In today’s exploration, we’ll delve into the Vanguard FTSE Global All Cap ex Canada Index ETF, better known as VXC. This ETF is a gateway for Canadian investors to access international markets, excluding Canada. Let’s unpack the specifics of VXC, including its composition, benefits, and key figures like the number of stocks, MER, and capitalization details.
VXC ETF at a Glance
VXC, offered by Vanguard, is designed to mirror the FTSE Global All Cap ex Canada Index. It includes a vast array of stocks from both developed and emerging markets across the globe, barring Canadian ones. Here’s a closer look at its characteristics:
Number of Stocks: 11,453, offering wide-ranging exposure across different sectors and countries.
Management Expense Ratio (MER): 0.22%, ensuring a cost-effective investment solution for those seeking global exposure.
Portfolio Composition VXC ETF
The ETF’s portfolio is well-diversified, not just by geography but also by market capitalization:
Large Cap: 67.96%
Medium/Large Cap: 3.92%
Medium Cap: 13.83%
Such diversification ensures that investors have significant exposure to established companies while still capturing the growth potential of medium-sized enterprises.
Geographic Breakdown
VXC’s investments span across various regions, providing a balanced mix of developed and emerging markets:
North America: 62.74%
Europe: 16.24%
Pacific: 10.91%
Emerging Markets: 9.84%
This geographic distribution helps mitigate risks associated with any single region.
Sector Allocation
The fund’s sector allocation further highlights its diversity, with significant investments in high-growth areas:
Technology: 24.36%
Consumer Discretionary: 14.24%
Industrials: 14.06%
Financials: 13.59%
Health Care: 11.06%
This sectoral spread ensures that investors are well-positioned to benefit from growth across a broad spectrum of industries.
With its broad international exposure, low costs, and diverse portfolio, VXC is an attractive option for Canadians looking to invest globally. As always, consider how VXC fits into your broader investment strategy and ensure it aligns with your financial goals.
Keep following for more insights that make the complex world of finance more accessible and manageable. Happy investing!
Q&A
What ETFs are in VXC?
VXC doesn’t contain other ETFs; it directly holds a diverse range of individual stocks from global markets, excluding Canada.
Is VXC a good ETF?
VXC can be a good choice for investors seeking broad global exposure and diversification outside of Canada, with a low-cost structure.
What does VXC track?
VXC tracks the FTSE Global All Cap ex Canada Index, representing a wide array of stocks from developed and emerging markets, excluding Canadian stocks.
In this post, we will be reviewing the 10 best dividendETF in Canada. We included in our list all ETFs whether they invest in Canadian, American or Global markets. We compared these ETFs based on the dividend yield, performance over a 5 years period and volatility. For each ETF, we provide the funds’ objective and holdings. Finally, we will also discuss tax implications for holding Canadian ETFs that invest globally.
Source: TD Market research, AUM Asset under management, MER Management expense ratio
– XDVIshares Canadian Select Dividend Index is the most popular dividend ETF in Canada with over 1.7 B in assets. While, XEIIshares S&P TSX Comp High Div Index and VDY Vanguard FTSE CDN High Dividend Yld Index stand out with their low MER.
– Most of the popular dividend ETFs in Canada are invested in Canadian companies. In fact, Canadian dividend ETFs are great but they tend to be over exposed to the Energy and Financial sector due to the nature of the Canadian economy. Please review below the sector allocation for each ETF to get a better picture.
Table 2: Best Dividend ETFs: Performance comparison
– ZWP BMO Europe High Dividend Covered Call ETF and ZWC BMO CDN High Dividend Covered Call ETF both use covered calls strategy. They both pay a little bit over 6% in dividend which is great. But, investors should know that a portion of these payouts are dividends, the other portion are options’ premiums. In fact, because both of these ETFs write covered calls dynamically, they generate additional income through option premiums in certain conditions.
This strategy overall has a negative impact on the performance of these ETFs. When you are writing covered calls, you are in essence giving up on the upside potential of the stocks you own with the purpose of preserving capital. ZWC had a better performance than ZWP.
– FIE is an excellent choice in terms of dividend yield (close to 6%). Also, it has a great performance. The only drawbacks are its allocation (100% in the Canadian financial sector) and its relatively high MER.
– VDY Vanguard FTSE CDN High Dividend Yield Index has overall the best characteristics for a dividend ETF (yield around 4%, great performance, Beta lower than 1 and low MER especially VDY) . VDY is over exposed to the Canadian Financial and Energy sector. XEI from iShares is also another great option.
– VGG Vanguard US Dividend Appreciation is a great option if you are to looking for dividend from US based companies. This an ideal investment in a registered account to avoid the 15% withholding tax.
Considering volatility, performance and MER, my number one choice for a the best canadian dividend ETF would VDY from Vanguard. It has a low MER and a lower volatility than the market. It offers an interesting yield and a great performance for its category. My second choice would be XEI from iShares.
FIE Ishares CDN Financial Monthly Income is a excellent choice if you are bullish on the financial sector and don’t mind higher volatility than average.
ZWP BMO Europe High Dividend Covered Call ETF and ZWC BMO CDN High Dividend Covered Call ETF offer high dividend yield. On the other hand long term performance is not there. The covered call strategy seem to impact negatively long term performance. As I mentioned above, Performance should be the first criteria when selecting a dividend ETF.
How to choose the best dividend ETF
Performance and sector allocation
It’s a no brainer. Performance matters when selecting the best dividend ETF. A steady performance indicate the portfolio includes quality stocks such as Bluechips. But, one need to keep an eye on volatility and sector weighting. Regarding volatility, you want an interesting performance with the lowest possible volatility. This insures you are maximizing your returns for the risk you are taking.
Sector weighting is as important too. You need to understand where your money is invested and your portfolio’s overall exposure. Having a balanced portfolio across various industries is critical to reduce risk.
Yield
I can’t stress enough. Total return is more important than dividend yield. This is true for stocks and ETFs. A dividend yield is an annual percentage calculating the amount received by the investor for a year. It does not take in consideration capital loss or appreciation. So, you could own an investment that has a positive dividend yield and a negative total return.
If income generation is paramount to you. You need to select first ETFs that have high total returns. Then within these ETFs identify the ones that pay a steady and decent dividend overtime.
Volatility
We use the 5 years Beta as a measure of volatility. A beta of 1 mean your investment is as risky as the overall market. When selecting an investment, the desired Beta is the lowest possible.
Tax implications for Global ETFs
There are so many possible structures for an ETF. Below, we will discuss mainly three common structures:
Type 1: Canadian ETFs that invest in US or international stocks directly. There is 15% withholding tax that will impact the fund’s return;
Type 2: Canadian ETFs that invest in US ETFs which invests in US stocks. There is 15% withholding tax that will impact the fund’s return;
Type 3: Canadian ETFs that invest in US listed ETFs which invest in international stock. This is the structure that’s the least interesting for investors from a taxation perspective. 2 Taxes will be applied by the foreign country first and then the US.
XDV is the first in our list of Best dividend ETFs in Canada. The iShares Canadian Select Dividend Index ETF provides long-term capital growth by investing in 30 high yielding Canadian companies in the Dow Jones Canada Total Market Index.
