Are you a new investor seeking long-term capital growth by investing in a portfolio of U.S.-based companies that offers currency hedging?
Creating a portfolio of U.S.-based equity securities that prevent currency exchange rates from affecting your returns is not simple. It is necessary to have a good understanding of the U.S. financial markets and understand whether the dividend stocks are doing well.
To this end, an exchange-traded fund (ETF) like BlackRock iShares ETF (CAD-Hedged) might be a suitable asset to consider. This ETF tracks the Core S&P 500 Index.
In my iShares XSP ETF review, I will discuss what you need to know about the all-equity ETF to help you determine whether it is an ideal long-term investment to grow your wealth.
All-Equity Exchange-Traded Fund
- Offers a diversified exposure to the top 500 publicly-traded companies in the U.S.
- Is designed to be a long-term core holding
- Rebalances automatically to align with your investment goals
- Offers low-cost exposure to U.S. companies
- May become volatile if the U.S. equity markets become volatile
- Has zero exposure to any fixed-income assets
Table of Contents
What Is BlackRock iShares Core S&P 500 Index ETF (CAD-Hedged)?
BlackRock iShares Core S&P 500 Index ETF (CAD-Hedged) is an exchange-traded fund designed to replicate the performance of the S&P 500 Hedged to Canadian Dollars Index, net of expenses. The ETF seeks to provide its investors with long-term capital growth by hedging currency risk and is designed to be a core holding that comes with a low cost.
As an all-equity ETF, it does not directly invest in a basket of stocks itself. Instead, it invests in the iShares Core S&P 500 ETF (IVV) trading in the U.S. equity security market as its largest holding. It does not invest in any fixed-income securities like bonds or Government Income Certificates (GICs).
Launched in 2001 by BlackRock Canada, iShares XSP ETF has two decades of performance history that you can touch on to determine its potential performance moving forward. It tracks the performance of the top 500 companies that are trading in the U.S. equity security market and are diversified across different sectors of the U.S. economy.
Several other all-equity ETFs trade on the Toronto Stock Exchange (TSX) that you can check out in my list of the best Canadian ETFs here.
What Does BlackRock iShares XSP ETF Invest In?
iShares XSP is an all-equity ETF that diversifies its asset allocation across several U.S. economic sectors to provide its investors with low-cost exposure to the top publicly-traded companies in the U.S.
It invests all of its funds in stocks without exposure to bonds, GICs, or other fixed-income securities. This means that the ETF may reflect the top 500 companies’ performance in the U.S. equity security markets.
Most of its funds are allocated to Information Technology companies based on the recent prolific performance of the I.T. sector across the border.
iShares XSP ETF Asset Allocation
This section of my reviews typically discusses the asset allocation split between fixed-income and equity securities for the ETF.
As of March 23, 2021, iShares XSP has allocated 98.88% of its funds to equity securities. It holds the remaining assets in cash and derivatives.
iShares XSP ETF Top Holdings
This section of my iShares XSP ETF review will take a closer look at the ETF’s asset allocation.
Since iShares XSP is an all-equity ETF, its entire asset allocation is towards the top 500 publicly-traded companies diversified across different U.S. sectors. It does not hold any of the stocks directly. Instead, the ETF invests in iShares Core S&P 500 ETF (IVV) as its primary holding.
Let’s take a closer look at iShares IVV’s holdings to get a better idea of the top companies that provide returns to iShares XSP investors.
As of March 23, 2021, Apple Inc. is its most significant holding at a 5.83% weighting. It is followed closely by Microsoft Corp. at 5.41%. Amazon.com, Inc. is its third most significant holding, accounting for 4.05% of its fund allocation.
This shows that most of the iShares XSP holdings belong to the tech sector. In fact, five of its top 10 holdings belong to the tech and communication sectors.
iShares XSP ETF Sector Weighting
In this section of my iShares XSP ETF review, I will take a closer look at the ETF’s sector weighting.
The ETF provides investors with exposure only to equity securities trading in different U.S. sectors. At the same time, however, it heavily favours the IT sector due to its immense growth in recent years.
As of March 23, 2021, its most significant asset allocation is towards the IT sector at 26.45%. Its second most significant sector exposure is towards the Healthcare sector, with 12.83%. The Consumer Discretionary sector is another primary sector, coming in third with a 12.38% weighting. Its lowest sector weighting is towards Utilities at a 2.62% weighting.
iShares XSP ETF MER and Fees
iShares XSP ETF is a very low-cost ETF that you can consider adding to your portfolio given its low Management Expense Ratio (MER) of just 0.10%. This makes it much more cost-effective than other ETFs offered by BlackRock iShares.
