Shopify & Constellation Software Stock: Here’s How You Can Buy Both for Under $50

ETFs can offer a capital efficient way of gaining exposure to otherwise expensive stocks.

| More on:
exchange traded funds

Image source: Getty Images

Canadian technology stocks like Shopify (TSX:SHOP) and Constellation Software (TSX:CSU) have both enjoyed a remarkable bull run over the last five years, with gains of over 1,982% and 264% respectively. Both companies have great business models, ample cash runways, and ever increasing market dominance.

The downside is that all of this growth has caused both stocks to become very expensive, and not just from a fundamentals-based valuation perspective. To buy just one share of each company at their current stock price, you would need a total of $3,563.12.

Unless you’re buying fractional shares (or have a decently large account), such a sum could deter new investors. Fortunately, there is a solution. By using an exchange-traded fund (ETF) such as iShares S&P/TSX Capped Information Technology Index ETF (TSX:XIT), you can gain exposure for under $50.

The right ETF for the job

As an ETF, XIT holds an underlying “basket” of stocks. When you buy a share of XIT, you’re buying an equivalent percentage stake in each underlying stock, based on the proportion held in the ETF. Shares of XIT trade on the stock exchange and can be bought and sold like any other stock.

Currently, XIT holds a total of 24 stocks from Canada’s info tech sector. The two largest holdings are SHOP at 27.21%, and CSU at 23.90%. Other companies like Open Text, CGI, Nuvei, Lightspeed Commerce, Descartes Systems Group, an BlackBerry are also held in smaller portions.

XIT has a management expense ratio (MER) of 0.61%, which is more expensive than an index fund but typical for a thematic sector fund. The ETF currently trades at a price of around $46 per share, making it an affordable way to gain exposure to some otherwise expensive Canadian technology stocks.

How has it performed?

A word of caution: the backtest results provide below are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Hypothetical returns do not reflect trading costs, transaction fees, or actual taxes due on investment returns.

The results are disappointing. Since inception, XIT has barely outperformed the S&P/TSX 60 Index, with nearly all of its outperformance coming in 2013-2014 and 2019-2020. Moreover, XIT had higher volatility and worse drawdowns than the broad market index. Few investors can stomach these bouts of underperformance and turmoil.

The Foolish takeaway

In my opinion, XIT is best used as a SHOP and CSU stock surrogate if you lack the capital to buy shares without either of them dominating your portfolio. You also get 22 other tech companies to diversify your holdings a bit. Regardless, by buying XIT you’re making a concentrated bet on the tech sector’s continued outperformance.

Investors looking to buy now should be wary of performance chasing and recency bias. XIT is highly concentrated, and is likely to underperform the broad market index on a risk-adjusted basis in the long term. 2022 might also be a year where high-valuation growth stocks face strong headwinds from inflation and rising interest rates.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool owns and recommends Nuvei Corporation and Shopify. The Motley Fool recommends CGI GROUP INC CL A SV, Constellation Software, Lightspeed Commerce, and OPEN TEXT CORP.

More on Tech Stocks

think thought consider
Tech Stocks

Is CGI Stock a Buy Even With No Dividend Yield?

CGI stock may not have a dividend to speak of. But does that necessarily mean you should ignore this top…

Read more »

A robotic hand interacting with a visual AI touchscreen display.
Tech Stocks

Why Now Is the Time to Invest in Canadian AI Stocks

Are you looking for one of the most solid Canadian AI stocks out there? This one is probably your best…

Read more »

The letters AI glowing on a circuit board processor.
Tech Stocks

Why AI Stocks Should Be in Every Canadian Investor’s Portfolio

AI stocks continue to be one of the best options out there for long-term investing, especially when considering Canadian options.

Read more »

money goes up and down in balance
Tech Stocks

1 “Magnificent 7” Stock I’d Buy Over Nvidia Right Now

Here's why Meta Platforms stock is a better choice for Canadian investors compared to Nvidia in November 2024.

Read more »

A data center engineer works on a laptop at a server farm.
Tech Stocks

3 No-Brainer Data Centre Stocks to Buy With $500 Right Now

Data centres are going to be a huge growth opportunity in the next decade. And these are the top buys.

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

OpenText stock has fallen in the last few years, but that could mean this top tech stock remains an undervalued…

Read more »

AI microchip
Tech Stocks

Celestica Stock: Buy, Sell, or Hold?

Celestica's stock price has rallied 950% in the last five years. Will the AI boom send it even higher in…

Read more »

data analyze research
Tech Stocks

2 Ridiculously Cheap Growth Stocks to Buy Hand Over Fist in 2024

Well Health Technologies is a cheap growth stock to buy for its record-breaking results, massive revenue growth, and profitability.

Read more »