XDV dividend ETF Holdings and sector allocation
Company Name
Allocation
Canadian Imperial Bank of Commerce
8.7%
Bank of Montreal
6.4%
Canadian Tire Corp Ltd Class A
6.3%
Royal Bank of Canada
6.2%
BCE Inc
5.0%
TC Energy Corp
4.8%
Labrador Iron Ore Royalty Corp
4.7%
Bank of Nova Scotia
4.6%
The Toronto-Dominion Bank
4.3%
National Bank of Canada
4.2%
Please consult issuers’ website for up to date data
Sector Classs
% Allocation
Financial Services
55.5%
Comm. Services
11.7%
Utilities
11.5%
Please consult issuers’ website for up to date data
DXG – Dyn Ishares Active Global Dividend ETF
The second ETF in our list of best dividend ETF in Canada is a global ETF. DXG is an actively managed fund. The fund invests primarily in a diversified portfolio of equity securities of businesses located around the world that pay or are expected to pay a dividend or distribution. These securities are selected actively based on size, profitability and liquidity. 56% of the funds holdings are invested in US companies, this is why it’s part of our list of the best US Dividend ETFs in Canada.
This ETF is ideal for investors seeking a dividend income from an international basket of large caps. The fund is well diversified across a variety of sectors mainly Technology, Industrials, Consumer discretionary and Health care.
DXG Dividend ETF Holdings
Company Name
Allocation
Ashtead Group PLC
6.2%
Hoya Corp
5.8%
LVMH Moet Hennessy Louis Vuitton SE
5.7%
Facebook Inc Class A
5.4%
Capital One Financial Corp
5.2%
Alphabet Inc Class A
5.2%
Salesforce.com Inc
4.9%
NVIDIA Corp
4.8%
Edwards Lifesciences Corp
4.7%
CanadaBNP Paribas Act. Cat.A
4.3%
Please consult issuers’ website for up to date data
Sector breakdown
Type
Fund
United States
62.3
International
35.8
Please consult issuers’ website for up-to-date figures
Sector breakdown
Sector
% Allocation
Financial Services
21.7%
Technology
17.8%
Consumer Cyclical
15.0%
Comm. Services
10.5%
Please consult issuers’ website for up-to-date figures
XEI – iShares Core S&P/TSX Composite High Dividend Index ETF
This ETF objective is to replicate the performance of the S&P/TSX Composite High Dividend Index ETF. The fund’s objective is long term capital growth by investing in Canadian companies operating across diversified sectors. XEI pays a monthly dividend income which can be appealing for investor who are looking for a frequent payout.
Please consult issuers’ website for up to date data
Sector allocation
Sector
% Allocation
Financial Services
29.7%
Energy
26.6%
Comm. Services
14.1%
Utilities
12.4%
Please consult issuers’ website for up to date data
VDY – Vanguard FTSE Canadian High Dividend Yield Index ETF
FTSE Canadian High Dividend Yield Index ETF tracks the performance of the FTSE Canada High Dividend Yield Index, which consists of Canadian stocks having a high dividend yield. Due to the nature of the Canadian market, this fund has large portion of its investment portfolio in Energy and Financials.
VDY Dividend ETF holdings
Company Name
Allocation
Royal Bank of Canada
14.2%
The Toronto-Dominion Bank
12.0%
Enbridge Inc
8.1%
Bank of Nova Scotia
7.5%
Bank of Montreal
6.5%
Canadian Imperial Bank of Commerce
4.9%
TC Energy Corp
4.7%
BCE Inc
4.5%
Canadian Natural Resources Ltd
4.2%
Please consult issuers’ website for up to date data
Please consult issuers’ website for up to date data
ZWP – BMO Europe High Dividend Covered Call ETF
The BMO Europe High Dividend Covered Call ETF (ZWP) has been designed to provide exposure to a dividend focused portfolio. These dividend paying companies are selected based on:
dividend growth rate,
yield,
payout ratio and liquidity.
What’s unique about this ETF is that it uses covered calls to protect against downside risk. This being said, the covered call strategy provides limited downside protection. Also, when you write a covered call, you give up some of the stock’s potential gains. These ETFs will tend to have a higher yield and a lower performance.
ZWP Dividend ETF Holdings
Company Name
Allocation
Roche Holding AG
4.0%
Nestle SA
4.0%
Novartis AG
4.0%
GlaxoSmithKline PLC
4.0%
Sanofi SA
3.8%
TotalEnergies SE
3.7%
Unilever PLC
3.7%
Enel SpA
3.7%
Please consult issuers’ website for up to date data
Geographic allocation
Countries
Weight
Switzerland
23.66%
Germany
24.24%
United Kingdom
18.76%
France
16.72%
Other (multiple countries)
16.62%
Please consult issuers’ website for up-to-date figures
Sector allocation
Type
Fund
Information Technology
6.22
Industrials
12.18
Consumer Discretionary
11.56
Consumer Staples
11.78
Health Care
16.56
Financials
14.79
Materials
9.48
Communication
8.10
Energy
3.89
Utilities
3.66
Please consult issuers’ website for up-to-date figures
CDZ – S&P/TSX Canadian Dividend Aristocrats Index Fund
The S&P/TSX Canadian Dividend Aristocrats includes only large companies that are part of the TSX and who have increased their dividend consistently for at least 5 years period. This fund has been around for a while now.
CDZ Dividend ETF holdings
Company Name
Allocation
Keyera Corp
3.2%
SmartCentres
3.0%
Pembina Pipeline Corp
2.9%
Enbridge Inc
2.9%
Canadian Natural Resources Ltd
2.5%
Power Corporation of Canada
2.5%
Fiera Capital Corp
2.2%
Exchange Income Corp
2.2%
Great-West Lifeco Inc
2.2%
Please consult issuers’ website for up to date data
Sector allocation
Type
Fund
Financials
28.33
Energy
14.88
Industrials
11.80
Real Estate
10.93
Utilities
10.77
Consumer Staples
7.03
Communication
6.47
Materials
3.51
Consumer Discretionary
3.25
Health Care
1.92
Please consult issuers’ website for up-to-date figures
FIE – Ishares CDN Fin Monthly Income
Ishares CDN Fin Monthly Income seeks to maximize total return and to provide a stable stream of monthly cash distributions. FIE has a high exposure to the financial sector.
Please consult issuers’ website for up to date data
Sector allocation
Type
Fund
Banks
44.96
Insurance
30.24
Diversified Financials
8.48
Energy
5.01
Utilities
4.50
Real Estate
2.81
Telecommunications
1.12
Transportation
0.73
Food & Staples Retailing
0.57
Cash and/or Derivatives
0.41
Please consult issuers’ website for up-to-date figures
VGG – Vanguard US Div Appr and VGH – U.S. Dividend Appreciation Index ETF (CAD-hedged)
VGG is index fund (passively managed). The fund currently seeks to track the performance of the NASDAQ US Dividend Achievers Select Index. The latter is comprised of a select group of securities with at least ten consecutive years of increasing annual regular dividend payments.
Index funds can be great especially from an MER perspective. VGG offers an exposure to large number of established US corporations, mostly Bluechips such as Microsoft, Walmart…etc.
