Are you a new investor seeking capital growth by investing in a portfolio of stocks trading on the Toronto Stock Exchange (TSX)? An ETF like BlackRock iShares S&P/TSX Capped Composite Index ETF might be suitable for you.
In this iShares XIC 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 following your goals.
All-Equity Exchange-Traded Fund
BlackRock iShares XIC is an Exchange-Traded Fund (ETF) that provides you with exposure to the largest Canadian companies trading on the TSX.
Pros of iShares XIC ETF
- Is a low-cost ETF
- Allows you to own the entire Canadian stock market
- Was designed as a long-term core investment
Cons of iShares XIC ETF
- Invests entirely in equity securities
- Lacks geographic diversity
BlackRock iShares XIC S&P/TSX Capped Composite Index ETF is an exchange-traded fund that provides investors with long-term capital growth by duplicating the performance of the S&P/TSX Capped Composite Index, net of expenses.
As an all-equity ETF, BlackRock iShares XIC ETF is a medium-risk investment opportunity that invests its entire capital in a basket of equity securities without any exposure to fixed-income securities like bonds or guaranteed investment certificates (GICs). It effectively follows the performance of the entire Canadian stock market.
There are several other all-equity ETFs in Canada that you can check out in my list of the best Canadian ETFs here. However, launched in 2001, the BlackRock iShares XIC ETF is one of the oldest ETFs with an extensive performance history that you can refer to if you want to consider its long-term potential as a part of your investment portfolio.
iShares XIC is one of the oldest ETFs in existence, and it set the pace for other ETFs to follow. The all-equity ETF diversifies its asset allocation across several sectors of the Canadian economy, emphasizing the financial industry.
It is an all-equity ETF that invests all its funds in stocks without exposure to bonds, GICs, or other fixed-income securities. Hence, the ETF can reflect the Canadian stock market’s performance based on the performance of the top 60 publicly-traded companies.
While its top holding is a tech sector operator, around a third of its asset allocation is towards the financial sector.
In this section of my review, I typically discuss the asset allocation split between fixed-income and equity securities for the ETF. However, the asset allocation for iShares XIC ETF is almost entirely in equity securities.
As of February 20, 2021, iShares XIC ETF has allocated 99.84% of its funds to equity securities. It holds the remaining 0.16% of its assets in cash and derivatives. It also has no exposure to bonds or GICs, making it an all-equity ETF.
This section of my iShares XIC review will take a closer look at the ETF’s asset allocation.
iShares XIC is an all-equity ETF. This means that its entire asset allocation is towards stocks that constitute the whole Canadian equity market, capped based on market capitalization.
As of February 18, 2021, Shopify Inc. is its most significant holding at 7.44%. Because it allocates funds based on market capitalization, Shopify is the ideal stock as its top holding based on its market cap.
Shopify is followed closely by two Canadian financial institutions, namely the Royal Bank of Canada and The Toronto-Dominion Bank, at 5.98% and 5.28%. The Bank of Nova Scotia and the Bank of Montreal are also a part of its top 10 holdings at 6th place and 8th place, respectively.
This section of my iShares XIC review will take a closer look at the ETF’s sector weighting.
The ETF provides investors with exposure only to equity securities trading on the TSX. Its most significant asset allocation is towards the financial sector, with four Canadian banks making a substantial part of its top 10 assets.
While the ETF’s top holding is Shopify Inc., the ETF allocates almost a third of its assets to the financial sector at 30.19%. The materials sector comes in second at a 12.50% weighting, followed closely by the industrial sector at 12.05%. Its lowest sector weighting is towards the real estate sector at 3.08%.
iShares XIC has a meagre Management Expense Ratio (MER) lower than several other ETFs at 0.06%. This makes it a very low-cost ETF that you can consider adding to your investment portfolio.
It is less pricey compared to many other ETFs with similar exposure to the financial sector. It also costs a lot less than some of the closest comparable ETFs in terms of investment objectives and asset allocation.
