Are you a new investor seeking capital growth through a portfolio of stocks that are trading in developed markets across Europe?
There are several all-equity ETFs in Canada that you can check out in my list of the best Canadian ETFs here. However, an ETF like BlackRock iShares XEU MSCI Europe IMI Index ETF might be suitable for you.
In this iShares XEU ETF 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
Pros of iShares XEU ETF
- Offers exposure to a broad range of equities from developed markets across Europe
- Grants convenient access to European equities in a single fund
- Provides significant international diversity to your portfolio
Cons of iShares XEU ETF
- Can turn volatile if global equity markets are volatile
- Has zero exposure to any fixed-income assets
Table of Contents
What Is BlackRock iShares XEU MSCI Europe IMI Index ETF?
BlackRock iShares XEU MSCI Europe IMI Index ETF is an exchange-traded fund (ETF) designed to replicate the MSCI Europe Investable Market Index’s performance, net of expenses. It is a medium-risk investment opportunity that can provide investors with long-term capital growth.
BlackRock iShares XEU is an all-equity ETF that allocates almost all of its funds to a basket of equity securities. It does not invest in any fixed-income securities like bonds or guaranteed investment certificates (GICs). Instead, it effectively follows the performance of a broad range of small-, mid-, and large-cap equity securities across 15 developed markets across Europe.
Launched in 2014, it is not the oldest ETF by BlackRock Canada. However, it has a long enough performance history to help you determine its long-term potential based on the ETF’s past performance.
What Does BlackRock iShares XEU ETF Invest In?
iShares XEU is an all-equity ETF that diversifies its asset allocation across several sectors and market capitalizations from 15 developed economies across Europe.
Hence, the ETF can reflect the performance of the European equity markets based on the performance of stocks from different Developed Markets countries in Europe.
The Developed Markets countries represented in the underlying index for iShares XEU ETF include Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the U.K.
iShares XEU ETF Asset Allocation
In this section of my reviews, I typically discuss the asset allocation split between fixed-income and equity securities for the ETF.
As an all-equity ETF, iShares XEU does not allocate any funds to bonds or other fixed-income securities.
As of February 23, 2021, iShares XEU ETF has allocated 99.11% of its funds to equity securities. It holds the remaining 0.89% of its assets in cash and derivatives.
iShares XEU Top Holdings
This section of my iShares XEU review will take a closer look at the ETF’s asset allocation.
iShares XEU is an all-equity ETF, and that means that its entire asset allocation is towards small-, mid-, and large-cap stocks diversified across Developed Markets countries in Europe.
As of February 22, 2021, Nestle SA is its most significant holding at 2.65%. Nestle is followed closely by the IT sector company called ASML Holding at 2.11%. Roche Holding is its third most significant holding at 2.00%.
iShares XEU Sector Weighting
This section of my iShares XEU 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 February 23, 2021, its most significant asset allocation is towards the industrial sector at 15.34%. Its second most significant sector exposure is towards financial services at 14.81%, while the healthcare sector comes in third at a 14.23% weighting. Its lowest sector weighting is towards the real estate sector at 2.47%.
iShares XEU ETF Geographic Breakdown
This section of my iShares XEU ETF review will discuss its geographical diversification across different Developed Markets countries in Europe.
While its asset allocation is broadly diversified across different countries, almost a quarter of its funding goes towards equity securities trading in the U.K.
As of February 22, 2021, it allocates 24.08% of its funds to U.K.-based equity securities, 15.90% to France-based stocks, and 14.07% to Germany-based stocks.
Suppose the equity markets in any of these countries go through a volatile period. In that case, it could significantly impact the overall performance of the ETF and affect investor returns.
iShares XEU ETF MER and Fees
iShares XEU ETF has a Management Expense Ratio (MER) of 0.28%, making it costlier than many other ETFs offered by BlackRock iShares.
iShares XEU is the only ETF trading on the Toronto Stock Exchange (TSX) that tracks the MSCI Europe Investable Market Index. This leaves no comparable ETFs from other major Canadian ETF providers to tally the costs of similar exposure to the European developed equity markets.
Its MER is significantly lower than any mutual fund product that provides investors with similar features and benefits. Since the average mutual fund fees can be 2% or higher, ETFs offering lower MERs—like iShares XEU—is a crucial reason why many Canadians have preferred ETFs over mutual funds in recent years.
iShares XEU ETF Performance and Returns
iShares XEU ETF allocates its funds only to equity securities that are diversified across Developed Markets countries in Europe.