VGG Dividend ETF Holdings
Company Name
Allocation
Microsoft Corp
4.5%
JPMorgan Chase & Co
3.9%
Johnson & Johnson
3.8%
UnitedHealth Group Inc
3.3%
Visa Inc Class A
3.2%
The Home Depot Inc
3.1%
Procter & Gamble Co
3.0%
Comcast Corp Class A
2.3%
Please consult issuers’ website for up-to-date figures
Geographic allocation
Country
Fund
USA
100.0%
Sector allocation
Sector
Fund
Industrials
21.8%
Consumer Discretionary
16.6%
Health Care
15.4%
Financials
13.9%
Technology
13.0%
Consumer Staples
10.3%
Utilities
3.8%
Basic Materials
3.0%
Telecommunications
2.2%
Other
0.0%
Real Estate
0.0%
Energy
0.0%
Total
100.0%
Please consult issuers’ website for up-to-date figures
ZWH – BMO US High Dividend Covered Call ETF
ZWH has been designed to provide exposure to a dividend focused portfolio, while earning call option premiums. The underlying portfolio is yield-weighted and broadly diversified across sectors. The Fund utilizes a rules-based methodology that considers the following criteria:
dividend growth rate,
yield,
payout ratio,
liquidity.
What’s unique about this ETF is that it uses covered calls to protect against downside risk. This being said, the covered call strategy provides limited downside protection. Also, when you write a covered call, you give up some of the stock’s potential gains. These ETFs will tend to have a higher yield and a lower performance.
ZWH Dividend ETF Holding
Company Name
Allocation
Apple Inc
4.2%
Microsoft Corp
4.2%
Coca-Cola Co
4.1%
AbbVie Inc
4.1%
The Home Depot Inc
4.1%
Procter & Gamble Co
4.1%
Pfizer Inc
4.0%
Please consult issuers’ website for up to date data
Geographic allocation
Country
Fund
USA
100.0%
Please consult issuers’ website for up-to-date figures
Sector allocation
Sector
Fund
Information Technology
22.61%
Industrials
8.39%
Consumer Discretionary
10.06%
Health Care
12.40%
Financials
15.50%
Materials
4.36%
Communication
9.58%
Consumer Staples
7.35%
Energy
3.86%
Utilities
3.84%
Real estate
2.05%
Please consult issuers’ website for up-to-date figures
Disclaimer
The data on this website is for your information only. It does not constitute investment advice, or advice on tax or legal matters. Any information provided on this website does not constitute investment advice or investment recommendation nor does it constitute an offer to buy or sell or a solicitation of an offer to buy or sell shares or units in any of the investment funds or other financial instruments described on this website. Should you have any doubts about the meaning of the information provided herein, please contact your financial advisor or any other independent professional advisor.
What is a bond ETF?
In the world of Canadian income investing, a bond ETF takes center stage. This exchange-traded fund zeroes in on building a diverse portfolio of bonds. Picture bonds as IOUs—investors lending to governments or corporations. When you invest in a bond ETF, it’s like snagging shares of a fund that holds a mix of different bonds. In this post, we will cover all questions concerning Bond ETFs and present the Best Bond ETFs in Canada.
Why do income-focused investors love bond ETFs? Well, it’s all about the dual magic of income and diversification. These ETFs offer a ticket to a wide array of bonds, spreading the risk net across various issuers and maturity timelines. You can find bond ETFs tailoring their focus to different bond indices, whether it’s government bonds, corporate bonds, municipal bonds, or bonds with specific maturity ranges. Perfect for the savvy Canadian income investor looking to navigate the bond market without diving into individual bonds.
Short term or Long term maturity Bond ETFs, which one to choose?
Characteristic
Short Maturity Bond ETFs
Long Maturity Bond ETFs
Duration of Bonds
Typically 1 to 5 years
Often exceeds 10 years
Interest Rate Sensitivity
Less sensitive to rate changes
More sensitive to rate changes
Risk Profile
Lower risk, more stable
Higher risk, greater volatility
Income Yield
Lower yields
Higher yields
Investor Profile
Capital preservation, lower risk
Income-seeking, higher risk tolerance
Suitability in Rising Rates
Preferred due to lower sensitivity
May result in higher losses due to sensitivity
Investors choose between short and long maturity bond ETFs based on their risk preferences, income needs, and views on interest rate movements. Short-term bonds offer stability and lower risk, while long-term bonds may provide higher yields but come with increased interest rate sensitivity.
Bonds, essentially debt securities, are subject to market fluctuations, particularly in the face of changing interest rates. When interest rates rise, the prices of existing bonds tend to decrease. This is because newly issued bonds offer higher yields, making existing lower-yielding bonds less attractive. This price volatility can be unsettling for some investors.
However, the attractiveness of bonds lies in their regular interest payments, often referred to as coupon payments, and the promise of the return of the principal amount at maturity. These characteristics provide a level of stability and predictability, offering investors a stream of income and a known redemption value at the end of the bond’s term.
Now, enter bond exchange-traded funds (ETFs). These are investment funds that hold a portfolio of bonds, providing investors with a convenient way to gain exposure to the bond market. Bond ETFs offer several advantages, including low costs and diversification. The low costs result from the fund structure and the fact that ETFs typically track an index rather than relying on active management.
Diversification is another key benefit of bond ETFs. By holding a variety of bonds in their portfolio, these funds spread risk, reducing the impact of the poor performance of any single bond. This diversification can enhance the stability of returns compared to holding individual bonds.
However, it’s crucial to note that bond ETFs lack a maturity feature. Unlike holding an individual bond until maturity and receiving the principal amount back, ETFs do not have a fixed maturity date. This characteristic means that investors won’t necessarily receive the face value of the bonds in the ETF when they sell their shares.
Bond ETFs are particularly well-suited for long-term investors who are looking for a balance between regular income, potential capital appreciation, and a degree of risk mitigation through diversification. By providing exposure to a broad range of bonds, these ETFs can navigate various interest rate environments, potentially outperforming the returns of keeping funds in idle cash over the long term.
In essence, while individual bonds come with the promise of a fixed return of capital, bond ETFs offer a dynamic and diversified approach to bond investing, making them an attractive option for investors with a longer time horizon.
ZAG ETF Review – BMO Aggregate Bond Index
BMO Aggregate Bond Index ETF (ZAG) is a prominent player in the Canadian investment landscape, managing a substantial $6,279 million in assets. Renowned for its expansive size and liquidity, ZAG strategically allocates its holdings across Canadian federal and provincial government bonds, as well as investment-grade corporate bonds, providing investors with a broad market exposure.
With a targeted weighted average duration of approximately 7.4 years, ZAG exhibits a balanced strategy that considers potential returns while managing interest rate risk. The fund’s notable characteristics include a high dividend yield of 3.56% and an impressively low Management Expense Ratio (MER) of 0.09%, making it an attractive option for investors seeking both income generation and cost efficiency.
Underlining its commitment to quality, ZAG maintains an exceptional credit rating, with 89% of its assets invested in bonds rated A or better. Government entities dominate the fund’s portfolio, with the federal government representing 37% of assets and provincial governments at 34%. This strategic allocation contributes to the fund’s stability and reliability.
