ZSP: The BMO S&P 500 Index ETF

What ZSP actually holds

ZSP is a passive index ETF from BMO Global Asset Management that tracks the S&P 500 Index. The S&P 500 is a basket of roughly 500 of the largest U.S. companies across sectors such as technology, health care, financials, consumer, and energy.

Because it is market-cap weighted, the biggest companies make up the biggest slices. That means the largest U.S. technology and consumer names carry a meaningful weight, so ZSP tends to move with the broad U.S. market rather than any single stock.

It is a broad, low-cost index fund, so you are buying the market rather than betting on individual winners. BMO charges a low management fee for ZSP, which is one reason index ETFs like this have become a default building block for many portfolios.

The currency question: ZSP vs ZSP.U

ZSP trades in Canadian dollars on the TSX, but the companies it holds earn and are valued in U.S. dollars. That means your return depends on both the S&P 500 and the CAD/USD exchange rate.

ZSP is not currency-hedged. If the U.S. dollar strengthens against the loonie, that helps your return in CAD terms; if the loonie strengthens, it works against you. BMO also offers a hedged version (ZUE) for investors who want to remove that currency swing.

• ZSP: unhedged, priced in CAD (currency moves affect your return)
• ZSP.U: the same fund but bought and sold in U.S. dollars
• ZUE: the currency-hedged version, which aims to neutralize CAD/USD moves

Most long-term investors accept the currency exposure rather than pay for hedging, but it is a personal choice.

Where ZSP fits in a Canadian portfolio

ZSP is often used as the U.S. equity portion of a diversified portfolio, paired with a Canadian fund and sometimes an international one. On its own it gives you no Canadian or emerging-market exposure, so think of it as one slice, not a complete portfolio.

A common structure is a Canadian broad-market ETF, a U.S. broad-market ETF like ZSP, and an international ETF. If you would rather not manage the mix yourself, an all-in-one asset-allocation ETF bundles everything into a single ticker.

For a hands-off investor who wants U.S. exposure and is comfortable holding through ups and downs, ZSP is a straightforward core holding.

Tax and account considerations

In a TFSA, U.S. dividends paid by ZSP are generally subject to a 15% U.S. withholding tax that cannot be recovered, because the TFSA is not recognized as a retirement account under the Canada-U.S. tax treaty. The S&P 500 is not a high-yield index, so this drag is modest, but it exists.

In an RRSP, U.S.-listed ETFs held directly can be exempt from that withholding tax under the treaty, but ZSP is a Canadian-listed fund that holds U.S. stocks, so the treaty exemption does not fully apply the same way. For most people the convenience of a single CAD-listed ticker outweighs the small difference.

In a non-registered (taxable) account, dividends and capital gains are taxable, and U.S. dividends do not qualify for the Canadian dividend tax credit. Always confirm your own situation with a tax professional.

Things to check before you buy

• The management fee: ZSP is a low-cost fund, but confirm the current MER on BMO's fund page before buying.
• Currency exposure: decide whether you want unhedged (ZSP) or hedged (ZUE).
• Overlap: if you already hold a U.S. or global fund, check you are not doubling up on the same big companies.
• Your account type: TFSA, RRSP, FHSA, or taxable each has different tax treatment for U.S. dividends.

None of these are reasons to avoid ZSP; they are just the details that help you use it well.

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