Its MER is also 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 XIC—is a crucial reason why many Canadians prefer ETFs over mutual funds in recent years.
Because iShares XIC allocates its funds to only equity securities that reflect the entire Canadian stock market, it is no surprise that the ETF’s performance has been excellent over the last few years. The ETF effectively replicates the TSX performance, and Canadian equity securities have had two decades of an impressive run.
The growth of a hypothetical $10,000 since 2001 shows that the ETF’s performance and returns reflect the performance of the overall stock market.
The performance also shows that it took a drastic dip in 2008 and 2020, both in line with stock market crashes that devastated investor returns. However, iShares XIC made a rapid recovery after the previous crash and is at its best levels so far.
The fund’s focus on the entire Canadian economy makes it a medium-risk investment to consider. With no exposure to bonds or GICs, iShares XIC ETF’s performance and returns depend purely on the health of Canada’s equity security market.
As outlined by the dips in 2008 and 2020, there is no exposure to fixed-income assets that can offset a declining stock market performance and protect investor capital if there is a significant crash.
iShares XIC ETF provides its investors with returns through capital gains. Its trailing 12-month dividend yield as of February 16, 2021, is 2.88%, and it pays out dividends to its unitholders quarterly. Its last distribution per share as of February 12, 2021, was $0.19.
iShares XIU is another ETF that you can consider investing in if you want to track the Canadian stock market’s performance.
Since the top ten holdings for iShares XIC and iShares XIU are identical, you can get exposure to the same ten companies at the top of the list. Additionally, the weights in both ETFs are based on market capitalization.
However, iShares XIU ETF has a significant difference with iShares XIC ETF: iShares XIU ETF holds only the top 60 companies trading on the TSX in its portfolio based on market capitalization.
Compare that to 219 companies for iShares XIC ETF, and you can see that iShares XIU ETF offers you a more focused exposure to the top Canadian companies.
Moreover, the top 10 holdings account for only 33% of iShares XIC ETF’s total portfolio, while the top 10 holdings in iShares XIU ETF make up around half of its complete portfolio.
iShares XIU ETF can be a viable alternative to iShares XIC ETF if you want exposure to a more growth-focused basket of Canadian stocks. However, you also run the risk of individual asset performances having a more significant impact on the entire ETF’s performance and returns.
Horizons HXCN is another ETF to consider investing in if you want to track the Canadian stock market’s performance.
As an ETF product offered by Horizons, it seeks to replicate the same underlying index as iShares XIC ETF. Hence, the ETF’s entire holdings and top ten holdings are similar to iShares XIC ETF.
However, a notable difference between the two ETFs is that Horizons HXCN has a slightly lower MER of 0.05%. Another difference worth noting is Horizons HXCN’s inception in 2020. Because it is newer than iShares XIC ETF, it does not boast the kind of past performance that iShares XIC ETF has.
All in all, Horizons HXCN could be a viable alternative to iShares XIC ETF because of its slightly lower MER.
iShares XIC ETF is a medium-risk investment, but it can be a tricky asset to consider adding to your portfolio because of its all-equity exposure.
The ETF’s performance relies on equity securities trading on the TSX without any fixed-income assets to offset market volatility.
Its diversified exposure to the entire Canadian stock market provides relative security compared to iShares XIC ETF. However, its lack of exposure to fixed-income assets means that it may be a riskier investment because there is nothing to offset its losses if there is a stock market crash.
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If you are an investor seeking low-cost exposure to the Canadian stock market without having to rebalance your portfolio manually, an ETF like iShares XIC 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 TSX performance.
I have my reservations about its lack of geographic diversity and zero exposure to fixed-income securities. Its slightly-higher-than-Horizons-HXCN MER also makes me question my interest in iShares XIC. Nonetheless, I give iShares XIC ETF a Wealth Awesome thumbs up.