XBB ETF Review – iShares Core Canadian Universe Bond Index ETF
iShares Core Canadian Universe Bond Index ETF (XBB) tracks the FTSE Canada Universe Bond Index, offering a diverse portfolio of high-quality Canadian bonds. With a 7.5-year average duration, XBB has a slightly higher expense ratio than ZAG but maintains cost-effectiveness. Strong in credit quality, it yields 3.01%, ranking mid-tier among Canadian bond ETFs.
XBB shines in credit quality, allocating a significant 39% of assets to AAA-rated bonds.
VAB ETF Review – Vanguard Canadian Aggregate Bond Index ETF
Launched in 2011, the Vanguard Canadian Aggregate Bond Index ETF (VAB) is a standout in the Canadian bond market, amassing nearly $4 billion in assets. This ETF employs a passive strategy, tracking the Bloomberg Global Aggregate Canadian Float Adjusted Bond Index and investing in investment-grade bonds across Canada. What sets VAB apart is its low 0.09% Management Expense Ratio (MER), an impressive 3.55% distribution yield, and a commitment to excellent credit quality. Notably, VAB’s MER is tied for the lowest on this list. The fund’s weighted average duration aligns with its counterparts at 7.4 years, providing a balanced approach.
XSB ETF Review – iShares Core Canadian Short Term Bond Index ETF
iShares Core Canadian Short Term Bond Index ETF (XSB) excels as a Canadian bond ETF, tracking the FTSE Canada Short Term Overall Bond Index with a 3-year average maturity. Its short-term focus shields against losses in rising rates, evident in 2022. With a low 2.48% yield, XSB is a resilient, low-cost, and income-focused choice for long-term investors.
For income-focused investors in Canada, bond ETFs bring several advantages to the table. These pros encompass diversification benefits, enhanced liquidity, ease of trading on the Canadian stock exchanges, and potentially lower costs compared to managing individual bonds. Bond ETFs also provide a streamlined avenue to access various segments of the Canadian bond market, such as government, corporate, and municipal bonds. The transparency in ETF holdings and the ability to trade throughout the day align well with the preferences of income-seeking investors.
Bond ETF Cons for Canadian Income Investors:
While bond ETFs hold appeal, it’s imperative for Canadian income investors to be aware of potential drawbacks. These cons may involve sensitivity to interest rate fluctuations, impacting bond prices. Market volatility can also influence the value of the ETF. Notably, bond ETFs might not suit investors with specific needs tied to individual bond maturity dates. A thorough understanding of these cons is crucial for income investors in Canada to make informed decisions.
Should Canadian Income Investors Consider Bond ETFs?
Determining the suitability of bond ETFs for Canadian income investors hinges on factors like investment objectives, risk tolerance, and investment horizon. Bond ETFs can be an attractive option for those seeking income, diversification, and relative stability in their portfolios. However, considering Canada’s economic landscape, including interest rate expectations and market dynamics, is essential. Evaluating the pros and cons, within the context of individual circumstances, will guide Canadian income investors in deciding whether bond ETFs align with their income-focused investment strategy.
Many Canadians prefer investing in ETFs because of their low management fee and diversification. ETFs now exist for every asset class and sector. The dilemma is to choose the right ones to build your portfolio. The all-in-one ETFs respond directly to this need. By buying one ETF, the investor can have exposure to various types of assets. It does not require rebalancing because the ETF manager takes care of this for you. These features make all-in-one ETFs the best ETF in Canada in 2024.
So, it’s simply a matter of choosing one and holding onto it. The all-in-one ETFs are marketed based on the investors’ tolerance to risk. There are 3 main types: Conservative, Balanced or Growth. The percentage allocation is pretty consistent across issuers except for Horizons all in one which has an oddly different allocation for each profile risk. The balanced portfolio would be ideal for passive investors looking for a steady income of both dividends and interest earned on fixed-income products.
Note: If you not yet familiar with ETF’s, please review our previous post ‘What’s an ETF‘
i-Shares they pioneered the all in one ETF offering in Canada since 2007;
Bank Of MontrealBMO;
Horizons;
Vanguard
When comparing historical performance, please pay attention to the allocation Equities/Bonds because it might be different from one issuer to another for the same profile. Horizons for example has an odd allocation. The Horizons conservative portfolio is 50% Equities which not the norm for such type of portfolios.
How to choose the best All in one ETF portfolio?
You have first to determine your risk profile. Risk profile is established by answering two questions:
The term: are you saving for the long term? Or short term?
What is your risk tolerance? Every ETF can go up and down in value. What percentage variation can you live with.
Based on your answers, the tool will propose the best allocation among stocks, bonds and short-term reserves.
Conservative portfolio
Fixed income will dominate the portfolio at 60% or more (with the exception of Horizons’). Meaning your investments will be mostly in Bonds. Bonds are much safer than stocks but they don’t usually offer much return. This portfolio is perfect for some one whose financial objective is short term or who is risk averse. Your portfolio will still have between 20-40% exposure to stocks which allows for some modest growth with a moderate risk overall.
Balanced profile
A balanced portfolio is an investment that combines stocks and bonds. In general, 60% will be invested in the stock market (. While the remainder (40%) will be invested in fixed income investments. This portfolio seeks to combine both growth potential by holding stocks and the safety associated with holding bonds.
Growth portfolio
A growth fund is a diversified portfolio of stocks that has capital appreciation as its primary goal. This is ideal for investors who have a long term objective such as building a retirement fund. The fund will invest at least 80% in Stocks. Generally for these type of funds, providing a dividend income is a secondary objective.
Horizons offers 3 all-in-one ETFs. The breakdown they offer for each portfolio is diversified and covers several types of assets (US, Canadian, Developed and Emerging Markets Equities).
For the Bond component, Horizons is less diversified. The exposure is only through two funds.
Horizons’ management fees are among the lowest in the market.
Vanguard are the pioneers of all-in-one ETFs. The breakdown they offer for each portfolio is diversified and covers several types of assets (US, Canadian, Developed and Emerging Markets Equities). The fixed income offering covers both the North American and global bond markets.
The management expense ratios are competitive.
For the equity component, Vanguard allocates 40% of the portfolio in the US market in VEQT Vanguard All-Equity. This percentage is lower than that used by Horizons and iShares for their all-in-one 100% Equity ETFs. Exposure is through the Vanguard US Total Market Index ETF. It would have been probably better to use 2 or more index funds to cover the US market. Even in strategic terms, the presence of more US index funds would allow managers more flexibility (Variety in size (Large, Mid and Small) and type of index Nasdaq 100 vs S&P500). Exposure to the Canadian market is achieved with an index fund that covers the entire Canadian market (Vanguard FTSE Canada All Cap Index ETF).
For the bond component, Vanguard uses three funds (Canada, United States and Rest of the World). The most significant exposure is in Canadian bonds.
iShares offers several choices to investors in its line of all-in-one ETFs. The breakdown for each portfolio is diversified and covers several types of assets (US, Canadian, Developed and Emerging Markets Equities). The fixed income supply is restricted to North American markets.
For the Equity component, Vanguard uses a single fund to track the performance of the US market, namely the ISHARES CORE S&P TOTAL U.S. STOCK. It would have been probably better to use 2 or more index funds to cover the US market. Even in strategic terms, the presence of 2 or more index funds will allow managers more flexibility (variety in size (Large/mid/small caps and type of index Nasdaq100 vs S&P500). Exposure to the Canadian market is through ISHARES S&P/TSX CAPPED COMPOSITE.
