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iShares NASDAQ 100 Index ETF (CAD-Hedged) (XQQ $67.59)
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Global X Nasdaq-100 Index Corporate Class ETF (HXQ $108.29)
Q: Hi 5i,
HXQ vs. XQQ – Questions and Comment: 1. Is the XQQ’s dividend subject to US tax withholding? 2. If not, is it eligible for the Canadian dividend tax credit? 3. My discount brokerage site indicates that the MER on HXQ is actually lower than that of the XQQ but I understood you to suggest otherwise. Can you please just confirm on that one?
It seems to me the elimination of the total return feature of the HXQ may not be the most important element in deciding between these funds. The charting function I use shows HXQ to have outperformed XQQ measurably over a 3 year period. While some of that might be attributable to HXQ’s lower MER and ‘total return’ feature, isn’t the bulk of the difference attributable to the fact that HXQ is unhedged, while XQQ is CAD-hedged, and over the 3-year period HXQ’s return has been amplified by the Canadian dollar’s decline against the US buck? Or is there something else in the mix? In any case, maybe the decision on whether to switch from HXQ to XQQ should be mostly a matter of whether one would prefer to be CAD-hedged or currency-exposed over the anticipated investment timeframe. Whatever tax consequences might flow from the other variables involved, they could easily be overwhelmed by a currency move of a few percent and, in a taxable account, any gain on a currency move would remain tax-deferred until a disposition event. Even then, the applicable tax rate would still be the capital gains rate. So that aspect of HXQ’s tax efficiency would be preserved. HXQ may not end up being as tax efficient as it was when it could avoid cash distributions. But if it is just going to have a yield akin to XQQ’s 0.44%, and if available alternative holdings (like XQQ) are already doing that, the fact that HXQ may have to pay a distribution may not be the most important consideration for a switch decision. Or am I missing something? Thanks!
HXQ vs. XQQ – Questions and Comment: 1. Is the XQQ’s dividend subject to US tax withholding? 2. If not, is it eligible for the Canadian dividend tax credit? 3. My discount brokerage site indicates that the MER on HXQ is actually lower than that of the XQQ but I understood you to suggest otherwise. Can you please just confirm on that one?
It seems to me the elimination of the total return feature of the HXQ may not be the most important element in deciding between these funds. The charting function I use shows HXQ to have outperformed XQQ measurably over a 3 year period. While some of that might be attributable to HXQ’s lower MER and ‘total return’ feature, isn’t the bulk of the difference attributable to the fact that HXQ is unhedged, while XQQ is CAD-hedged, and over the 3-year period HXQ’s return has been amplified by the Canadian dollar’s decline against the US buck? Or is there something else in the mix? In any case, maybe the decision on whether to switch from HXQ to XQQ should be mostly a matter of whether one would prefer to be CAD-hedged or currency-exposed over the anticipated investment timeframe. Whatever tax consequences might flow from the other variables involved, they could easily be overwhelmed by a currency move of a few percent and, in a taxable account, any gain on a currency move would remain tax-deferred until a disposition event. Even then, the applicable tax rate would still be the capital gains rate. So that aspect of HXQ’s tax efficiency would be preserved. HXQ may not end up being as tax efficient as it was when it could avoid cash distributions. But if it is just going to have a yield akin to XQQ’s 0.44%, and if available alternative holdings (like XQQ) are already doing that, the fact that HXQ may have to pay a distribution may not be the most important consideration for a switch decision. Or am I missing something? Thanks!
