Invesco NASDAQ 100 ETF: Key Things Canadian Investors Should Know Before Buying

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Invesco NASDAQ 100 ETF: Key Things ********* Investors Should Know Before Buying

If the Vanguard ETF (VFV) doesn’t give you enough large-cap U.S. equity exposure as a ********* investor, Invesco NASDAQ 100 Index ETF (QQC) is one of the most popular alternatives.

This ETF is essentially the ********* version of the Invesco QQQ Trust (NASDAQ:), offering exposure to the , but there are a few subtle differences to be aware of. Here’s what you need to know before putting your money into it.

QQC: The Basics

The Invesco NASDAQ 100 Index ETF (QQC) tracks the Nasdaq-100 Index, which is built around three key rules: it only includes stocks listed on the Nasdaq exchange, it selects the 100 largest non-financial companies, and it excludes banks, insurance firms, and other financials.

The index is market-cap weighted, meaning larger companies make up a ******* share of the portfolio, which helps explain why a few mega-cap stocks dominate the ETF.

Because of these criteria, the index has naturally become heavily concentrated in technology stocks, with over 50% of its weight in the sector.

This stems from the dot-com ***** and beyond, when many of the biggest tech companies chose to list on the Nasdaq instead of the NYSE, reinforcing the exchange’s reputation as a hub for growth-oriented, tech-heavy businesses.

The top holdings in QQC feature all of the Magnificent Seven stocks: Apple (NASDAQ:),

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(NASDAQ:), Nvidia (NASDAQ:),

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(NASDAQ:), Tesla (NASDAQ:), Meta (NASDAQ:), and Alphabet (NASDAQ:). However, not all of them are technically considered tech stocks.

Apple,

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, and Nvidia fall under the technology sector, but

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and Tesla are classified as consumer discretionary, while Meta and Alphabet are in communication services.

In fact, there’s only one stock in the entire Nasdaq-100’s top 10 that isn’t a tech or tech-adjacent company—Costco (NASDAQ:).

QQC: Currency Risk

QQC gets its exposure to the Nasdaq-100 Index by holding a U.S.-listed ETF, the Invesco NASDAQ 100 ETF (NASDAQ:). This means that its 0.20% management expense ratio (MER) includes the 0.15% MER charged by QQQM, with the remaining 0.05% going to Invesco Canada.

Since QQC holds a U.S.-denominated ETF, it introduces currency risk. This can manifest in two ways:

1. USD appreciates against CAD: If the strengthens relative to the , then all else being equal, the price of QQC would rise. This is because the underlying assets (QQQM shares), denominated in USD, become more valuable in CAD terms.
2. CAD appreciates versus USD: Conversely, if the CAD strengthens against the USD, the price of QQC would fall, all else being equal. This decrease occurs because the value of the underlying USD assets would be lower when converted back to CAD.

Personally, I prefer to leave currency risk in place because, historically, when stocks drop, the USD tends to rally as investors move to safe-haven assets. This can help reduce overall volatility for ********* investors. Plus, over the long run, predicting currency movements is a guessing game, making hedging less effective.

However, if you want pure Nasdaq-100 returns without currency fluctuations, you can use QQC.F—the same ETF but with currency hedging. It achieves this by using derivatives to neutralize USD/CAD movements, but be aware that this introduces slight drag, which can make it underperform in the long run.

QQC: Foreign Withholding Tax

You probably already know this, but it’s worth reiterating—********* ETFs that hold U.S. stocks lose 15% of their dividends to foreign withholding tax.

The only way to avoid this tax is by holding a U.S.-listed ETF like QQQ or QQQM inside a Registered Retirement Savings Plan (RRSP). But for most investors, the brokerage currency conversion fees make this not worth the hassle.

The good news is that QQC’s dividend yield is already low, so the impact of withholding tax is minimal. Nasdaq-100 companies tend to prioritize reinvesting in R&D or buying back shares rather than paying out dividends.

That said, the small dividend QQC does pay is still subject to foreign withholding tax. In 2023, the ETF distributed a total of $0.79186 per unit. Of that,

• $0.60835 came from capital gains,
• $0.04483 was return of capital, and
• $0.15961 was foreign income—the only part subject to withholding tax.

The actual withholding tax applied worked out to just $0.02093 per unit, which isn’t worth stressing over. But don’t be surprised when you see this deduction on your distributions—it’s just part and parcel of owning U.S. stocks through a ********* ETF.

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#Invesco #NASDAQ #ETF #Key #********* #Investors #Buying

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