For the bond component, iShares uses three funds that cover the Canadian and American markets. The most significant exposure is to Canadian bonds.
BMO offers three all-in-one ETFs. The breakdown for each portfolio is diversified and covers several types of assets (US, Canadian, Developed and Emerging Markets Equities). The fixed income offering is diversified and covers both the North American and global bond markets.
For the equities breakdown, exposure to the US market is made with 3 funds (mainly the BMO S&P 500 INDEX ETF, BMO S&P US MID CAP INDEX ETF and BMO S&P US SMALL CAP INDEX ETF).
For the bond component, iShares uses three funds that cover the Canadian, American and global markets.
Please consult issuer’s website for most current breakdown
Vanguard Balanced – VBAL
Name
Weight
Vanguard US Total Market Index ETF
24.90%
Vanguard Canadian Aggregate Bond Index ETF
23.50%
Vanguard FTSE Canada All Cap Index ETF
18.00%
Vanguard FTSE Developed All Cap ex North America Index ETF
12.50%
Vanguard Global ex-US Aggregate Bond Index ETF CAD-hedged
9.10%
Vanguard US Aggregate Bond Index ETF CAD-hedged
7.10%
Vanguard FTSE Emerging Markets All Cap Index ETF
4.90%
Please consult issuer’s website for most current breakdown
Vanguard Growth – VGRO
Name
Weight
Vanguard US Total Market Index
33.10%
Vanguard FTSE Canada All Cap Index
24.20%
Vanguard FTSE Developed All Cap ex North America Index
16.60%
Vanguard Canadian Aggregate Bond Index
11.70%
Vanguard FTSE Emerging Markets All Cap Index
6.40%
Vanguard Global ex-US Aggregate Bond Index CAD-hedged
4.50%
Vanguard US Aggregate Bond Index CAD-hedged
3.50%
Please consult issuer’s website for most current breakdown
Vanguard All-Equity – VEQT
Fund
Vanguard US Total Market Index ETF
41.50%
Vanguard FTSE Canada All Cap Index ETF
30.10%
Vanguard FTSE Developed All Cap ex North America Index ETF
20.50%
Vanguard FTSE Emerging Markets All Cap Index ETF
7.90%
Please consult issuer’s website for most current breakdown
All in one ETFs vs Robo-advisors
In comparison with Robo-Advisors, All-In-one ETFs can be seen as an alternative to robo-advisors, which are automated investment platforms that use algorithms to build and manage investment portfolios for clients. While both All-In-One ETFs and robo-advisors aim to provide investors with low-cost, diversified investment options, there are some key differences between the two.
First, the level of customization available to investors. Robo-advisors typically offer investors a range of pre-built portfolios that are designed to meet different risk profiles and investment objectives. While investors can choose from these pre-built portfolios, they generally have less control over the specific investments held in their portfolio.
In contrast, All In One ETFs provide investors with exposure to a broad-based portfolio of global equity securities. While investors do not have control over the specific holdings in the fund, they benefit from the diversification provided by the fund’s holdings across different countries and industries.
Another key difference between All-In-One ETFs and robo-advisors is the level of fees charged. All-In-One ETFs charge a low management fee of 0.20%, robo-advisors typically charge higher fees, ranging from 0.25% to 0.50% or more. While the fees charged by robo-advisors may include additional services such as financial planning and portfolio rebalancing, they can significantly impact long-term investment returns.
Disclaimer
The data on this website is for your information only. It does not constitute investment advice, or advice on tax or legal matters. Any information provided on this website does not constitute investment advice or investment recommendation nor does it constitute an offer to buy or sell or a solicitation of an offer to buy or sell shares or units in any of the investment funds or other financial instruments described on this website. Should you have any doubts about the meaning of the information provided herein, please contact your financial advisor or any other independent professional advisor.
In this post, we will be sharing BMO Covered call ETF list. We will be comparing 6 of the most popular ETFs in terms of dividends, MER and historical performance. Covered call ETFs are very popular with Canadian investors. Two reasons push investors towards covered call ETFs:
High dividend yield: thanks to the premiums earned when writing call options, the manager under certain conditions can earn premiums and enhance distributions;
Low volatility. Writing a call option is a conservative strategy aimed at reducing volatility;
Great for passive income: if you’re main objective is to achieve high dividend yields and build passive income, then covered call ETFs are a good option. But, remember the high dividend yield comes at a price which very low growth potential.
The ZWB aims to provide exposure to a portfolio of dividend-paying securities (Canadian Banks), while collecting premiums related to call options. The portfolio is chosen on the basis of the criteria below:
• dividend growth rate, yield and payout ratio and liquidity.
ZWB holdings
Name
Weight
BMO Equal Weight Banks ETF
27.2%
Bank of Montreal
12.9%
Canadian Imperial Bank of Commerce
12.7%
Royal Bank of Canada
12.1%
National Bank of Canada
11.9%
The Toronto-Dominion Bank
11.9%
Bank of Nova Scotia
11.4%
Please visit issuers’ website for up-to-date figures – BMO Covered call ETF list
ZWC –BMO CDN High Div Covered Call
The BMO Canadian High Dividend Covered Call ETF (ZWC) has been designed to provide exposure to a dividend focused portfolio, while earning call option premiums. The underlying portfolio is yield-weighted and broadly diversified across sectors.
The fund selection methodology uses 4 factors: – Liquidity; – Dividend growth rate; – Yield and payout ratio.
ZWC is an excellent option for conservative investors looking for a steady income and low volatility. It’s tax-efficient because the dividends are all coming from Canadian companies. The financial sector and Energy represents 53% of the total overall sector allocation.
ZWC ETF Holdings
Company Name
Allocation
Canadian National Railway Co
5.4%
BCE Inc
5.2%
TELUS Corp
5.1%
Enbridge Inc
5.0%
Royal Bank of Canada
5.0%
Canadian Imperial Bank of Commerce
4.9%
Bank of Nova Scotia
4.7%
The Toronto-Dominion Bank
4.6%
Manulife Financial Corp
4.3%
Please visit issuers’ website for up-to-date figures
ZWP – BMO Europe High Dividend Covered Call ETF
The BMO Europe High Dividend Covered Call ETF (ZWP) has been designed to provide exposure to a dividend focused portfolio. These dividend paying companies are selected based on:
dividend growth rate,
yield,
payout ratio and liquidity.
ZWP Dividend ETF Holdings
Company Name
Allocation
Roche Holding AG
4.0%
Nestle SA
4.0%
Novartis AG
4.0%
GlaxoSmithKline PLC
4.0%
Sanofi SA
3.8%
TotalEnergies SE
3.7%
Unilever PLC
3.7%
Enel SpA
3.7%
Please visit issuers’ website for up-to-date figures
Geographic allocation
Countries
Weight
Switzerland
23.66%
Germany
24.24%
United Kingdom
18.76%
France
16.72%
Other (multiple countries)
16.62%
Please visit issuers’ website for up-to-date figures
Sector allocation
Type
Fund
Information Technology
6.22
Industrials
12.18
Consumer Discretionary
11.56
Consumer Staples
11.78
Health Care
16.56
Financials
14.79
Materials
9.48
Communication
8.10
Energy
3.89
Utilities
3.66
Please visit issuers’ website for up-to-date figures
ZWH – BMO US High Dividend Covered Call ETF
ZWH has been designed to provide exposure to a dividend focused portfolio, while earning call option premiums. The underlying portfolio is yield-weighted and broadly diversified across sectors. The Fund utilizes a rules-based methodology that considers the following criteria:
dividend growth rate,
yield,
payout ratio,
liquidity.
