If you’re looking to invest in the Canadian Information Technology sector to capitalize on the growth of the industry, the BlackRock iShares S&P/TSX Capped Information Technology Index ETF (XIT) could be the right solution for you.
You might not have a great understanding of which companies are ideal in the tech sector. BlackRock iShares offers several types of ETFs that can align with different investor goals.
BlackRock iShares XIT is a popular ETF for passive investing in tech stocks. With this XIT ETF review, let’s take a closer look at why you might want to consider investing in the fund.
Use: Canadian Tech ETF
Wealthawesome Score: 4.0/5
- It is a low-cost way to passively invest in Canadian tech companies.
- Stellar performance in the last few years.
- It can be used to express a sector view.
- The ETF is not geographically diversified.
- The fund focuses only on one sector.
Summary: A Canadian Tech ETF
What is BlackRock iShares XIT ETF?
BlackRock iShares XIT ETF is a low-cost index fund offered by BlackRock since March 19, 2001. It is one of the older funds offered by BlackRock that provides investors with exposure to a basket of Canadian Information Technology stocks.
The ETF seeks to provide investors with long-term capital growth by replicating the performance of the S&P/TSX Capped Information Technology Index as closely as possible, net of expenses.
The underlying ETF focuses primarily on various Canadian companies in the Information Technology sector. The ETF is actively managed by BlackRock Asset Management, providing investors with the peace of mind that a reputable institution is managing the portfolio of stocks.
What does iShares XIT Invest in?
Most ETFs diversify across various sectors, geographical locations, and between fixed-income and equity securities to align with respective investing goals. However, the BlackRock iShares S&P/TSX Capped Information Technology Index focuses primarily on the Information Technology sector.
The underlying index comprises Canadian equity securities that trade on the Toronto Stock Exchange.
All things considered, you can consider iShares XIT a bet on the Canadian IT sector across its various segments, including Application Software, Internet Services, and Infrastructure, IT Consulting, Systems Software, Communications Equipment, and more. Some of its holdings are in cash and its derivatives.
The total value of the ETF is $476.52 million as of November 30, 2020, highlighting a remarkable growth for investor capital in the last few years.
iShares XIT Asset Allocation
Asset allocation of XIT: 100% Equity, 0% Fixed Income
In this section of my iShares XIT review, I will discuss the fund’s asset allocation. Typically, ETFs provide investors with exposure to a mix of both fixed-income and equity securities. However, iShares XIT consists primarily of securities in the underlying S&P/TSX Capped Information Technology Index. The index focuses mainly on equity securities, with no fixed-income assets.
iShares XIT Top Holdings
The BlackRock iShares S&P/TSX Capped Information Technology Index ETF primarily invests in various segments of the Canadian tech sector. Its top ten holdings comprise 98.03% of its entire investment portfolio. The remaining 0.07% of the fund’s holdings are in cash and/or derivatives.
While iShares XIT keeps adjusting its holdings to reflect the S&P/TSX Capped Information Technology Index, it has had an acute focus on Canadian equities like Shopify, Constellation Software, and CGI Inc.
Shopify used to account for a more significant allocation of the ETF’s funds under management, but it has recently been rebalanced by management to diversify holdings within the top ten equity securities.
iShares XIT Sector Weighting
Typically, this is the section in my reviews where I discuss the sector weighting of an ETF, depending on how much it invests in across Financials, Industrials, and other sectors of the economy. I will provide a segment weighting in my iShares XIT review because the ETF invests in different sectors within the Canadian tech sector.
iShares XIT invests almost half of its entire funds in application software. The second-biggest allocation is towards the Internet Services and Infrastructure segment. It invests in IT Consulting and Other similar services and then focuses on the Systems Software segment.
It has less than 1% weighting towards each of the Communications Equipment, Electronics Manufacturing Services, and Electronic Equipment and Instruments. The remaining allocation is towards Cash and/or Derivatives.
iShares XIT MER and Fees
The iShares XIT Management Expense Ratio (MER) is not one of the lowest among ETFs you can find these days. With an MER of 0.61%, it can be quite a pricey ETF to consider.
However, its MER is still significantly lower than what you can expect from mutual fund products. The average mutual fund fees can be higher than 2%. It is one of the reasons you can see Canadians preferring ETFs over mutual funds in recent years.
iShares XIT Performance and Returns
It is no surprise that the iShares XIT performance has been phenomenal over the last few years. The advent of high-growth tech companies like Shopify, Constellations Software, and Lightspeed POS, changed the landscape of the Canadian tech sector.
iShares XIT has been banking on the growth of the Canadian tech sector to provide investors with phenomenal returns in recent years.
The fund’s focus on one sector may make it a medium- to high-risk investment to consider, especially considering the fact that it does not hold equity securities or fixed-income assets trading on other stock exchanges.
It is betting entirely on the Canadian tech sector but has managed to provide prolific returns that are close to the benchmark index as well.
The hypothetical growth of $10,000 invested in the ETF for the last five years paints a clearer picture of how rapidly its performance has improved in the last two years, with the exception of a significant dip between mid-February and March 2020.
Is iShares XIT a Good Investment For You?
BlackRock iShares S&P/TSX Capped Information Technology Index is a slightly tricky prospect to consider. iShares XIT has had a prolific performance in recent years due to the sudden boom of the Canadian tech sector, led by Shopify.
With phenomenal returns in the recent few years that are far greater than its growth since inception, iShares XIT could be an ideal way to hedge your bets on the Canadian tech sector.
However, its focus on one sector also makes it a riskier investment to consider than others. The ETF invests in some of the top tech companies, exclusively trading on the TSX. Currently, the tech sector is growing rapidly, providing better returns.
However, the all-time high valuations for the Canadian tech sector can also imply a risk. There are no fixed-income assets or diversification across different sectors to cushion the fall if the tech sector goes into decline.
If you are in search of an ETF that invests in a broader range of companies diversified across different sectors, I would recommend checking out my Vanguard VFV review.
It is one of the most popular ETFs among Canadians that tracks the S&P 500 Index, tracking the performance of the market-cap weighted index of 500 publicly-traded companies in America.
How to Buy iShares XIT ETFs in Canada
My two favourite ways to buy these ETFs in Canada are the following:
- Questrade – Canada’s leading discount broker, I use Questrade to trade most of my stocks. It has a desktop and mobile trading platform. All Canadian ETF purchases are commission-free, but be aware that selling ETFs will cost a small fee. With this special offer, you can also get $50 of commission-free stock trades here.
- Wealthsimple Trade – Better known as a robo-advisor, Wealthsimple has now released this fantastic trading platform that now comes in both desktop and mobile versions. All Canadian stock and ETF trades are commission-free. Get a $10 signup bonus when you sign up here.
iShares XIT is a relatively simple fund from BlackRock that does what its name suggests: It tracks the Canadian tech sector’s performance. iShares XIT is an effective option for passive investors looking to bank on the growth of Canadian tech companies.
I may have my reservations about the lack of diversity in its holdings and the relatively higher risk it entails. I hope my iShares XIT review helped you get a better idea of what to expect with the fund.