In June 2026, the Vanguard S&P 500 ETF (VOO) turned the primary ETF to surpass US$1 trillion in property. In different phrases, the most important U.S. ETF alone is now larger than Canada’s whole ETF business.
Canadian traders should not restricted to merchandise listed at house. Most self-directed brokerages present entry to each Canadian- and U.S.-listed ETFs, making a recurring query: when is it price accepting the added complexity of a U.S. ETF?
Canadian-listed ETFs are usually simpler to purchase. They commerce in Canadian {dollars}, keep away from an up-front forex conversion, and supply an more and more broad vary of funding selections. Nonetheless, U.S.-listed ETFs can generally provide decrease expense ratios, larger liquidity, and entry to methods or asset courses that don’t have any shut Canadian equal.
Whether or not these benefits translate into higher internet returns relies upon largely on 4 variables: the price of changing Canadian {dollars} into U.S. {dollars}, the overseas withholding tax therapy of distributions, the distinction in expense ratios, and potential U.S. tax submitting obligations.
Brokerage overseas alternate prices could make or break the choice
The most important benefit Canadian-listed ETFs have is accessibility. Most Canadians earn their revenue in Canadian {dollars}, deposit these funds into their brokerage accounts, and may instantly buy Canadian-listed ETFs on the lowest tier of buying and selling charges with out worrying about forex conversion.
Shopping for a U.S.-listed ETF provides one other step. As a result of the ETF trades in U.S. {dollars}, you first must convert your Canadian {dollars}. That conversion is never free. Most brokerages earn cash by charging a overseas alternate unfold. Moderately than changing your cash precisely on the prevailing spot alternate fee, they add a markup.
Relying on the brokerage, this value could also be expressed as a share of the transaction worth, a flat price, or a mix of each. Whereas it could appear small on a person commerce, overseas alternate prices can materially improve your complete value of possession, particularly in case you are often contributing.
Moderately than evaluate each brokerage obtainable to Canadians, it’s extra helpful to have a look at two standard examples that illustrate how dramatically pricing can differ: Interactive Brokers vs. Wealthsimple.
Interactive Brokers is mostly one of many least costly choices for traders buying U.S.-listed securities. U.S. inventory commissions start at US$0.0035 per share, topic to a minimal fee of US$0.35 per order.
Forex conversion can be cheap, with a price of 0.2 foundation factors (a foundation level is 1/100 of 1%, so 0.2 foundation factors is 0.002%) of the commerce worth, topic to a minimal cost of US$2 per conversion. For bigger transactions, the overseas alternate value is successfully negligible.
Distinction that with Wealthsimple, one in every of Canada’s hottest commission-free brokerages. Buyers buying U.S.-listed securities instantly from a Canadian-dollar account pay a 1.5% forex conversion price on each conversion between Canadian and U.S. {dollars}.
Wealthsimple does provide U.S.-dollar accounts, permitting traders to carry U.S. money with out repeatedly changing after each buy, sale, or dividend cost. Nonetheless, until you qualify for Premium by sustaining no less than $100,000 in property, entry prices $10 per thirty days.
Even with a U.S.-dollar account, changing Canadian {dollars} into U.S. {dollars} nonetheless carries a price based mostly on Wealthsimple’s company alternate fee. The conversion unfold is tiered at 1.5% for transactions underneath $10,000, 1.0% for transactions between $10,000 and $24,999.99, 0.5% between $25,000 and $99,999.99, and 0% on quantities of $100,000 or extra.
It is usually price remembering that these charges apply on high of Wealthsimple’s personal company alternate fee relatively than the Financial institution of Canada’s printed day by day alternate fee.
For newer traders utilizing Wealthsimple with comparatively small account balances, paying a 1.5% currency-conversion price merely to entry a U.S.-listed ETF is usually troublesome to justify. The maths modifications with lower-cost brokerages corresponding to Interactive Brokers. When forex conversion prices are measured in just a few {dollars} relatively than a share of the transaction, the fee hurdle largely disappears.
My view is simple: in case your brokerage imposes excessive foreign-exchange charges, Canadian-listed ETFs will normally provide higher worth regardless of barely increased administration charges. In case your brokerage permits you to convert forex cheaply, significantly for bigger transactions, U.S.-listed ETFs grow to be rather more compelling and are sometimes price contemplating.