ZWH Dividend ETF Holding
Company Name
Allocation
Apple Inc
4.2%
Microsoft Corp
4.2%
Coca-Cola Co
4.1%
AbbVie Inc
4.1%
The Home Depot Inc
4.1%
Procter & Gamble Co
4.1%
Pfizer Inc
4.0%
Please visit issuers’ website for up-to-date figures
Geographic allocation
Country
Fund
USA
100.0%
Please visit issuers’ website for up-to-date figures
Sector allocation
Sector
Fund
Information Technology
22.61%
Industrials
8.39%
Consumer Discretionary
10.06%
Health Care
12.40%
Financials
15.50%
Materials
4.36%
Communication
9.58%
Consumer Staples
7.35%
Energy
3.86%
Utilities
3.84%
Real estate
2.05%
Please consult issuers’ website for up-to-date figures
ZWK -BMO Covered Call US Banks
The BMO Covered Call U.S. Banks ETF (ZWK) is professionally managed by BMO Global Asset Management. The fund has been designed to provide exposure to a portfolio of U.S. banks while earning call option premiums.
The fund invests in 38 US Banks. It’s ideal for investors looking for dividend income. The dividend yield on November 24th was 6.19%!
The fact that the fund uses call options accomplishes two things:
increases the dividend yield;
reduces volatility but also growth potential. So, it’s something to keep in mind.
ZWU is another covered call ETF from BMO. It provides exposure to an equal weight portfolio of utilities, telecoms and pipeline companies. The fund manager will enhance yield by issuing options and collectin
ZWU Holdings
Weight (%)
Name
5.92%
BMO EQUAL WEIGHT UTILITIES INDEX
5.44%
PEMBINA PIPELINE
5.29%
TC ENERGY
5.16%
FORTIS INC/CANADA
5.02%
ENBRIDGE
4.87%
BCE
4.70%
TELUS
4.59%
PPL
4.52%
EXELON
4.46%
ROGERS COMMUNICATIONS
Practice example: covered call strategy
An investor has 100 shares of Company A in his portfolio. Company A’s share is worth $ 30. He anticipates a stagnation or a slight drop in its price and he is ready to sell them at the price of 26 $. He decides to sell a call with the following characteristics:
• Exercise price: $ 26 and Maturity: April
• Option price: $ 4 and Quantity: 100
He collects the following amount: 4 x 100 or 400 $ (premium)
Two cases should be distinguished:
CASE 1: Company A’s share price rose above the breakeven point of $ 30.
The buyer of the option will choose to exercise his right to buy and, as the seller of the call, the seller will have to sell the shares at the strike price.
During this operation:
the seller sold his shares for $ 26, which constitutes an acceptable loss for him.
the seller collected the amount of the premium of $ 4, which helped boost the performance of his investments (yield).
CASE 2: Company A’s share price has fallen below the breakeven point of $ 30.
The buyer of the option will choose not to exercise his right to buy and the seller will not have to sell his shares.
Thanks to this operation, the seller keeps his shares in the portfolio and he collected the amount of the premium which generated an additional return.
In the realm of Exchange-Traded Funds (ETFs), informed decision-making is paramount. In this analysis, we delve into a detailed examination of two prominent players within the Canadian ETF landscape: iShares S&P/TSX 60 Index ETF (TSX:XIC) and Vanguard FTSE Canada All Cap Index ETF (TSX:VCN). These ETFs, each holding significance, beckon investors with the appeal of diversification and potential returns.
Through a thorough evaluation of their strategies, portfolio compositions, and historical performances, we aim to uncover the nuanced differences that characterize these ETFs. Whether you’re an experienced investor refining your portfolio or a newcomer venturing into the world of ETFs, this analysis will provide you comprehensive insights.
What’s an Index ETF
There are several types of Exchange traded funds. Index ETFs are the king of the hill. In fact, the first ever ETF introduced to a North American Exchange was an index ETF. Index ETFs offer exposure to a large number of securities. Their main goal is to acquire, on your behalf, all the securities that constitute a specific index in order to achieve the same return of the tracked index minus the fees.
Indeed, they certainly do. Given that Index ETFs hold all the shares of companies within the index. Any dividends paid by these companies are subsequently distributed.
Are you looking to own a slice of the entire Canadian stock market? XIC might be the answer. This fund aims for long-term capital growth by mirroring the performance of the S&P®/TSX® Capped Composite Index after deducting expenses.
XIC brings another compelling reason to the table: low cost. It allows you to participate in the broader market without breaking the bank in terms of fees.
Furthermore, XIC isn’t just another fleeting investment option. It’s designed to serve as a durable, long-term core holding in your portfolio. So, if you’re seeking comprehensive market exposure, minimal costs, and a foundation for the years ahead, XIC could be the ideal contender.
Vanguard FTSE Canada All Cap Index ETF (VCN) – Investment objective
The Vanguard FTSE Canada All Cap Index ETF is on a mission to capture the essence of the Canadian equity landscape. Its goal? To mirror, as closely as possible and before accounting for fees and expenses, the performance of a comprehensive Canadian equity index. This index doesn’t discriminate – it encompasses large, mid, and small-cap publicly traded securities, painting a holistic picture of the Canadian market’s investment returns.
Diving into the specifics, this Vanguard ETF is currently dedicated to tracking the FTSE Canada All Cap Domestic Index, or its future iterations. How does it achieve this? By primarily investing in Canadian stocks spanning a broad spectrum of market capitalizations, ranging from the giants to the emerging contenders.
So, if you’re in search of an ETF that encapsulates the entirety of the Canadian equity landscape and boasts a diversified portfolio of companies, the Vanguard FTSE Canada All Cap Index ETF might be just the investment avenue you’ve been seeking.
Both funds share a similar investment objective, leading to minimal disparities in sector allocation, holdings, and historical performance between XIC and VCN. Given the substantial commonalities, the decision largely hinges on factors such as liquidity and fees. In this context, prioritizing liquidity and lower fees would likely position XIC as the preferred option. However, for those with a strong affinity for Vanguard, VCN remains an excellent selection. It’s important to recognize that either choice effectively fulfills the desired market exposure and can seamlessly integrate within your investment portfolio.
ZWB vs HMAX
Investment Objective
HMAX – Hamilton Canadian Financials Yield Maximizer
HMAX ETF is a new fund offered by Hamilton ETF. The fund invests in the Canadian banking sector. This fund aims to provide an attractive dividend yield (target 13%) using a covered call strategy. The strategy consists of writing call options on (50% of the portfolio) to collect premiums and maximize monthly distributions.
The ZWB ETF aims to provide exposure to a portfolio of dividend-paying securities (Canadian Banks), while collecting premiums related to call options. The portfolio is chosen on the basis of the criteria below:
• dividend growth rate, yield, and payout ratio and liquidity.
