP (as described in the section above).

VFV vs VOO

A savvy investor looking for an S&P 500 ETF will notice that Vanguard’s VOO comes with a cost savings of 0.05% over its Canadian version (VFV). It’s not a big enough difference to bother with unless you have a sizeable RRSP portfolio. That’s because by putting VOO in your RRSP you’ll not only save on MER but also on foreign withholding taxes.

MER Fees on Canadian vs. U.S. ETFs

Most investors can get away with holding a portfolio of 1-4 broadly diversified, Canadian-listed ETFs and enjoy the incredible savings and expected future returns that these products have to offer.

However, it does make sense for investors with sizeable RRSP accounts ($200,000+) to consider using U.S.-listed ETFs for their U.S. and international equity exposure. The savings on MER can be significant on larger portfolios, while there’s also the obvious benefit of avoiding foreign withholding taxes.

Here’s a comparison of U.S. equity ETFs that are traded in Canadian and U.S. markets. You can see the difference in MER and in foreign withholding taxes inside an RRSP:

ETF nameTickerMarketMERFWT
iShares Core S&P Total U.S. Stock Market ETFITOTUS0.03%0.00%
iShares Core S&P U.S. Total Market Index ETFXUUCAD0.07%0.26%
Vanguard Total Stock Market ETFVTIUS0.03%0.00%
Vanguard U.S. Total Market Index ETFVUNCAD0.16%0.26%

And here’s a comparison of international equity ETFs that are traded in Canadian and U.S. markets. Again, there’s a significant difference in MER and in foreign withholding taxes inside an RRSP:

ETF nameTickerMarketMERFWT
iShares Core MSCI EAFE ETFIEFAUS0.07%0.25%
iShares Core MSCI EAFE IMI Index ETFXEFCAD0.22%0.27%
Vanguard FTSE Developed Markets ETFVEAUS0.05%0.21%
Vanguard FTSE Developed AC ex NA Index ETFVIUCAD0.23%0.29%
Vanguard Total International Stock ETFVXUSUS0.09%0.22%

Final Word 

Canadian investors can access both Canadian and U.S. listed ETFs through their discount brokerage account. While the vast majority of investors will only ever need to purchase Canadian-listed ETFs to build their portfolios, it does make sense for investors with sizeable RRSP accounts to consider U.S.-listed ETFs for their U.S. and international equity exposure.

U.S.-listed ETFs typically come with lower fees (MER) than their Canadian-listed counterparts. They also reduce, and in some cases eliminate, the additional 15% withholding tax imposed on foreign dividends when held inside an RRSP.

You can easily dive into ETF investing by using an online brokerage like Questrade or Wealthsimple Trade. Debating between the two platforms? Read our in-depth comparison of Questrade vs. Wealthsimple Trade.

If you decide to give it a go, take a look at The Best ETFs in Canada for Young Canadian Investors first. We scrutinized more than 700 ETFs and narrowed down the list to five of the best Canadian ETFs on the market. That’ll help kick off your portfolio!

However, if DIY investing or understanding ETFs feels too complicated, go with a robo advisor. A robo advisor like Wealthsimple will build you a risk-appropriate, diversified personalized portfolio comprised of low-cost ETFs and index funds, and will do the work of rebalancing your portfolio. See our Wealthsimple review for all the details about what makes it so stellar. Plus, you can take advantage of our exclusive promo offer: open and fund a new Wealthsimple Invest account with $1000 within 45 days, and get a $75 cash bonus deposited into your account. In the meantime, learn how to start investing and how to buy stock, and then try an online brokerage once you’ve got the basics under your belt. Then, set up automatic contributions and invest for the long-term.

Article comments

30 comments
Chintan Trivedi says:

Hello,
I’m an international student (23y.o), want to start investing in a few ETFs and a couple of stocks(TD, RBC). Very much interested in getting exposure to the U.S stock market. Few ETFs in mind-

1) VFV vs ZSP, (VFV holds VOO, so it’s also a proxy for another ETF and, ZSP actually holds the individual stocks of the S&P 500 index) to my limited understanding ZSP would save me from withholding taxes in RRSP. Or I’m eligible for Foreign tax credits if imposed?
2) XMU in RRSP, is it worth going for a low-volatility model especially with its MER sitting at 0.33%?
3) XIU in TFSA

The intention is to start small with about 2k CAD, and about 300-500 each month after that. Till date, I’ve made no contributions in either of the accounts. Also, I understand tax efficiency shouldn’t be a concern at this point in time, but this is just to have a basic understanding of the same.

Thank you

Robb Engen says:

Hi Chintan, congrats on starting investing. The financial planner in me needs to ask if you’re sure investing in an RRSP is right for you, or whether you’d be better off investing in a TFSA? As a 23-year-old student, I’m guessing you won’t have much (if any) income to report this year and so it would be more beneficial to invest in your TFSA. That’s a much more important distinction to make at this stage versus trying to decide which ETF is more tax efficient.

