XEQT vs. VEQT: Comprehensive Practical Comparison
Which All-Equity ETF Portfolio Suits Canadian Investors Best?
In the realm of investing, Exchange-Traded Funds (ETFs) have gained popularity among Canadian investors for their low costs, diversification, and simplicity. For those seeking broad exposure to global equities, two standout options are the iShares Core Equity ETF Portfolio (XEQT) and the Vanguard All-Equity ETF Portfolio (VEQT). Both are all-equity ETF portfolios designed to provide long-term capital growth by investing in a diversified mix of stocks from around the world. This article offers a detailed comparison to help investors decide which fund aligns best with their financial goals, considering factors such as expense ratios, asset allocation, dividend policies, performance, and suitability for different investor profiles.
Table of Contents
Introduction
Investing in global equities can be a daunting task, but all-equity ETF portfolios like XEQT and VEQT simplify the process by offering a single-ticket solution for diversified stock market exposure. Launched in 2019, both funds cater to Canadian investors seeking long-term growth with a high tolerance for risk. While their goals are aligned, differences in fees, allocations, and dividend policies can influence your choice. This comprehensive comparison will guide you through these nuances to determine which ETF best fits your investment strategy.
Understanding All-Equity ETF Portfolios
All-equity ETF portfolios are investment vehicles that hold a collection of stocks from various regions and sectors, aiming to replicate the performance of global equity markets. These portfolios are ideal for investors with a high risk tolerance and a long-term investment horizon, as they offer the potential for higher returns but also come with increased volatility due to their 100% equity allocation.
Benefits of All-Equity ETF Portfolios
- Diversification: Exposure to thousands of stocks across different countries and industries, reducing the risk associated with individual stock performance.
- Low Costs: Typically lower management fees compared to actively managed funds, making them cost-effective for long-term investors.
- Simplicity: A one-stop solution for global equity exposure, eliminating the need to manage multiple funds and handle regular rebalancing.
- Automatic Rebalancing: The fund managers continuously monitor and rebalance the portfolio as needed, ensuring it stays aligned with its target allocation.
Considerations
- Market Risk: As 100% equity investments, these portfolios are subject to market fluctuations and can experience significant downturns during bear markets.
- No Fixed Income: Lack of bonds or other fixed-income securities means no cushion during market downturns, which may not suit conservative investors.
XEQT vs. VEQT: Detailed Comparison
While both XEQT and VEQT aim to provide global equity exposure, there are key differences in their structure, fees, and asset allocation that may influence an investor’s choice.
Expense Ratios and Fees
iShares Core Equity ETF Portfolio (XEQT):
- Management Expense Ratio (MER): 0.20%
- This fee includes all underlying ETF management fees, making XEQT a cost-effective option for investors looking to minimize expenses.
Vanguard All-Equity ETF Portfolio (VEQT):
- Management Expense Ratio (MER): 0.24%
- Similarly low, but slightly higher than XEQT, which could impact net returns over time, especially for larger investment amounts.
Comparison:
- Cost Efficiency: XEQT has a 0.04% lower MER than VEQT, translating to $4 per year for every $10,000 invested. Over decades, this can compound significantly, favoring XEQT for cost-conscious investors.
- Value Added: Both funds are among the lowest-cost options available, but XEQT’s edge in fees might appeal to those prioritizing cost savings.
Asset Allocation and Diversification
Both XEQT and VEQT are fund-of-funds, holding underlying ETFs to achieve their global equity exposure. Here’s a breakdown of their allocations:
XEQT:
- Underlying ETFs: Holds five iShares ETFs, including ITOT (39.88%), XEF.TO (24.92%), XIC.TO (24.73%), XUS.TO (5.23%), and XEC.TO (4.83%).
- Approximate Allocation:
- US: 45.11% (ITOT + XUS)
- Canada: 24.73% (XIC)
- Developed ex-North America: 24.92% (XEF)
- Emerging Markets: 4.83% (XEC)
- Total Holdings: Over 8,491 underlying stocks.
VEQT:
- Underlying ETFs: Holds four Vanguard ETFs, including VUN.TO (45.80%), VCN.TO (30.24%), VIU.TO (17.19%), and VEE.TO (6.76%).
- Approximate Allocation:
- US: 45.80% (VUN)
- Canada: 30.24% (VCN)
- Developed ex-North America: 17.19% (VIU)
- Emerging Markets: 6.76% (VEE)
- Total Holdings: Over 12,000 underlying stocks.