Covered call strategy – HMAX vs ZWB; *13% is the target yield
ZWB, representing the BMO Covered Call Canadian Banks ETF, allocates 50% of its portfolio to an out-of-the-money (OTM) option strategy. With this approach, ZWB sells OTM call options on 50% of the stocks in its portfolio. The OTM strategy places a cap on the return of the written positions at the option strike price until the option expires. This conservative strategy is designed to provide investors with a dividend yield ranging from 6% to 7%.
On the other hand, we have HMAX, the Hamilton Canadian Financials Yield Maximizer ETF, which also utilizes a covered call strategy but with a different twist. HMAX allocates 50% of its portfolio to an at-the-money (ATM) option strategy. In this case, HMAX sells ATM call options on 50% of the stocks in its portfolio. The ATM strategy entails selling call options with a strike price close to or equal to the current stock price. This aggressive approach aims to target a more substantial dividend yield of 13%.
The table clearly outlines the distinct attributes of each ETF, including their respective portfolio allocations, option strategies, and dividend yields. While ZWB follows a more conservative OTM strategy, offering a moderate dividend yield of 6% to 7%, HMAX embraces a higher-risk ATM strategy, potentially providing investors with an attractive dividend yield of 13%.
What’s the difference between ATM, ITM and OTM options
Table
Strategy
Premium or option price
Risk
Reward
ITM (In the money call option) Stock price > Strike price
High
High
High
OTM (Out of the money call option) Stock price < Strike price
The table presents a comparison of different call option strategies based on their premium or option price, as well as the associated risk and reward profiles. These strategies include ITM (In the money call option), OTM (Out of the money call option), and ATM (At The Money call option).
ITM (In the money call option):
When the stock price is greater than the strike price, the call option is considered “in the money.” This strategy offers a higher premium or option price, which means it can be relatively more expensive to purchase. However, the increased premium comes with potentially high risk and high reward. Investors opting for ITM call options are exposed to higher risk due to the substantial investment required upfront. On the other hand, the potential for significant rewards is also high if the stock price continues to rise, making it an attractive choice for those seeking substantial gains.
OTM (Out of the money call option):
When the stock price is lower than the strike price, the call option is considered “out of the money.” The OTM strategy offers call options at a cheaper premium or option price, making it more affordable for investors. However, the risk associated with OTM call options is relatively low. This is because the chances of the option expiring worthless are higher, as the stock price needs to surpass the strike price to become profitable. Consequently, the potential reward is also lower compared to ITM call options.
ATM (At The Money call option):
ATM call options come into play when the stock price is equal to the strike price. This strategy offers a medium-level premium or option price, making it a balanced choice between the high premium of ITM and the low premium of OTM call options. Similarly, the risk and reward profiles are also medium, striking a balance between the potential for gains and the chances of option expiring worthless.
Portfolio allocation – ZWB vs HMAX
ETF
Big Can Banks
Insurance
Asset Management
HMAX
76.4%
14.9%
10%
ZWB
100%
–
–
The table provides a clear breakdown of the asset allocation within two Canadian ETFs: HMAX and ZWB. Both ETFs focus on the financial sector, offering investors exposure to various segments of the industry, including big Canadian banks, insurance companies, and asset management firms.
HMAX (Hamilton Canadian Financials Yield Maximizer ETF):
HMAX allocates its portfolio predominantly to big Canadian banks, accounting for 76.4% of its assets. This heavy concentration in the banking sector reflects the fund’s emphasis on major financial institutions in Canada. Additionally, HMAX allocates 14.9% of its assets to insurance companies, indicating a well-diversified approach within the financial sector. Moreover, HMAX dedicates 10% of its assets to asset management firms, further broadening its exposure to various financial industry segments.
ZWB (BMO Covered Call Canadian Banks ETF):
In contrast to HMAX, ZWB focuses exclusively on big Canadian banks, representing 100% of its asset allocation. This indicates a more concentrated approach within the financial sector, with a sole emphasis on Canadian bank stocks. By exclusively focusing on banks, ZWB aims to provide investors with exposure to this specific segment of the financial industry, offering opportunities for income generation through its covered call strategy.
The semiconductor industry is a critical driver of technological advancements, with applications ranging from consumer electronics to advanced computing systems. For Canadian investors looking to gain exposure to this dynamic sector, the Global X Semiconductor Index ETF (CHPS) is an excellent option. This ETF provides a way to invest in a diversified portfolio of leading semiconductor companies worldwide. Here, we explore the key aspects of CHPS, its performance, and why it might be a suitable addition to your investment portfolio.
Overview of CHPS
Fund Objective: The Global X Semiconductor Index ETF (CHPS) aims to replicate the performance of the Solactive Capped Global Semiconductor Index, net of expenses. The index includes global companies primarily involved in the production and sale of semiconductors and related equipment.
Holdings: CHPS provides exposure to a broad range of semiconductor companies from various countries, offering investors a well-rounded view of the global semiconductor market. Key holdings include industry giants like Broadcom, Intel, and Advanced Micro Devices (AMD).
Expense Ratio: The expense ratio for CHPS is 0.60%, which is competitive given the specialized and global nature of the ETF. This makes it a cost-effective way to gain international exposure to the semiconductor industry.
Why Invest in CHPS?
Global Exposure: CHPS offers exposure to a diverse range of semiconductor companies from around the world. This global perspective allows investors to benefit from growth opportunities in different markets and reduces reliance on any single country’s semiconductor industry.
Growth Potential: The semiconductor industry is at the forefront of technological innovation. Semiconductors are essential components in a wide range of products, from smartphones to electric vehicles and advanced AI systems. As these technologies continue to evolve and expand, the demand for semiconductors is expected to rise, driving growth for companies in this sector.
Diversification: Investing in CHPS provides diversification within the semiconductor sector, reducing the risk associated with investing in individual stocks. By holding a broad range of semiconductor companies, CHPS mitigates the impact of any single company’s performance on the overall investment.
Accessibility: For Canadian investors, CHPS offers a convenient and cost-effective way to gain exposure to the global semiconductor market. Instead of navigating international markets and dealing with foreign exchange issues, investors can buy shares of CHPS to achieve diversified global exposure.
Key Holdings
The Global X Semiconductor Index ETF (CHPS) includes several key players in the semiconductor industry:
Broadcom (AVGO): A leader in both wired and wireless communication technologies.
Intel Corporation (INTC): A major player in the CPU market, essential for personal computers and data centers.
Advanced Micro Devices (AMD): Known for its high-performance processors and graphics cards.
These holdings represent some of the most innovative and influential companies in the global semiconductor sector.
Conclusion
The Global X Semiconductor Index ETF (CHPS) offers investors a robust and diversified way to invest in the semiconductor industry. With its strong performance, competitive expense ratio, and exposure to leading semiconductor companies worldwide, CHPS is an excellent option for those looking to capitalize on the growth of this critical sector. As always, consider your investment goals and risk tolerance before investing.
X, SOXQ, and FTXL can offer a gateway to this exciting sector. Each ETF has its strengths, catering to different investor preferences and objectives. As with any investment, thorough research and consideration of your investment strategy are paramount.