VFV is a super cheap way to own the S&P500 with a MER of 0.09%. With ZSP, you’d have to own ZSP.U to get the U.S. version and avoid foreign withholding taxes. Keep in mind that fund trades in USD and so you’ll need to convert your CAD to USD currency.

I’m not a big fan of low volatility but you can’t argue with its past performance. If you want to go that route then XMU or ZLU would do the trick at 0.33% MER. Don’t expect continued outperformance, but the goal with these funds is better downside protection.

Finally, XIU only invests in the TSX 60 so if you’re looking for more broad exposure to the Canadian market then I’d also consider VCN.

LMD Service Group says:

Hi Kyle
I read the above and your Ultimate 5 step guide, but unfortunately i am the ultimate noob. So here is a direct example. 70 k in cash now in RRSP. max tfsa amount in cash also. My plan was use all my TFSA cash to buy VUN.
And do the same in the RRSP for an easy one buy long term hold. I hear you suggesting VTI in the RRSP. If the dollar is down about 5-7 cents currently. Should I just buy VUN in the RRSP ? or open to other suggestion…

Robb Engen says:

@LMD Service Group, you’re right that VUN makes the most sense in your TFSA so that’s a great plan.

VTI usually makes sense for RRSPs, however that involves performing the Norbert’s Gambit manoeuvre to save on currency conversion fees. This likely only makes sense if you’re exchanging five-figure sums, so if you’re contributing a few thousand dollars a year to US equities, VUN is likely to be the less expensive option even in an RRSP.

And if you are willing to pay a little extra for the convenience of making all your trades in Canadian dollars (a perfectly sensible approach), VUN is likely the most appropriate choice in any type of account.

Paul says:

Hi folks, I’ve been considering the BMO ZSP etf but am wondering where to put it. RRSP or TFSA? I’m aware there are withholding taxes but the Fund is held directly by BMO. Any suggestions or will it not really matter?

Robb Engen says:

Hi Paul, in general, it’s best to hold U.S. equities in your RRSP. Note that because ZSP is a Canadian-listed ETF, the 15% withholding tax on foreign dividends will apply whether you hold the ETF in your RRSP or your TFSA.

Also, asset location should not be a concern if all your savings are in tax-sheltered accounts (RRSP/TFSA), especially if your portfolio is relatively small. If you have some contribution room left in your RRSP or TFSA it rarely makes sense to hold investments in non-registered (taxable) accounts. Asset location becomes important only when your tax-sheltered accounts are maxed out.

Also, tax efficiency should never be the starting point when putting together a portfolio: it should only be considered after you’ve settled on an appropriate asset mix for your risk tolerance and investing goals.

Deysi says:

Kyle there’s something I’m extremely confused about. I am Canadian. Why is VOO over $300USD And FVF about $78? If they track the same indexes why in the Canadian one so much cheaper? Please let me know. Thank you.

Robb Engen says:

Hi Deysi, The Net Asset Value (NAV) of an ETF represents the value of all the securities held by the ETF – such as shares or bonds and cash minus any liabilities such as Total Expense Ratio (TER), and divided by the number of shares outstanding.

Besides VFV being listed in U.S. dollars and VOO being listed in Canadian dollars, the main difference is VOO has net assets of $500 billion compared to VFV having net assets of just $2.6 billion.

tony says:

Do you have a list of canadian etf that copy/clone of american etf.
thanks tm
p.s.
do you think you can send me the info to my email please because i will forget(senior) or miss it.

Lisa Jackson says:

Do you mean the Canadian-listed equivalent of an American-listed ETF? One example would be Vanguard’s VFV (Canadian) tracks the S&P 500 and is similar to Vanguard’s VOO (U.S. listed).

You can look over Vanguard Canada’s list of ETFs to find similar examples: https://www.vanguardcanada.ca/individual/indv/en/product.html

Melwin Dreger says:

I have $50k in USD sitting on my bank account.
I have a questrade margin account.
What ETF’s should I be considering or are there other alternatives I should be considering?

Kyle says:

Hi Melwin,

You might want to check this article out, then ask if you have any more specific questions. Personally, I’d use that money to get my US market access (assuming all else is equal).

jeff says:

what about US estate tax exposure. Should be considered for larger portfolios holding direct US securities….

Kyle says:

I guess this would be a consideration for people holding accounts over $5 million Jeff (I see your point), but what % of people is that impacting? Like how many people in all of Canada have over $5 million invested in US equities?

Erin says:

Hi Kyle
Knowing it’s been over 8 years since our last “crash” and the cycle they follow how would you suggest posing yourself to take advantage of this impending future? Sit on the sidelines with cash for now and then just buy closish to the bottom or is there a way to win on the way down and up?

Kyle says:

Hi Erin – I have to be honest and say that I have no idea what the markets do! Best idea is to just stay the course with a basic couch potato asset allocation – if you want the historical best answer that is.

Julian says:

Hi Kyle, Great post.
If i can try to summarize the post and following comments in one sentence. “It ultimately does not really matter which one you buy, as the funds performance will vary due to currency fluctuations, or you will gain or lose when you convert your dollars. The main advantage of buying a Canadian version ETF, is the likely lower fees on conversion that you are getting.”