Its MER is also significantly lower than any mutual fund product that provides investors with similar features and benefits. The average mutual fund fee is at least 2%. Hence, ETFs offering a lower MER than mutual funds products—like iShares XSP—is a crucial reason why many Canadians prefer to invest in ETFs rather than mutual funds in recent years.
iShares XSP ETF Performance and Returns
iShares XSP allocates its funds only to equity securities diversified across the U.S. economy based on their market capitalization. Considering the top 500 U.S. stocks’ performance since the fund’s inception, it is no surprise that the ETF’s performance has recently been excellent, except during the market crash in 2008 and the drastic pullback during February and March 2020.
The growth of a hypothetical $10,000 since the fund’s inception in 2001 shows that the ETF’s performance and returns reflect the U.S. equity security market’s performance.
Both declines in the fund’s performance and returns occurred during devastating market crashes that affected the entire global economy and all Canadian economic sectors. However, iShares XSP made a rapid recovery after the latest crash and is at its best levels so far, with no signs of slowing down amid the economic recovery.
The fund’s entire focus on equity securities adds a level of risk to investor capital during periods of difficulties for the US economy.
The fund’s focus on diversifying across the top 500 equity securities in the U.S. makes it an attractive investment to consider. The companies held by the ETF provide investors with capital growth during bull markets. However, with no exposure to bonds or GICs, there is nothing that offsets the U.S. equity security market’s volatility.
iShares XSP ETF Dividend Yield
iShares XSP ETF primarily provides its investors with returns through its holdings’ capital gains. It also gives them semi-annual dividend payouts, with a modest distribution yield of 1.27% as of March 23, 2021.
Its trailing 12-month dividend yield as of March 23, 2021, is 1.26%. Its last distribution per share as of December 22, 2020, was $1.92.
iShares XSP ETF vs. Other ETFs
iShares XSP vs. iShares XIU
iShares XIU is an all-equity ETF offered by BlackRock Canada that you can consider adding to your portfolio. It diversifies its asset allocation across several Canadian sectors, just like iShares XSP ETF diversifies across several industries in the U.S.
Unlike iShares XSP, however, iShares XIU ETF invests its funds in the top 60 publicly-traded Canadian companies based on market capitalization. On the other hand, iShares XSP has a broader focus, concentrating on the top 500 companies in the U.S.
iShares XIU also has a higher cost, with a 0.18% MER compared to the 0.10% MER of iShares XSP.
Overall, iShares XIU ETF can be a viable alternative to iShares XSP if you are interested in tracking the top 60 Canadian companies’ performance rather than focusing on the U.S. equity security market.
Read my full iShares XIU ETF review here to find out more.
iShares XSP vs. iShares XIC
iShares XIC is another all-equity ETF offered by BlackRock Canada that tracks the performance of Canadian equity securities. It is one of the oldest ETFs in existence, and it set the pace for other ETFs to follow. It allocates its funds to Canadian companies based on their market capitalization and provides you with broad exposure to the Canadian equity security market.
One thing you should note, however, is that iShares XIC ETF does not provide as much diversification as iShares XSP ETF because it invests in 219 companies compared to iShares XSP’s 500 companies.
Nonetheless, iShares XIC ETF is an incredibly low-cost investment you should consider for your portfolio. It has a 0.06% MER, which is lower than the 0.10% MER of iShares XSP ETF.
iShares XIC can be a viable alternative to iShares XSP ETF if you want low-cost exposure to the entire Canadian stock market instead of the U.S. equity security markets.
Read my full iShares XIC ETF review here to find out more.
Is iShares XSP ETF a Good Investment for You?
I generally consider all-equity ETFs a tricky investment. While these funds perform well when the market conditions are bullish and show overall growth, their performance can decline when market conditions become volatile. Hence, I usually steer clear of them.
Nevertheless, iShares XSP is still better than many other all-equity ETFs because it provides investors with broad and diverse exposure to the top 500 companies trading in the U.S. Although it is prone to the effects of volatile market conditions, its holdings have wide economic moats to provide long-term growth.
It lacks geographic diversification, however, which means investing in iShares XSP ETF would be the same as betting on the top 500 U.S. publicly-traded companies’ performance.
As the market crashes in 2008 and 2020 showed, if equity securities in the U.S. do not perform well, the ETF can also see significant challenges in its ability to provide you with returns.
How to Buy BlackRock iShares Core S&P 500 Index ETF (CAD-Hedged) in Canada
My two favourite ways to buy iShares XSP ETFs in Canada are the following:
- Questrade – I use Questrade, Canada’s leading discount broker, 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 and diverse basket of U.S.-based equity securities, iShares XSP is an all-equity ETF that can be an excellent investment.
I have my reservations about the lack of exposure to fixed-income securities and the lack of geographic diversity. However, its broad diversification across different U.S. sectors makes it an attractive investment for investors seeking long-term capital growth from the U.S. economy. I, therefore, give iShares XSP ETF a Wealth Awesome thumbs up.