How to Buy Canadian Stocks

The mention of Canada frequently invokes images of maple syrup, bears, breathtaking landscapes, and long winters. But some investors also see the North American country as a worthy investment opportunity. In this moneyland.ch guide, you will find the most important information you need to begin investing in Canadian stocks.

Which stock indexes track the Canadian stock market?

The main Canadian stock index is the S&P/TSX 60, which includes the 60 biggest stocks listed on the Toronto Stock Exchange (TSX). The amount of weight given to each stock in the index is based on the market capitalization of each stock’s free float. The S&P/TSX 60 index and its cousin, the S&P/TSX Composite index which includes all stocks listed on the TSX, are both published by US financial services provider Standard & Poor’s.

Table 1: The ten most heavily-weighted stocks in the S&P/TSX 60

Source: Factsheet iShares S&P/TSX 60 ETF. Date: April 30, 2024. Date recorded by moneyland.ch: May 16, 2024.

Another index, the MSCI Canada, is also used by many of the exchange-traded funds (ETFs) available to Swiss investors. This index is published by US financial services provider MSCI. It includes 87 stocks (as of May 2024), which makes it nominally more diversified than the S&P/TSX 60 index. But in practice, the rates of both indexes are steered by the same major components, with both being dominated by the financial and commodity industries.

The S&P/TSX 60 and the MSCI Canada are both price indexes, which means dividends are not accounted for in index developments. However, a performance index version of the S&P/TSX 60 is also published.

How can I invest in Canadian indexes?

The simplest and most cost-effective way to invest in the Canadian stock indexes mentioned above is to use an exchange-traded fund (ETF). These funds, which are normally passively-managed, aim to replicate the performance of an entire stock index – like the S&P/TSX 60 or the MSCI Canada. ETFs make it possible to invest in a diversified portfolio of different stocks, even if you only have a relatively small amount of capital. Investing in an ETF is less risky than investing in individual companies, though losses can never be completely ruled out.

You can buy shares in an ETF during trading hours using a stock brokerage account, just as with you would buy shares in a company’s stock. In addition to the custody fees and brokerage fees charged by your bank, you pay an ongoing fee to the fund’s managers in the form of the ETF’s total expense ratio (TER). The TER shows the annual cost of using the ETF. You can learn more about ETFs in the checklist for choosing an ETF.

Which ETFs can I choose from?

Swiss investors who want to invest in Canadian stock market indexes can choose from many different ETFs (see Table 2).

Table 2: ETFs based on Canadian stock indexes

Source: Data published by ETF managers. Date: May 16, 2024.

In addition to the TER, you should also pay attention to the ETF’s domicile. For tax reasons, ETFs domiciled in Luxembourg or Ireland are the most suitable for Swiss investors. When in doubt, it is always best to choose an ETF that uses physical replication. You can learn more about this in the detailed checklist for choosing an ETF.

Is investing in Canada profitable?

Over the 10 years from May 2014 to May 2024, the main Swiss stock index performed better than its Canadian counterpart. That can be seen in a comparison of the performance index versions of the S&P/TSX 60 and the Swiss Market Index (SMIC). That is partly due to the devaluation of the Canadian dollar, which lost 19 percent of its value against the Swiss franc during that time.

Table 3: Performance comparison of the S&P/TSX 60 and the SMIC

The comparison is based on the performance index versions which account for dividends. Calculations are based on the index rates on May 16, 2014 and May 16, 2024. Sources: Investing.com, SIX.

You should note though, that the figures can vary broadly depending on which timeframe is used for the comparison. You should also be aware that past returns are never a sure way to predict future develop developments.

What are the risks of investing in Canada?

There are certain risks that you should be aware of before you invest in Canadian stocks:

• Few industry sectors: Diversification is generally considered the cornerstone of successfully investing in the stock market. But the main Canadian stock indexes are limited to a relatively small number of industry sectors, with two sectors – finance and commodities – dominating the indexes. That means investments in these indexes are poorly diversified across industry sectors, so there is a higher risk of loss.
• Currency devaluation risk: Canadian stocks are listed in Canadian dollars (CAD). As with all assets denominated in a foreign currency, there is a currency exchange risk for Swiss investors. Devaluations of the Canadian dollar against the Swiss franc detract from your actual returns in Swiss francs.

There is also the general risk of loss that applies to all stock investments. Losses can never be ruled out, and returns are not guaranteed. Important: You can reduce the risk of loss by diversifying your portfolio of investments. One way to do this is to invest in broadly-diversified ETFs based on global stock indexes – as opposed to investing in just a handful of companies.

Note: The information provided in this article is for informational purposes only, and should not be considered investment advice.

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