ZQQ: BMO NASDAQ 100 ETF

What ZQQ is and what it tracks

ZQQ is the BMO NASDAQ 100 Equity Index ETF. It tracks the NASDAQ-100, an index of 100 of the largest non-financial companies listed on the NASDAQ exchange, heavily weighted toward technology.

It trades on the TSX in Canadian dollars, so Canadians can buy it in a regular CAD brokerage account without converting currency themselves.

BMO is a major Canadian ETF provider, and ZQQ carries a modest management fee for a specialized international equity index fund.

What's inside ZQQ

The NASDAQ-100 is dominated by the giant US technology and growth names — the mega-cap software, hardware, internet, semiconductor and consumer-tech companies that lead that index.

• Heavy weighting in technology and communication services
• Includes large consumer and healthcare growth names
• Excludes financial companies by index design

This is a growth-focused, concentrated fund. A handful of the very largest companies can make up a big share of the index, so ZQQ rises and falls with the fortunes of big tech more than a broad market fund would.

The currency angle

Although you buy ZQQ in Canadian dollars, its holdings are US companies priced in US dollars. That means your return is affected by the CAD/USD exchange rate as well as the stocks themselves.

ZQQ is an unhedged fund, so if the US dollar strengthens against the loonie your returns get a boost, and if the loonie strengthens it's a drag. Over the long run currency effects tend to wash out, but they add short-term wobble.

Some investors prefer unhedged exposure for the diversification a foreign currency provides; others prefer a currency-hedged version. There's no free lunch either way — hedging has its own small costs.

Tax treatment for Canadians

In a TFSA, ZQQ's growth is tax-free, though note that US dividends inside a TFSA are subject to US withholding tax that can't be recovered — a minor drag given the NASDAQ-100's relatively low dividend yield.

In an RRSP, US-listed dividends generally escape US withholding under the Canada-US tax treaty, but ZQQ is a Canadian-listed fund holding US stocks, so the treaty relief doesn't apply the same way as it would to a US-listed ETF held directly.

In a taxable account, gains are capital gains (favourably taxed) and any distributions are foreign income taxed at your full rate. Because this is a growth fund with a low yield, most of the return typically comes as capital gains.

Who ZQQ tends to suit

ZQQ suits investors who specifically want concentrated US large-cap technology and growth exposure, in Canadian dollars, without buying US stocks directly.

It is not a diversified core holding. Its heavy tech tilt makes it more volatile than a broad US or global index, so it's usually held as a growth satellite alongside broader funds.

If you want US or global exposure with less concentration, a broad US total-market or global index ETF spreads risk across all sectors, including the financials the NASDAQ-100 leaves out.

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