Comparison:
- Home Bias: VEQT’s higher Canadian allocation (30.24% vs. 24.73%) may appeal to investors seeking currency stability or tax benefits from domestic dividends.
- International Exposure: XEQT offers more exposure to developed markets outside North America (24.92% vs. 17.19%), enhancing diversification.
- Diversification: Both funds are highly diversified, with VEQT holding more stocks overall due to its broader underlying ETFs.
Dividend Policies
XEQT:
- Distribution Frequency: Quarterly
- Dividend Yield: Approximately 2.27% as of April 2025.
VEQT:
- Distribution Frequency: Annually
- Dividend Yield: Approximately 1.78% as of April 2025.
Comparison:
- Income Frequency: XEQT’s quarterly dividends suit investors seeking regular cash flow, while VEQT’s annual payouts simplify tax reporting.
- Yield: XEQT offers a slightly higher yield, reflecting its composition and frequency.
Performance Analysis
Since their inception in 2019, XEQT and VEQT have shown comparable performance, reflecting global equity market trends.
Historical Returns
| Year | XEQT Return | VEQT Return |
|---|---|---|
| 2020 | 11.85% | 11.43% |
| 2021 | 19.69% | 19.63% |
| 2022 | -11.01% | -10.78% |
| 2023 | 17.28% | 16.71% |
| 2024 | 24.39% | 25.00% |
Risk Metrics
- Volatility: Similar due to 100% equity allocation, with VEQT potentially slightly less volatile due to higher Canadian exposure.
- Beta: Both near 1, tracking global equity markets closely.
Integrating XEQT and VEQT into Your Portfolio
- Standalone: Ideal for aggressive investors in TFSAs or RRSPs.
- 60/40 Portfolio:
- Option 1: 60% XEQT, 40% VAB.TO
- Option 2: 60% VEQT, 40% VAB.TO
Tax Considerations
- Registered Accounts: Tax-free in TFSAs, tax-deferred in RRSPs.
- Non-Registered: Canadian dividends eligible for tax credits, foreign dividends subject to withholding taxes.
Suitability for Different Investor Profiles
XEQT:
- Ideal For: Cost-focused investors, those seeking international exposure, and quarterly income seekers.
VEQT:
- Ideal For: Investors favoring Canadian exposure and annual dividends.
Conclusion: Choosing Between XEQT and VEQT
- XEQT: Best for lower fees, international diversification, and quarterly dividends.
- VEQT: Best for higher Canadian exposure and simpler annual payouts.
Both are solid choices for long-term growth, with the decision hinging on your preferences for cost, allocation, and income frequency.
FAQ
Is XEQT or VEQT better? +
Both XEQT and VEQT are excellent choices for investors seeking global equity exposure. The choice depends on your preference for expense ratios, asset allocation, and dividend distribution frequency. XEQT has a lower MER (0.20%) and quarterly dividends, while VEQT has higher Canadian exposure (30%) and annual dividends.
Does XEQT pay dividends? +
Yes, **XEQT** pays dividends quarterly, with a yield of approximately 2.27% as of April 2025.
Does VEQT pay dividends? +
Yes, **VEQT** pays dividends annually, with a yield of approximately 1.78% as of April 2025.
How often do XEQT and VEQT pay dividends? +
**XEQT** pays dividends quarterly, while **VEQT** pays annually.
Is XEQT/VEQT a good investment for the long term? +
Yes, both are designed for long-term capital growth with diversified global equity exposure, suitable for investors with high risk tolerance.
Which is better, XEQT or VEQT? +
It depends on your investment goals. **XEQT** has a lower expense ratio and higher international exposure, while **VEQT** has higher Canadian exposure and annual dividends.
What are the tax implications of investing in XEQT vs. VEQT? +
Both have similar tax implications as they hold a mix of Canadian and foreign securities. Dividends are taxable in non-registered accounts, with Canadian dividends eligible for the dividend tax credit and foreign dividends subject to withholding taxes.
Can I hold XEQT or VEQT in a TFSA or RRSP? +
Yes, both can be held in registered accounts like TFSA and RRSP, offering tax advantages such as tax-free growth in TFSA or tax deferral in RRSP.
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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing involves risks, including the possible loss of principal. Always conduct your own research before making investment decisions.
