As we move further into 2024, Canadian investors continue to seek efficient ways to build diversified, global equity portfolios.
Two popular options that often come up in discussions are iShares Core Equity ETF Portfolio (XEQT) and Vanguard All-Equity ETF Portfolio (VEQT).
While both offer broad market exposure, understanding their nuances is crucial for making an informed investment decision.
Meta Description: Explore the key differences between XEQT and VEQT for Canadian investors in 2024. Learn about their strategies, performance, and how to choose the right all-equity ETF for your portfolio.
Understanding All-Equity ETFs
Before diving into the specifics of XEQT and VEQT, it’s important to understand what all-equity ETFs are and why they’ve gained popularity:
- All-equity ETFs invest solely in stocks, offering no bond exposure
- They provide instant diversification across multiple markets
- These ETFs are typically used by investors with a high risk tolerance and long investment horizons
For more on the basics of ETF investing, check out our guide on ETF Investing 101.
XEQT vs VEQT: Key Differences
While XEQT and VEQT may seem similar at first glance, there are important differences to consider:
| Feature | XEQT | VEQT |
|---|---|---|
| Provider | BlackRock (iShares) | Vanguard |
| Management Expense Ratio (MER) | 0.09% | 0.24% |
| Number of Holdings | 9,000+ | 13,000+ |
| U.S. Equity Allocation | Higher | Lower |
| Canadian Equity Allocation | Lower | Higher |
| Rebalancing Frequency | Quarterly | Annually |
Management Expense Ratio (MER)
The difference in MER is significant:
- XEQT’s 0.09% MER means you’ll pay $0.90 annually per $1,000 invested
- VEQT’s 0.24% MER translates to $2.40 annually per $1,000 invested
Over time, this difference can impact your returns substantially. Use our ETF Fee Calculator to see the long-term impact of fees on your investments.
Geographic Allocation
As of 2024:
XEQT:
- U.S. Equities: 47%
- Canadian Equities: 23%
- International Developed: 23%
- Emerging Markets: 7%
VEQT:
- U.S. Equities: 42%
- Canadian Equities: 30%
- International Developed: 22%
- Emerging Markets: 6%
These allocations can shift slightly over time as the ETFs rebalance.
Performance Comparison
While past performance doesn’t guarantee future results, it’s worth comparing the historical returns:
| Period | XEQT | VEQT |
|---|---|---|
| 1 Year | X% | Y% |
| 3 Year | 27.28% | 27.55% |
| Since Inception | Z% | W% |
Note: Update the 1-year and since inception figures with the most current data available in 2024.
For the most up-to-date performance data, visit the BlackRock Canada website for XEQT and the Vanguard Canada website for VEQT.
Tax Considerations for Canadian Investors
Both ETFs are subject to foreign withholding taxes on dividends from international holdings. However, these taxes are treated differently depending on the account type:
- In RRSP accounts: 15% withholding tax applies to both ETFs
- In TFSA accounts: Withholding taxes apply and are not recoverable
For a deeper dive into tax implications, read our article on Foreign Withholding Taxes in ETFs.
Choosing Between XEQT and VEQT
Your choice between XEQT and VEQT should depend on several factors:
- Fee Sensitivity: If minimizing costs is a priority, XEQT’s lower MER is advantageous.
- Canadian Equity Preference: VEQT offers higher exposure to Canadian markets.
- U.S. Market Outlook: If you’re bullish on U.S. stocks, XEQT’s higher U.S. allocation might be preferable.
- Rebalancing Frequency: XEQT’s quarterly rebalancing vs. VEQT’s annual rebalancing may appeal to different investor preferences.
- Brand Loyalty: Some investors may have a preference for BlackRock or Vanguard based on past experiences or company philosophies.
2024 Market Outlook and ETF Selection
As we navigate 2024, consider these factors when choosing between XEQT and VEQT:
- Global Economic Trends: Assess how global economic forecasts might impact the different geographic allocations of each ETF.
- Currency Fluctuations: Consider the potential impact of CAD/USD exchange rates on returns, given the different U.S. equity exposures.
- Sector Performance: Analyze which sectors are expected to outperform and how that aligns with each ETF’s sector allocation.
For more insights on 2024 market trends, check our 2024 Market Outlook article.
FAQs
- Q: Can I hold both XEQT and VEQT in my portfolio? A: Yes, but it may not be necessary given their similar overall exposure. It’s generally more efficient to choose one.
- Q: How often should I review my choice between XEQT and VEQT? A: Annual reviews are typically sufficient, coinciding with your overall portfolio rebalancing.
- Q: Are there any key events in 2024 that might impact the performance of these ETFs? A: Stay informed about global economic events, policy changes, and geopolitical developments that could affect markets.
- Q: How do XEQT and VEQT compare to robo-advisors? A: These ETFs offer similar diversification but typically at a lower cost than most robo-advisors. However, robo-advisors provide additional services like automatic rebalancing and tax-loss harvesting.
- Q: Can XEQT or VEQT be used as a complete portfolio solution? A: For investors comfortable with 100% equity exposure, yes. However, consider your risk tolerance and possibly adding bonds for a more balanced approach.
Conclusion
Both XEQT and VEQT offer Canadian investors excellent options for building globally diversified, all-equity portfolios. While XEQT edges out in terms of lower fees and higher U.S. exposure, VEQT provides more Canadian market exposure and a slightly different rebalancing approach.
Your choice should align with your investment goals, risk tolerance, and views on global market trends. Remember, the “best” option is the one that fits your personal financial strategy and helps you sleep well at night.
Call to Action: Ready to invest in XEQT or VEQT? Consider opening an account with a low-cost Canadian broker. Before making your decision, use our ETF Comparison Tool to visualize the differences between these funds based on your investment amount and time horizon.
