If you are looking to grow your wealth by investing in stocks but don’t have time to pick individual stocks, an equity all-in-one ETF is a great option to consider.
Although both Vanguard and iShares offer an all-equity solution, you may be unaware of some of the differences between the two.
An all-equity ETF portfolio can do a good job of diversifying your wealth, as opposed to picking only Canadian stocks. As of January 2022, Canada’s share of the global stock market was only 2.5%, meaning that there are a lot of growth opportunities abroad.
In this head-to-head comparison, I will go over which ETF portfolio is best across the following categories:
- Fees
- Performance
- Yield
- Length of track record and fund size
- Risk
- Underlying holdings
I will outline XEQT vs VEQT below and go over how the two ETFs stack up against each other.
Understanding All-In-One ETF Portfolios
XEQT and VEQT are both all-in-one ETF portfolios that are part of a full ETF portfolio suite from both Vanguard and iShares.
The main difference between each portfolio within each investment manager’s suite comes from each fund’s allocation towards fixed income and equities. This stock and bond weighting will be different based on each portfolio’s advertised risk profile.
All-in-one ETFs have simple naming conventions and look something like this most of the time:
- Very Conservative
- Conservative
- Balanced
- Growth
- Maximum Growth (or all-equity)
A very conservative ETF will likely be close to 100% invested in fixed income while a maximum growth or all-equity ETF will be closer to a 100% investment in stocks. Both XEQT and VEQT are 100% equity ETF portfolios.
XEQT vs VEQT: Fees
XEQT and VEQT are both offered at very low management expense ratios relative to most ETFs and mutual funds.
Relative to each other, Vanguard’s VEQT is currently offered at a management fee of 0.22% and a management expense ratio of 0.24%. iShares’ XEQT is offered at a management fee of 0.18% and a management expense ratio of 0.20%. XEQT is substantially less expensive than VEQT.
Choosing an ETF with a low management expense ratio helps you to grow your wealth faster, especially over longer periods of time, as this effect compounds.
Fees verdict – XEQT is the clear winner here with both a lower management fee as well as a lower management expense ratio.
XEQT vs VEQT: Performance
Performance is always helpful to analyze over time when choosing an investment or an ETF. VEQT and XEQT have had a fairly similar performance track record.
As both ETF portfolios currently have a relatively short performance track record, the key time frames that I will look at are over one year and over three years.
Over a one-year period, VEQT has marginally outperformed XEQT. Over a three-year period, XEQT marginally outperforms VEQT.
A longer performance track record usually does a better job of outlining how well a fund performs. This makes XEQT a stronger option when considering investor returns.
Performance verdict – Although VEQT has outperformed XEQT in the short term (over one year), XEQT comes out on top over a three-year time horizon, making it the clear winner when it comes to performance.
XEQT vs VEQT: Yield
As both XEQT and VEQT are 100% equity portfolios, investors should expect low yields from each.
iShares’ XEQT portfolio currently pays distributions on a quarterly basis, while Vanguard’s VEQT only pays distributions on an annual basis. If you are looking for frequent distributions, XEQT is a superior choice.
When considering each fund’s yield, Vanguard’s VEQT comes out ahead by quite a bit. Currently, VEQT has a yield of 1.60% while XEQT has a yield of 1.17%.
Keep in mind that for equity funds or ETFs, the majority of your returns will usually be in the form of capital gains. This is reflected by an increasing unit value for the ETF, as opposed to earning a high return through the fund’s yield.
Yield verdict – Although XEQT pays distributions on a more frequent basis, VEQT is currently offering a substantially high yield, making it the winner in the yield category.
XEQT vs VEQT: Length of Track Record and Fund Size
Two key things that investors should be concerned with when investing in an ETF or a mutual fund are the length of the fund’s performance track record (how long since the fund was launched) as well as how large the fund is (measured by assets under management).
The inception dates for both funds are:
- XEQT: August 7, 2019
- VEQT: January 29, 2019
Although both funds have a short performance track record, Vanguard’s VEQT comes with a track record that is several months longer than XEQT’s.
When it comes to fund size, both XEQT and VEQT are very large ETFs, with over one billion dollars in assets under management. VEQT currently has more than $2 billion in assets under management, while XEQT has over $1.3 billion in assets under management. VEQT is a substantially larger ETF when it comes to assets.
