Most Canadian investors have at least a portion of their investing dollars put to work in the United States. They like the ability to buy the world’s best and largest companies.
We have great companies here in Canada, but we just can’t compete with Apple or McDonald’s or any of the other true powerhouses that trade in the U.S.
The only question that remains is what is the best way to gain such exposure.
The common answer is to just buy an S&P 500 ETF and be done with it. The problem with that is the U.S. is so big that limiting one’s self to 500 companies might not be enough diversification.
The Russell 2000 index is the answer. Not only does it offer greater diversification, but it has also outperformed the S&P 500 over the last year, five years, and 10 years.
The easy way for Canadian investors to invest in the index is by using the iShares U.S. Small Cap Index ETF (TSX:XSU), which tracks the Russell 2000 index and is hedged to Canadian Dollars.
The ETF has just one holding, which is the U.S. version of the same ETF. It also uses a small amount of cash generated by the underlying dividends to hedge the currency exposure. It charges a management expense fee of 0.37%.
The better choice for Canadian investors might be to just buy the U.S. version of the iShares Russell 2000 Index ETF (NYSE:IWM) which charges a fee of just 0.20%.
That ETF also comes with a great deal more liquidity. The Canadian Russell 2000 ETF trades 53,000 shares a day. The U.S. version trades nearly four million.