Did I get it right?

Kyle says:

That’s about right Julian. There are also some minor tax considerations, but that’s the gist of it.

Sisi says:

Hello

I am 28 yo and a new investor who’s trying to purchase Vanguard ETF.

I’m looking to buy this following
VAB 15%
VFV 40%
VXC 30%
VIU (new) 15%

I am looking to put about $21,000 under TFSA using Questrade. What do you think?

Kyle says:

It seems like an interesting starting point Sisi. While I am not supposed to recommend specific equities to folks, here’s a few questions I might consider:

1) Why no Canadian equities?
2) You’re getting a lot of the same exposure with VFV, VXC, and VIU. Any particular reason for these choices?
3) Is there any reason not to just go 100% VXC for the equity portion of your portfolio if you’re allergic to Canadian content?

Martin says:

I am a little late to the discussion but I have special questions I wanted to ask about some ETFs mentioned.

In terms of performance/return, when I look at US versions such as VTI vs ITOT, or VOO vs IVV vs SPY, they offer very similar performance (when compared to each other, difference is minimal). But when I look at Canadian versions of those ETFs like VUN vs XUU, or VFV vs XUS vs HXS etc., performance differs a lot (when compared to each other). It looks like Vanguard is always behind and has the worst performance for its Canadian etfs (vs its competitors, similar etfs).

So why would US versions of Vanguard etfs perform well (always compared to other US listed competitors), but Canadian versions seem to lose some return (vs other similar Canadian ETFs). Are there hidden fees? If you compare VFV vs HXS for example, the 3y return is 20.81% for VFV but 21.32% for HXS. There is a 0.51% difference. If that performance loss remains years after years, it can hurt after a while. Unfortunately there is very little return history for most Canadian listed etfs I mentioned, but with what I see, I am better of with XUU than VUN or better with HXS, XUS than VFV. Am I wrong?

Thank you

Kyle says:

This is likely due to a tracking error Martin. It shouldn’t be a consistent loss, but rather a random occurrence. I would expect it to be less than .2% over the long term. Google “ETF tracking error” for more info.

g patel says:

Hi I ran some numbers When i compared end of day close price with S&P 500 index close level i found correlation coefficient of 0.61between VFV.TO close price and index close price. While same comparison of U.S. version ETF VOO correlation coefficient was 0.99.
could you explain why VFV.TO does not exactly match S&P 500 index.

Kyle says:

Did you allow for currency conversion in your calculations G?

Fred says:

Great article Kyle, thanks!
Just had a few follow up questions. In terms of the currency factor, isn’t it irrelevant when comparing VUN to VTI? Since VUN is unhedged, while you do pay for the currency conversion for VTI, VUNs value varies daily both with the value of the stocks in the index but also the currency rate from CAD to USD, which kinda “hides” currency exposure, but it’s still there. The only way to “protect” from currency variation would be to buy a hedged ETF, no?

Also, at the end when you say keep your US exposure in your RRSP, do you mean as US listed ETF in a RRSP or the a CAD ETF such as VUN?

Thanks!

Kyle says:

Hey Fred,

It isn’t irrelevant. First, I want to be clear, the ETFs that hedge currency are not worth the increased MER fees. You’re right that there would be no difference in the ability to purchase the underlying companies in each of the respective ETFs. The reason it is important is the simple currency conversion at different times. By purchasing VTI when the exchange rate is good for the CAD and then selling it when the exchange rate is not, you would make money – in theory. Long story short, going forward I don’t think there are enough reasons to go with a US-listed ETF for any reason.

When I talk about keeping US exposure in an RRSP, I mean either US-listed (VTI) or TSX-listed (VUN).

cashinstinct says:

VUN value will change depending on exchange rate.

It’s the same…

The issue with us-listed ETF is the currency conversion cost charged by brokers.

Kyle says:

Right, but correct me if I’m wrong here, if you convert your money into US Cash, buy VTI, the CAD dollar then sinks, and you sell VTI, then convert your investment to CAD, you would be making money on the exchange itself would you not?

If you had bought VUN with CAD dollar and the CAD dollar sank, then you sold it, you wouldn’t have exactly the same result as the process above would you?

Cashinstinct says:

You would be making money on the exchange with both.

With VTI, the price itself is in USD so it’s converted in CAD at purchase and when you sell.

With VUN, the value of the ETF itself in $CAD will change depending on exchange rate, so when you sell, the value of ETF depends on the exchange rate at the moment you sell.

Example:
For the last year using Yahoo Finance: change in value
VTI +8.16%
VUN.TO +30.21%

The reason VUN went up 30% compared to 8% for VTI is because of CAD-US exchange rate.

The reason for buying VTI:
– in RRSP, you will not have a 15% withholding tax on your dividends

The reason for buying VUN.TO:
– you will not be charged a forex conversion fee by your broker to buy it (if you don’t have $USD to invest).

Kyle says:

Right, I get you now. So, even when the exchange rate was favourable, it was almost irrelevant then. Thanks!