Building an international portfolio can be highly appealing to investors looking to take advantage of global financial markets and diversify their risk.
It helps you go beyond the domestic options available and invest in international assets that may offer better returns. If that’s the kind of thing that appeals to you, then the iShares XEF ETF may be a good option for you.
For the uninitiated, iShares is a global leader in exchange-traded funds (ETFs) and has investments in more than 800 product offerings across various asset classes and investment strategies. These ETFs are managed by BlackRock, currently the world’s largest asset management company.
How does the iShares XEF ETF hold up, though? Let’s find out.
Low-cost international portfolio diversification
Gain international exposure to developed markets with the iShares XEF ETF that lets you achieve long-term capital growth by investing in 21 developed markets.
- Lets you build a diverse international portfolio
- Offers medium risk
- Has a relatively low management expense ratio
- Pays a moderately high dividend
- The number of holdings and sectors appear limited
- Other ETFs appear to offer better returns historically
The iShares Core MSCI EAFE IMI ETF is a type of exchange-traded fund that is incorporated in Canada. It is designed to provide investors with long-term capital growth and replicates the performance of the MSCI EAFE IMI Index much as possible.
This index captures securities from developed markets around the globe. I’ll provide you with a brief overview of this index in just a bit.
What’s the Appeal?
The reason why iShares XEF ETF may appeal to Canadian investors is, as I mentioned in the introduction, the exposure it grants to international markets. And not just the emerging ones that may present more risk.
It focuses specifically on developed ones, thereby allowing you to invest in assets that are low-risk and less volatile.
What Is the MSCI EAFE IMI Index?
For the uninitiated, the MSCI EAFE IMI is an equity index that captures investable mid and large-cap securities across 21 developed markets from around the world. It excludes US and Canadian markets and has 843 constituents.
The index serves as a performance benchmark for major international equity markets from Europe, Australasia, and the Far East (EAFE), and several asset managers and investors rely on it.
The markets included in the index belong to countries such as Japan, Germany, France, United Kingdom, Switzerland, etc. Altogether, the index covers nearly 85% of the free float-adjusted market capitalization in each of these countries.
The MSCI EAFE index also happens to be the oldest international stock index. It was developed in 1969 by Morgan Stanley Capital International.
Here’s a quick snapshot of how the index performed between 2006 and 2021:
The iShares XEF ETF has been designed to be a long-term core holding. As far as sectors go, the iShares XEF ETF focuses on the following sectors:
- Cash and/or Derivates
- Consumer Staples
- Healthcare
- Information Technology
- Consumer Discretionary
These are primarily high-demand sectors that have performed reasonably well in the past.
As of August 2021, the top 10 investments that are a part of this ETF include:
The total percentage of these investments in the ETF varies between 0.75% to 1.83%. Altogether, the total number of investments in the ETF is 2,652. Given that the top 10 investments belong to stocks of blue-chip companies, investors can potentially control their risk by investing in this ETF.
In terms of countries, here’s a snapshot of the investment mix and the percentage for each country:
Based on its volatility, BlackRock has assigned the iShares XEF ETF a risk rating of medium. This means that the returns for this ETF are relatively stable and may not witness significant changes over time.
Your chance of losing money is also considerably lower compared to high-risk ETFs. Bear in mind, though, ETF ratings can change in the future.
Yes, the iShares XEF ETF does pay a dividend, here’s a brief summary of its dividend yield:
- Latest Dividend paid: 0.448
- Annual Dividend: 0.72
- 12-month Trailing Yield: 2.02%
- Dividend Distribution Frequency: Semi-annual
According to Blackrock as of Aug 2021, the iShares XEF ETF delivered a total return of 8.62% in a 5-year period. Its 1-year returns was considerably high, as well, and stand at 22.58%.
In comparison, the benchmark returns stand at 22.57% for 1-year and 8.65% in 5-years, suggesting the ETF closely meets the benchmark returns established.
You can trade this ETF via the Toronto Stock Exchange.
The management fee for the iShares XEF ETF is reportedly 0.20% and the management expense ratio is 0.22%. This is relatively low. In Canada, a good management expense ratio typically lies between 0.25% to 0.75%.
Since the MER of this ETF is lower than the average, you can expect it to be less expensive than other funds.
What Does IMI stand for in an ETF?
If you are wondering what does an IMI stands for here, it is short for Investable Market Index. The MSCI IMIs typically include large-, middle-, and small-cap securities in emerging, frontier, and developed markets.
As part of my iShares XEF ETF review, I also took a quick look at the popular alternatives for this ETF. The most popular one is:
VEF FTSE Developed All Cap ex U.S. Index ETF
The Vanguard FTSE Developed All Cap ex. US Index ETF tracks a broad global equity index that offers exposure of all developed markets excluding the US. The index is hedged to the Canadian dollar. It uses derivative instruments that allow the fund to hedge foreign currency exposure.
Some of the key features that differentiate from the iShares XEF ETF include:
| Features | VEF FTSE Developed All Cap ex. U.S Index ETF | iShares XEF ETF |
| Price | $48.87 (As on August 24, 2021) | CAD$ 35.79 (As on August 24, 2021) |
| Investment Variety | Small-, mid-, and large-cap securities | Mid- and large-cap securities |
| Dividends | 12-month trailing yield of 1.95%; Quarterly dividends | 12-month trailing yield of 2.02%; Semi-annual dividends |
| Top 10 Sectors | Financials, industrials, consumer discretionary, healthcare, technology, consumer staples, basic materials, energy, real estate, utilities, and telecommunications. | Cash and/or derivatives, consumer staples, information technology, healthcare, and consumer discretionary. |
| Markets | Developed markets excluding the US | Developed markets excluding the US and Canada |
| Returns | 1-year returns – 31.34%; 5-year returns – 9.68%. | 1-year returns – 22.58%; 5-year returns – 8.62%. |
In comparison to the iShares XEF ETF, the Vanguard FTSE Developed All Cap ex. US Index ETF offers exposure to a wider variety of sectors and holdings. It has quarterly dividend payments leading to a higher yield. Its returns also appear to be higher.
Is this Investment Product Safe or Legit?
The short answer, yes. iShares XEF ETF is a relatively safe investment product. iShares is a subsidiary of BlackRock which lends further authenticity to this product.
Moreover, the risk for this ETF is medium, which may enable you to optimize your returns without taking on a high level of risk.
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The Final Verdict
To wrap up my iShares XEF ETF review, this exchange-traded fund can prove useful for Canadian investors looking to increase their exposure in developed markets besides the United States and Canada.
It offers a simple way to invest in large- and mid-cap stocks from countries in Europe, Australasia, and the Far East. The management expense ratio is also relatively low, adding to the appeal of the product.
However, if we compare the iShares XEF ETF review to a similar product by Vanguard, it appears that Vanguard might offer more diversified exposure with better returns.
If you are looking for a low-cost way to gain international exposure (the iShares XEF ETF is cheaper than its Vanguard counterpart), then I recommend adding this ETF to your investment portfolio.
However, if you can bear the extra cost, then the VEF FTSE Developed All Cap ex. U.S Index ETF may prove a more lucrative investment.
If you want to learn about other ETFs that iShares provides, check out this detailed overview here.
