Are you a new investor seeking capital growth by investing in a portfolio of reliable dividend stocks trading in Canada?
If you seek exposure to a portfolio that tracks dividend-paying Canadian stocks’ performance to provide you with reliable monthly returns through dividend payouts, an ETF like BlackRock iShares S&P/TSX Composite High Dividend Index ETF might be suitable for you.
In this iShares XEI review, I will discuss what you need to know about the all-equity ETF to help you determine whether it is an ideal way to invest in alignment with your goals.
All-Equity Exchange-Traded Fund
BlackRock iShares XEI is an Exchange-Traded Fund (ETF) that provides you with exposure to a basket of income-generating equities trading on the TSX.
Pros of iShares XEI ETF
- Is a low-cost ETF
- Gives you convenient access to a basket of Canadian dividend stocks
- Is designed to be a long-term foundational holding
Cons of iShares XEI ETF
- Can become volatile if equity markets are volatile
- Offers zero exposure to any fixed-income assets
BlackRock iShares S&P/TSX Composite High Dividend Index ETF is an exchange-traded fund designed to replicate the performance of the S&P/TSX Composite High Dividend Index, net of expenses.
As an all-equity ETF that allocates almost all of its funds to a basket of equity securities, iShares XEI ETF does not invest in any fixed-income securities like bonds or Government Income Certificates (GICs). Hence, it provides a medium-risk investment opportunity for investors seeking a portfolio of dividend stocks without rebalancing their portfolios manually.
Launched in 2011 by BlackRock Canada, iShares XEI ETF has a decade-long performance that you can refer to so you can determine its long-term potential based on its past performance. It follows the performance of some of the top dividend-paying Canadian stocks trading on the Toronto Stock Exchange (TSX).
There are several other all-equity ETFs in Canada that you can check out in my list of the best Canadian ETFs here.
iShares XEI is an all-equity ETF that diversifies its asset allocation across 75 dividend stocks from several Canadian economy sectors.
It invests all of its funds in stocks that do not have any exposure to bonds, GICs, or other fixed-income securities. Hence, the ETF reflects the performance of the top 75 dividend-paying stocks trading on the TSX.
Focusing primarily on the financial, energy, and utility sectors, iShares XEI ETF can be considered a portfolio of dividend stocks from industries with a long history of providing investors with reliable returns.
In this section of my reviews, I typically discuss the asset allocation split between fixed-income and equity securities for the ETF.
iShares XEI is an all-equity ETF, so it does not allocate funds to bonds or other fixed-income securities.
As of March 3, 2021, iShares XEI ETF has allocated 99.71% of its funds to equity securities. It holds the remaining 0.29% of its assets in cash and derivatives.
This section of my iShares XEI ETF review will take a closer look at the ETF’s asset allocation.
iShares XEI is an all-equity ETF, so its entire asset allocation is towards high-quality dividend stocks diversified across different sectors of the Canadian economy.
As of March 2, 2021, Canadian Natural Resources Ltd. is its most significant holding at a 5.38% asset allocation. It is followed closely by Suncor Energy, Inc. at a weighting of 5.18%. The Bank of Nova Scotia is its third most significant holding at 5.17%.
This section of my iShares XEI ETF review will take a closer look at the ETF’s sector weighting.
The ETF provides investors with exposure only to equity securities trading in different stock markets across Europe.
As of March 1, 2021, its most significant asset allocation is towards the financial sector at 31.00%. Its second most significant sector exposure is towards the energy industry at 30.05%, while utilities come in third at an 11.64% weighting. Its lowest sector weighting is towards the healthcare sector at 0.41%.
iShares XEI has a Management Expense Ratio (MER) of 0.22%, making it costlier than some other ETFs offered by BlackRock iShares that you can consider adding to your investment portfolio.
However, iShares XEI is the only Canada-listed ETF trading that tracks the underlying S&P/TSX Composite High Dividend Index. Other major ETF providers in Canada offer no directly comparable ETFs to compare its costs for similar exposure to the top Canadian dividend stocks.
Still, its MER is significantly lower than any mutual fund product that provides investors with similar features and benefits.
With the average mutual fund fees being 2% or higher, ETFs offering lower MERs—like iShares XEI ETF—is also a crucial reason why many Canadians prefer ETFs over mutual funds in recent years.
iShares XEI ETF allocates its funds to only high-dividend yield equity securities trading on the TSX.
