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 |
What are Index Funds?
Before diving deeper into the comparison, let’s understand what index funds are:
- An index fund is a type of mutual fund or ETF that aims to track the performance of a specific market index.
- These funds hold a diversified portfolio of stocks or other securities that mirror the composition of the chosen index.
- Index funds offer a cost-effective way to achieve broad market exposure and diversification.
For more information on index funds, check out our detailed guide: Index Funds 101.
Benefits of Index Funds:
- Low costs due to passive management
- Broad market exposure
- Reduced risk through diversification
- Transparent holdings
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
Vanguard’s low-cost approach and investor-friendly philosophy have made it a favorite among both individual and institutional investors. Learn more about Vanguard’s history and philosophy on their official website.
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
BlackRock plays a pivotal role in shaping investment trends and policies worldwide. For more information on BlackRock’s history and offerings, visit their corporate website.
In-Depth Comparison: XEQT vs VEQT
1. Management Expense Ratio (MER)
- XEQT: 0.09%
- VEQT: 0.24%
XEQT has a lower MER, which can lead to cost savings over time, especially for larger portfolios. To understand the impact of MER on your investments, read this guide from the Ontario Securities Commission.
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 foreign withholding taxes for Canadian investors, check out this comprehensive guide from Canadian Couch Potato.
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
The specific allocations can change over time, so it’s important to check the latest fund facts for the most up-to-date information.
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
VEQT Top Sectors:
- Financials
- Technology
- Industrials
Notable holdings in both ETFs include large-cap U.S. companies like Apple, Microsoft, and Amazon, as well as major Canadian banks and resource companies.
Choosing Between XEQT and VEQT
The decision between XEQT and VEQT depends on several factors:
- Cost Sensitivity: If minimizing fees is a top priority, XEQT’s lower MER may be more attractive.
- Geographic Preference: XEQT offers higher U.S. equity exposure, while VEQT provides more balanced global diversification.
- Canadian Equity Exposure: If you prefer a higher allocation to Canadian stocks, VEQT might be more suitable.
- Currency Risk Tolerance: XEQT’s higher U.S. allocation means it may be more sensitive to USD/CAD exchange rate fluctuations.
- Income Needs: If you’re seeking slightly higher dividend income, VEQT’s higher yield might be preferable.
For a detailed guide on how to choose the right ETF for your portfolio, check out this resource from the Canadian Securities Administrators.
Final Thoughts
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, read this guide from the Financial Consumer Agency of Canada.
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.
FAQs
- 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.
- Q: How often do XEQT and VEQT rebalance their portfolios? A: Both ETFs typically rebalance quarterly to maintain their target asset allocations. However, the exact frequency may vary, so it’s best to check the fund’s prospectus for the most current information.
- 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.
- 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. For a comparison of various all-in-one ETFs, check out this article from Canadian Couch Potato.
- 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, risk tolerance, and time horizon. Consulting with a financial advisor can help you determine if an all-equity ETF is appropriate for your situation.