Creating a portfolio of equity securities that diversifies your asset allocation is not easy. It requires a lot of hard work, research, time, and an expert understanding of financial markets.
If you want to capitalize on the returns of top Canadian companies trading on the Toronto Stock Exchange (TSX), an Exchange-Traded Fund (ETF) like BlackRock iShares S&P/TSX 60 Index ETF might be suitable for you.
In my iShares XIU ETF review, I will discuss what you need to know about the all-equity ETF to help you determine whether it aligns with your investment goals.
All-Equity Exchange-Traded Fund
Pros of BlackRock iShares XIU
- Is a low-cost ETF
- Is one of the largest and most liquid ETFs in Canada
- Is the first ETF in the world
Cons of BlackRock iShares XIU
- Invests entirely in equity securities
- Is not as diversified as most other ETFs
- Lacks geographic diversity
Table of Contents
What is BlackRock iShares XIU S&P/TSX 60 Index ETF?
BlackRock iShares XIU S&P/TSX 60 Index ETF is an ETF designed to replicate the performance of the S&P/TSX 60 Index, net of expenses.
Professionally managed by BlackRock, a multinational investment management corporation, iShares XIU ETF is a medium-risk investment opportunity that caters to investors seeking long-term capital growth through the top Canadian companies’ performance returns.
As an all-equity ETF, BlackRock iShares XIU invests its entire capital in a basket of equity securities that are not exposed to fixed-income securities like bonds or GICs. Launched in 1990, it is the first ETF that marked the emergence of a viable alternative to mutual fund products.
There are several other all-equity ETFs in Canada that you can check out in my list of the best Canadian ETFs here. However, BlackRock iShares XIU follows the performance of the top 60 Canadian companies that are trading on the TSX based on their market capitalization.
What Does BlackRock iShares XIU ETF Invest in?
iShares XIU is the oldest ETF in existence in Canada, and it set the pace for other ETFs to follow. The ETF diversifies its asset allocation across several sectors of the Canadian economy. While its top holding is a tech sector operator, around a third of its asset allocation is towards the financial sector.
It is an all-equity ETF that invests all of its funds in stocks that do not have any exposure to bonds, GICs, or other fixed-income securities. Hence, the ETF can reflect the performance of the Canadian stock market based on the top 60 publicly traded companies’ performance.
iShares XIU Asset Allocation
In this section of my reviews, I typically discuss the asset allocation split between fixed-income and equity securities for the ETF. However, the asset allocation for iShares XIU is almost entirely in equity securities. As of February 18, 2021, iShares XIU has allocated 99.86% of its funds to equity securities. It holds the remaining 0.04% of its assets in cash and derivatives, making it an all-equity ETF.
iShares XIU Top Holdings
iShares XIU is an all-equity ETF, so its entire asset allocation is towards stocks that constitute the S&P/TSX 60 Index.
It might not come as a surprise that the most significant among its top 10 assets is Shopify Inc. at a 9.89% weighting as of February 16, 2021. After all, the ETF’s assets are weighted based on each company’s respective market capitalizations.
Shopify is followed closely by two Canadian financial institutions, namely the Royal Bank of Canada and The Toronto-Dominion Bank, at 7.34% and 6.66%, respectively. The Bank of Nova Scotia and the Bank of Montreal are also a part of its top 10 holdings at 6th and 8th, respectively.
iShares XIU 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 three Canadian banks making a substantial part of its top 10 assets.
While the ETF’s top holding is Shopify Inc., the ETF allocates just over a third of its assets to the financial sector at 33.61%. The information technology sector comes in second at a 13.40% weighting, followed closely by the energy sector at 13.20%. Its lowest sector weighting is towards the defensive healthcare sector at just 1.18%.
iShares XIU ETF MER and Fees
iShares XIU has a Management Expense Ratio (MER) of 0.18%, which is lower than several other ETFs with similar exposure to the financial sector. This makes it a very low-cost ETF that you can consider adding to your investment portfolio.
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 at least 2%, low-MER ETFs like iShares XIU is also a crucial reason why many Canadians have preferred ETFs over mutual funds in recent years.
iShares XIU Performance and Returns
Considering that iShares XIU allocates its assets to just the top 60 companies trading on the TSX, it is no surprise that the ETF’s performance has been prolific over the last few years. Its significant exposure to the financial sector means that it is a decent way to reflect the finance industry’s performance in Canada. However, its diversification into other sectors keeps it in line with the rest of the equity market.
The growth of a hypothetical $10,000 since 1999 shows that the ETF’s performance and returns reflect the overall stock market’s performance. 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 XIU made a rapid recovery after the previous crash and is at its best levels so far.
The fund’s focus on the top 60 companies diversified across different Canadian economy sectors makes it a medium-risk investment opportunity. The risk involved here is that it does not provide investors with any exposure to fixed-income securities that can offset volatility in the stock market.
Its greater exposure to a few top companies means that each of its assets has a relatively more significant influence on the ETF’s performance than most ETFs that invest in more companies.
iShares XIU Dividend Yield
iShares XIU provides its investors with returns through capital gains. Its trailing 12-month dividend yield as of February 16, 2021, is 2.84%, and it pays out dividends to its unitholders quarterly. Its last distribution per share as of February 12, 2021, was $0.19.
BlackRock iShares XIU: Alternatives and Competitors
iShares XIU vs. iShares XIC
iShares XIC is another ETF that you can consider investing in if you want to track Canadian stock markets’ performance.
Because the top ten holdings for iShares XIC and iShares XIU are identical, you can get exposure to the same ten companies. Additionally, the weights in both ETFs are based on market capitalization.
However, there’s a significant difference between the two: iShares XIC holds over 200 companies in the portfolio. Compare that with the 60 companies for iShares XIU, and you can count on a lot more diversity for XIC. The top 10 holdings account for only 33% of iShares XIC’s total portfolio, while the top 10 holdings in iShares XIU make up around half of its entire portfolio.
Hence, iShares XIC could be a viable alternative to iShares XIU if you want greater exposure to a diversified basket of Canadian stocks.
iShares XIU vs. Horizons HXT
Horizons HXT is another ETF to consider if you want to track the Canadian stock markets’ performance. As an ETF product offered by Horizons, it also seeks to replicate the performance of the same underlying index as iShares XIU. Hence, the ETF’s holdings are similar to iShares XIU.
The difference, however, is that Horizons HXT allocates more of its assets towards Toronto-Dominion Bank. It also has a substantially lower MER of 0.03%. Lastly, Horizons HXT’s inception in 2010 means that it is significantly newer than iShares XIU.
Is iShares XIU ETF a Good Investment for You?
iShares XIU is a medium-risk investment asset that you can consider adding to your portfolio.
Its focus on the financial and tech sectors and the backing of proven equity securities show that it is a reliable investment for investors seeking long-term capital growth.
However, its all-equity exposure can also be a reason for concern if you are a conservative investor.
With zero exposure to fixed-income securities and focused exposure to the top Canadian companies, there is nothing to offset iShares XUI’s losses if the top companies falter.
How to Buy BlackRock iShares S&P/TSX 60 Index ETF in Canada
My two favourite ways to buy iShares 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 exposure to a basket of the top Canadian companies trading on the TSX without having to manually rebalance your portfolio, an ETF like iShares XIU could 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 performance of the TSX.
I have my reservations about the lack of geographic diversity and focus on a relatively smaller basket of stocks. Its higher MER than the closest comparable ETF offered by Horizons also makes me question my interest in iShares XIU.
iShares XIU ETF still gets a conservative WealthAwesome thumbs up since it can possibly provide investors with long-term consistent returns.