Considering the performance of its underlying holdings in the last decade, the growth of a hypothetical $10,000 invested in the ETF has been prolific, except for the period between 2014 and 2016 and a brief period in 2020 that sharply declined due to the market crash.
The growth of a hypothetical $10,000 since 2011 shows how volatile your returns can be with iShares XEI ETF when the top dividend stocks are not performing well. The market crash in 2020 caused investor capital invested in 2011 to go below the initial value in March 2020 before climbing sharply in the next few months.
However, iShares XEI ETF has made a rapid recovery after the previous crash and is almost back up to its best levels.
The fund’s entire focus on a narrow basket of equity securities adds a level of risk to investor capital during periods of difficulties for the Canadian equity market.
However, the fund’s focus on reliable dividend-paying stocks can slightly offset losses brought about by devaluation of underlying holdings through dividend payouts at high yields. Still, there is a significant risk involved since it offers zero exposure to fixed-income assets.
With no exposure to bonds or GICs, there is nothing to offset the stock markets’ volatility in Canada.
iShares XEI ETF provides its investors with returns through the equity securities’ dividends in its holdings. Its trailing 12-month dividend yield as of March 2, 2021, is 4.63%, and it pays out dividends to its unitholders on a monthly basis. Its last distribution per share as of February 12, 2021, was $0.08.
iShares XIU is another all-equity ETF offered by BlackRock Canada that you can consider adding to your portfolio.
Like iShares XEI ETF, iShares XIU ETF also tracks equity securities trading performance on the TSX. However, iShares XIU ETF tracks the performance of only the top 60 Canadian companies.
iShares XIU ETF holds the top 60 companies trading on the TSX in its portfolio based on market capitalization. Meanwhile, iShares XEI ETF has 75 of the best dividend-paying stocks trading on the TSX.
With this additional number of holdings, iShares XEI ETF provides more diversification for investors within the TSX.
iShares XIU ETF can be a viable alternative to iShares XEI ETF if you want exposure to a portfolio of top Canadian stocks based on market capitalization.
However, you also run the risk of individual asset performances having a more significant impact on the entire ETF’s performance and returns due to fewer number of holdings.
Read my full iShares XIU ETF review here to find out more.
iShares XEU is another all-equity ETF offered by BlackRock Canada. It tracks the performance of equity securities in the Developed Markets countries across Europe. It also seeks to provide its investors with long-term capital growth by replicating the MSCI Europe Investable Market Index’s performance, net of expenses.
Unlike iShares XEI ETF, iShares XEU ETF does not invest in any Canadian equity securities. It also diversifies its asset allocation across several countries, including the UK, France, Germany, Switzerland, Sweden, the Netherlands, and more.
iShares XEU ETF offers more geographic diversity to your portfolio and has almost 1,300 stocks in its holdings compared to the 75 holdings of iShares XEI ETF.
Hence, iShares XEU ETF can be a viable alternative to iShares XEI ETF if you want to track the performance of some of the top equity securities trading worldwide. It is also a practical option if you want more relative security through your portfolio’s geographic diversity.
Read my full iShares XEU review here to find out more.
All-equity ETFs are generally tricky assets to consider adding to your portfolio.
A lack of exposure to fixed-income securities like bonds and GICs means that ETFs like iShares XEI rely entirely on the performance of the underlying equity securities for performance and returns. Hence, iShares XEI is a medium-risk investment because it invests wholly in stocks.
iShares XEI ETF’s performance is based on some of the top dividend-paying stocks in Canada. These equity securities are high-yield, dividend-paying stocks with an extensive history of disbursing reliable payouts.
With its top ten holdings constituting almost half the fund’s asset allocation, declining performance in any of the top holdings can affect your returns from the ETF.
The dip in iShares XEI ETF’s returns during February and March 2020 showed that volatility in the TSX could significantly impact its stability and ability to provide investors with returns.
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If you are an investor seeking low-cost exposure to a broad range of high-quality dividend stocks trading on the TSX, an all-equity ETF like iShares XEI can be an excellent investment for you to consider.
It is the only ETF tracking the S&P/TSX Composite High Dividend Index, making it a unique fund for your portfolio. Its lack of exposure to fixed-income securities also makes it a medium-risk investment.
I have my reservations about the lack of exposure to fixed-income securities. Still, iShares XEI ETF’s allocation towards a portfolio of reliable, high-yielding dividend stocks makes it an attractive investment to consider for capital growth. I, therefore, give iShares XEI ETF a Wealth Awesome thumbs up.