Introduction

For Canadian investors seeking diversified, low-cost exposure to global equities, two popular exchange-traded funds (ETFs) often come into consideration:

iShares Core Equity ETF Portfolio (XEQT) and Vanguard All-Equity ETF Portfolio (VEQT).

While both ETFs offer 100% equity exposure, making them ideal for long-term growth investors, there are crucial differences that investors should understand before making a decision.

Meta Description: Discover the key differences between XEQT and VEQT ETFs. Learn about their performance, fees, and asset allocation to make an informed investment decision for your portfolio.

Quick Comparison: XEQT vs VEQT

Feature	XEQT	VEQT
Provider	BlackRock (iShares)	Vanguard
Management Expense Ratio (MER)	0.09%	0.24%
Dividend Yield	1.26%	1.63%
Withholding Tax (for Canadians)	15% (unless held in RRSP)	15% (unless held in RRSP)
3 Year Performance	27.28%	27.55%
U.S. Equity Allocation	Higher	Lower
Canadian Equity Allocation	Lower	Higher

Understanding Index Funds

Before diving deeper into the comparison, let’s review the concept of index funds, which forms the foundation of both XEQT and VEQT.

An index fund is a type of mutual fund or ETF designed to track the performance of a specific market index. Key features include:

• Holding a basket of securities that mirror a particular index
• Offering broad market exposure and diversification
• Generally having lower fees compared to actively managed funds
• Providing a simple way to invest in a wide range of companies

For a more detailed exploration of index funds, check out our article: Index Funds 101.

About the ETF Providers

Vanguard

Vanguard, the company behind VEQT, has a rich history in the world of index investing:

• Founded by John Bogle in 1975
• Launched the first index fund tracking the S&P 500 in the same year
• Currently the largest issuer of mutual funds globally
• Second-largest issuer of ETFs worldwide

For more insights on Vanguard’s founder and his investment philosophy, read our article on Common Sense Investing.

BlackRock

BlackRock, the provider of XEQT, is a global leader in asset management:

• Founded by Larry Fink in 1988
• World’s largest asset manager with trillions in assets under management
• Offers a wide range of investment products, including mutual funds, ETFs, and alternative investments
• Known for its Aladdin platform and significant influence in global finance

For more information on BlackRock’s leadership, visit their corporate leadership page.

In-Depth Comparison: XEQT vs VEQT

1. Management Expense Ratio (MER)

• XEQT: 0.09%
• VEQT: 0.24%

XEQT has a significantly lower MER, which can lead to cost savings over time, especially for larger portfolios.

2. Dividend Yield

• XEQT: 1.26%
• VEQT: 1.63%

VEQT offers a slightly higher dividend yield, which may be attractive for investors seeking income. However, remember that dividend yields can fluctuate over time.

3. Withholding Tax Implications

Both ETFs are subject to a 15% withholding tax on dividends from U.S. and international holdings, unless held in an RRSP. For more information on this topic, read our article on VOO and RRSPs.

4. Performance

• XEQT 3-Year Performance: 27.28%
• VEQT 3-Year Performance: 27.55%

While past performance doesn’t guarantee future results, it’s worth noting that both ETFs have delivered similar returns over the past three years. For up-to-date performance data, visit the BlackRock Canada website for XEQT and the Vanguard Canada website for VEQT.

5. Asset Allocation and Geographic Exposure

Both ETFs provide diversified exposure to global equities, but they differ in their allocation:

XEQT Asset Allocation:

• Higher allocation to U.S. equities
• Lower allocation to Canadian equities
• Includes emerging markets exposure

VEQT Asset Allocation:

• More balanced exposure across Canadian, U.S., and international equities
• Higher allocation to Canadian equities compared to XEQT
• Includes emerging markets exposure

6. Underlying Holdings

Both ETFs are composed of several underlying ETFs that collectively provide broad exposure to global equity markets:

XEQT Top Sectors:

• Technology
• Financials
• Healthcare

Notable holdings include large-cap U.S. companies like Apple, Microsoft, and Amazon, as well as major Canadian banks and resource companies.

VEQT Top Sectors:

• Financials
• Technology
• Industrials

Significant holdings include Canadian companies like Royal Bank of Canada and Toronto-Dominion Bank, alongside U.S. giants such as Alphabet and Facebook. VEQT also offers broader international exposure, including companies from Europe and the Asia-Pacific region.

It’s important to note that both ETFs are passively managed and designed to track specific indices. This means the holdings will evolve as the indices are rebalanced.

Choosing Between XEQT and VEQT

The decision between XEQT and VEQT depends on several factors:

1. Cost Sensitivity: If minimizing fees is a top priority, XEQT’s lower MER may be more attractive.
2. Geographic Preference: XEQT offers higher U.S. equity exposure, while VEQT provides more balanced global diversification.
3. Canadian Equity Exposure: If you prefer a higher allocation to Canadian stocks, VEQT might be more suitable.
4. Currency Risk Tolerance: XEQT’s higher U.S. allocation means it may be more sensitive to USD/CAD exchange rate fluctuations.
5. Income Needs: If you’re seeking slightly higher dividend income, VEQT’s higher yield might be preferable.

Investment Strategies to Consider

1. Core Holding: Use either XEQT or VEQT as a core holding for a diversified, all-equity portfolio.
2. Complementary Investments: Pair these ETFs with bond ETFs or individual stocks to adjust your overall asset allocation.
3. Dollar-Cost Averaging: Consider regular, smaller purchases to mitigate the impact of market volatility.
4. Rebalancing: While these ETFs automatically rebalance internally, you may need to rebalance your overall portfolio if you hold other investments.

FAQs

1. Q: Can I hold XEQT or VEQT in my TFSA? A: Yes, both XEQT and VEQT can be held in a TFSA. However, you’ll still be subject to the 15% withholding tax on dividends from U.S. and international holdings.
2. Q: How often do XEQT and VEQT rebalance their portfolios? A: Both ETFs typically rebalance quarterly to maintain their target asset allocations.
3. Q: Are XEQT and VEQT suitable for beginner investors? A: Yes, both ETFs can be suitable for beginner investors due to their broad diversification and simple all-in-one structure. However, as they are 100% equity ETFs, they may be best suited for investors with a high risk tolerance and long investment horizon.
4. Q: How do XEQT and VEQT compare to other all-in-one ETFs? A: XEQT and VEQT are all-equity ETFs, making them more aggressive than balanced ETFs like VBAL or XBAL, which include bonds. They offer higher growth potential but also come with higher volatility.
5. Q: Can I use XEQT or VEQT as my entire portfolio? A: For many investors, especially those with a high risk tolerance and long investment horizon, XEQT or VEQT can serve as a complete portfolio solution. However, it’s important to consider your individual financial goals and risk tolerance.

Conclusion

Both XEQT and VEQT offer Canadian investors excellent exposure to global equity markets through a single, diversified ETF. XEQT provides slightly higher U.S. equity exposure and a lower MER, while VEQT offers more balanced global diversification and a higher allocation to Canadian equities.

When making your decision, consider your investment goals, risk tolerance, and preference for geographic allocation. Remember that while both ETFs are designed for long-term growth, they are 100% equity funds and may experience significant volatility in the short term.

For more insights on building a diversified portfolio with ETFs, consider exploring resources from reputable sources like the Canadian Securities Administrators or GetSmarterAboutMoney.ca, an investor education website run by the Ontario Securities Commission.

Call to Action: Ready to start investing in global equities? Consider opening an account with a Canadian online broker that offers commission-free ETF trading, such as Questrade or Wealthsimple Trade. Always do your own research and consider consulting with a financial advisor before making investment decisions.