The size of a fund is more important when considering newly-launched funds that are very small in size (single-digit millions of assets under management).
Funds that are unable to attract enough capital from investors early on run the risk of having to close down early due to profitability issues. This is not a risk for either XEQT or VEQT.
Length of track record and fund size verdict – when it comes to asset size and track record length, VEQT comes out on top with both a longer track record and a larger asset base.
XEQT vs VEQT: Risk
Risk is another important factor to consider before investing in an ETF. Higher-risk investments come with higher potential returns but typically greater price swings in the short term. All ETFs are required by law to disclose a risk rating within their fund facts documents.
XEQT’s fund facts documents outline that the ETF portfolio comes with a low-to-medium risk rating. VEQT’s fund facts documents explain that the ETF comes with a medium risk rating.
The difference in outlined risk rating is a mystery, considering that both ETF portfolios have almost identical mandates (of investing in 100% stocks globally).
One of the key inputs used in assigning a risk rating to a fund is how volatile it has been since its inception. It is quite possible that XEQT has a more conservative portfolio than VEQT, despite both mandates being 100% invested in equities, based on the actual underlying stocks and their volatility.
Choosing a lower-risk investment is not always the best course of action, especially if you are an investor with a high-risk tolerance and a long investment time horizon.
Risk verdict – when it comes to the riskiness of both ETFs, XEQT has a lower risk rating (low-to-medium) while offering a similar portfolio to VEQT, making it the winner in this category.
XEQT vs VEQT: Underlying Holdings
Although both XEQT and VEQT are fairly similar in the sense that they both invest in stock ETFs targeting several different geographies, I will break down each fund’s current ETF holdings below. Keep in mind that both XEQT and VEQT are fund-of-funds, meaning that they hold several underlying ETFs.
VEQT currently has four underlying ETFs within its portfolio, all of which are stock ETFs:
- Vanguard US Total Market Index ETF
- Vanguard FTSE Canada All Cap Index ETF
- Vanguard FTSE Developed All Cap ex North America Index ETF
- Vanguard FTSE Emerging Markets All Cap Index ETF
XEQT currently has four underlying ETFs within its portfolio, all of which are also stock ETFs:
- iShares Core S&P Total US Stock Market ETF
- iShares S&P/TSX Capped Composite Index ETF
- iShares MSCI EAFE IMI Index ETF
- iShares Core MSCI Emerging Markets ETF
Both VEQT and XEQT invest in similar funds that target similar geographical regions. The one key difference is that each underlying fund belongs to the same investment manager (XEQT has only iShares underlying ETFs and VEQT has only Vanguard underlying ETFs).
Underlying holdings verdict – Since there is no key differentiating factor within this category, I will have to call it a draw between both XEQT and VEQT based on underlying holdings.
Is it recommended to hold both XEQT and VFV in a portfolio?
Holding both XEQT and VFV in a portfolio can be seen as somewhat redundant since XEQT already has exposure to the U.S. market, which is the primary focus of VFV (which tracks the S&P 500). However, adding VFV would increase the weight of the U.S. market in one’s portfolio.
If an investor’s strategy specifically desires a higher allocation to U.S. equities, then holding both might make sense. It’s also worth noting that diversifying across providers (iShares for XEQT and Vanguard for VFV) can be a strategy to hedge against provider-specific risks, although such risks are generally considered low.
Our Final Verdict
Although the competition is fierce between XEQT and VEQT, there is a clear winner between the two all-equity ETF portfolios. Considering that both ETFs are very competitive relative to other options on the market, XEQT is the winner due to the portfolio’s substantially lower management expense ratio.
There are some situations in which you may want to consider investing in one over the other.
Consider investing in XEQT if:
- You are looking to pay a lower management expense ratio
- You are looking for a low-to-medium risk investment (as outlined by the ETF’s fund facts documents)
- You are not concerned with yield
Consider investing in VEQT if:
- You are looking to choose a larger fund with a slightly longer track-record
- You are looking for a decent yield
Both VEQT and XEQT are excellent as ETF portfolios relative to offerings from other investment managers in the all-in-one ETF space.
If you are looking to learn more about all-in-one ETF portfolios, make sure to read my Vanguard all-in-one ETF series overview and my iShares all-in-one ETF series overview for more information.