Considering the performance of stock markets in developed European economies over the past several years, it is no surprise that the ETF’s performance has recently been excellent, except for a brief period in 2020.
The growth of a hypothetical $10,000 since 2014 shows that the ETF’s performance and returns reflect that of the European stock markets. This has been phenomenal over the years, except for the drastic dip between February and March 2020 during a market crash that devastated investor returns.
However, iShares XEU ETF made a rapid recovery after the previous crash and is at its best levels so far.
The fund’s entire focus on equity securities adds a level of risk to investor capital during periods of difficulties for global equity markets.
However, the fund’s geographic diversification can mitigate losses if there is a single market underperforming, provided that the other markets continue performing well. Still, there is a risk involved with zero exposure to fixed-income assets.
With no exposure to bonds or GICs, nothing offsets the stock markets’ volatility in Developed Markets countries in Europe.
iShares XEU ETF Dividend Yield
iShares XEU provides its investors with returns through capital gains. Its trailing 12-month dividend yield as of February 22, 2021, is 1.92%, and it pays out dividends to its unitholders on a semi-annual basis. Its last distribution per share as of February 22, 2021, was $0.22.
iShares XEU ETF vs. Other ETFs
iShares XEU ETF vs. iShares XIU ETF
iShares XIU is another all-equity ETF offered by BlackRock Canada that you can consider adding to your portfolio.
iShares XIU ETF does not track the performance of the equity markets of Developed Market countries in Europe. Instead, it follows the performance of the Canadian stock market.
iShares XIU ETF holds the top 60 companies trading on the TSX in its portfolio based on market capitalization. On the other hand, iShares XEU ETF’s total holdings as of February 22, 2021, include 1,278 companies, therefore providing far greater diversity across different equities.
iShares XIU ETF also invests only in Canadian equity securities. It does not provide you with the geographic diversification that iShares XEU ETF can bring to your portfolio.
iShares XIU ETF can be a viable alternative to iShares XEU if you want exposure to a growth-focused basket of Canadian stocks. But, you also run the risk of individual asset performances having a more significant impact on the entire ETF’s performance and returns.
iShares XEU ETF vs. iShares XEH ETF
iShares XEH is another all-equity ETF offered by BlackRock Canada that tracks equity securities’ performance in the Developed Markets countries across Europe.
iShares XEH has only one holding – iShares XEU ETF itself. Hence, its holdings are similar to iShares XEU ETF.
The primary difference between iShares XEU ETF and iShares XEH ETF is that it tracks the same equity securities’ performance. Still, it provides investors with returns hedged to the Canadian dollar.
iShares XEH ETF can be a viable alternative to iShares XEU ETF if you want to track the same equity securities’ performance without the volatility of currency exchange rates affecting your returns.
Consequently, the returns on your capital will rise or fall based only on the performance of the fund’s holdings. It will not be affected by the exchange rates for each equity securities in their respective markets.
Is iShares XEU ETF a Good Investment for You?
Typically, all-equity ETFs can be tricky investments to consider because of a lack of exposure to fixed-income securities. iShares XEU ETF, for instance, is a medium-risk investment because it invests entirely in stocks. However, its geographic diversification adds a layer of protection to your investor capital.
The ETF’s performance relies on equity securities trading in various markets across Developed Markets countries in Europe. Hence, if equity securities in a particular market are not performing well, the ETF can still provide stability to investor capital, provided that the stocks in other markets are doing well.
However, the dip in iShare XEU ETF’s returns during February and March 2020 shows that volatility across global equity markets can still render its geographic diversity useless in terms of providing stability.
How to Buy BlackRock iShares MSCI Europe IMI Index ETF in Canada
My two favourite ways to buy iShares XEU 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.
If you are an investor seeking low-cost exposure to a broad range of equity securities that are diversified across different sectors in European developed markets, an all-equity ETF like iShares XEU can be an excellent investment.
You can invest a particular amount of capital in the ETF and let it grow over the years based on the European stock markets’ performance.
I have my reservations about the lack of exposure to fixed-income securities. However, because its geographic diversification makes it slightly less risky than other all-equity ETFs without geographic diversification, I give iShares XEU a Wealth Awesome thumbs up.