What’s an all-in-one ETF
XGRO (iShares Core Growth ETF Portfolio) is all-in-one ETF available on the TSX. All-in-one ETFs are a portfolio professionally managed available for investors in a form of an ETF. It has three main advantages:
easy access to a portfolio so it’s great for DIY investors who would like a handoff approach to investing;
portfolio is rebalanced automatically to maintain the desired allocation;
Good substitute to Robo-advisors such wealthsimple invest (auto-pilot), Questrade porfolios…etc. All-in-one ETF cost less than managed Robo-advisors in terms of fees.
XGRO Investment objective
The Fund seeks to provide long-term capital growth by investing primarily in one or more exchange-traded funds managed by BlackRock Canada or an affiliate that provide exposure to equity and/or fixed income securities.
In essence, when acquiring XGRO, you are acquiring of portfolio of ETFs. 80% of the portfolio is invested in equity ETFs while the remaining 20% is invested in fixed income ETFs. It’s a growth portfolio ideal for investors with long term objective and medium risk tolerance.
There are two main all-in-one ETFs that have same portfolio breakdown (80% equity and 20% bonds): The Vanguard Growth – VGRO and the BMO Growth – ZGRO.
VGRO and XGRO are neck to neck in terms of performance. VGRO has a slight edge in a 3 years period cumulative performance.
XGRO has a 0.20% management expense ratio. This is the total charge for the fund. Even if XGRO a group of ETFs at once, client will not pay MER for each ETF, the maximum they are charged is the MER of the all-in-one ETF.
Management Fee
0.18%
Management Expense Ratio (MER)
0.20%
Morningstar rating
★★★★
Fees and AUM comparison
XGRO and ZGRO offer the lowest fees at 0.20%. Vanguard’s VGRO is a bit higher at 0.24%. Another factor that could impact your choice is liquidity. Generally speaking, the larger fund the better liquidity it offers to investors. Liquidity determines the difference between bid and ask price when selling or buying. So, it’s an important factor to consider. The largest fund among our three contenders is Vanguards ETF VGRO with over 3 Billion dollars in assets.
XGRO, which stands for the iShares Core Growth ETF, comprises a diverse set of underlying iShares ETFs, each designed to represent distinct asset classes. These allocations provide a comprehensive investment strategy within a single ETF package.
iShares Core S&P Total U.S. Stock (ITOT)
The largest component of XGRO’s portfolio is the iShares Core S&P Total U.S. Stock (ITOT), accounting for 38.17% of its holdings. ITOT grants investors exposure to the entire spectrum of the U.S. stock market, encompassing large, mid, small, and micro-cap stocks. This component offers a broad representation of the American equities market.
iShares S&P/TSX Capped Composite (XIC)
Following closely is the iShares S&P/TSX Capped Composite (XIC), constituting 20.63% of XGRO’s assets. XIC concentrates on Canadian equities, mirroring the S&P/TSX Capped Composite Index, making it a core component for exposure to the Canadian stock market.
iShares MSCI EAFE IMI Index (XEF)
For international diversification, XGRO includes the iShares MSCI EAFE IMI Index (XEF), making up 19.14% of the portfolio. XEF is focused on developed market equities outside of North America, encompassing regions such as Europe, Asia, and Australia.
Other
The fixed-income component of XGRO’s portfolio is primarily represented by the iShares Core CAD Universal Bond Index (XBB), with an allocation of 11.51%. XBB is a Canadian bond ETF that primarily invests in investment-grade fixed-income securities. This inclusion adds stability to the overall portfolio. Incorporating emerging market exposure, XGRO includes the iShares Core MSCI Emerging Markets (IEMG) at 3.89%. IEMG offers access to emerging market equities, including stocks from diverse regions such as Asia, Latin America, and Africa. To complement its bond exposure, XGRO features the iShares Core CAD Short-Term Corporate Bond Index (XSH), accounting for 2.90% of the portfolio. XSH is a Canadian short-term corporate bond ETF, offering a shorter duration compared to XBB.
List of stocks held by XGRO through the basket ETFs it invests in:
XGRO is generally considered to be less risky than XEQT due to differences in their asset allocations and investment strategies. Here are several key reasons why XGRO is often perceived as a lower-risk option:
Diversification:
XGRO typically follows a more diversified investment approach. While both XEQT and XGRO are all-in-one ETFs, XGRO typically allocates a portion of its holdings to fixed-income securities (bonds) in addition to stocks. This diversification can help cushion the portfolio against extreme market volatility. Bonds are generally less volatile than stocks and tend to provide a stabilizing effect on the overall portfolio.
Lower Equity Exposure:
As you mentioned, XGRO holds 80% of its assets in stocks, whereas XEQT holds 100% in stocks. Stocks are generally riskier and more volatile compared to bonds. Therefore, XGRO’s lower equity exposure reduces the overall risk level of the portfolio.
Risk Mitigation:
XGRO’s asset allocation is designed to provide some level of risk mitigation. During market downturns, the bonds in XGRO can act as a hedge against stock market losses. This can help preserve capital and reduce the impact of market volatility on the portfolio.
Long-Term Stability:
XGRO is often recommended for investors with a lower risk tolerance or those who are closer to their financial goals, such as retirement. Its asset mix is geared towards providing more stability and preserving capital over the long term, making it a suitable choice for conservative investors.
Rebalancing:
Both XEQT and XGRO are managed to maintain their target asset allocations. However, because XGRO has a fixed allocation to bonds, it may experience less frequent and severe fluctuations in its asset mix. This rebalancing can help control risk over time.
see below the holdings for XEQT:
Name
Weight %
ITOT – ISHARES CORE S&P TOTAL U.S. STOCK
46.87
XIC – ISHARES S&P/TSX CAPPED COMPOSITE
24.77
XEF – ISHARES MSCI EAFE IMI INDEX
23.29
IEMG – ISHARES CORE MSCI EMERGING MARKETS
4.83
CAD CASH
0.14
USD CASH
0.10
How can I buy XGRO
Clients have simply to use their banks brokerage websites or independent brokers platform (such as Questrade or Wealthsimple) to acquire the ETF. No need to contact a financial advisor, it’s a product for DIY investors.
XGRO can be held in registered accounts such as RRSP, TFSA or RESP.
Additional source of info
When it comes to investing in international markets, Canadian investors are often faced with the issue of currency risk. Currency risk refers to the fluctuation of exchange rates between currencies, which can significantly impact investment returns. In this article, we’ll examine the pros and cons Hedged vs Unhedged ETF in Canada.
History of the evolution of the Canadian Dollar against the US Dollar
Hedged funds
Currency-hedged funds use hedging strategies to mitigate the impact of currency risk on returns. The idea is to protect investors against adverse exchange rate fluctuations by using futures, options or other financial derivative instruments to offset potential losses.
By hedging currency risk, Canadian investors can avoid potential losses caused by exchange rate volatility. This preserves the value of their investments and avoids adverse effects on returns.
Return predictability
Hedged funds offer some stability in terms of returns as exchange rate fluctuations are smoothed out. This can be especially important for investors with short-term goals or looking for some security in their investments.
Ease of management
Hedged funds are generally professionally managed, so investors do not have to monitor hedging strategies actively. This can be advantageous for investors who prefer a more passive approach.
Additional costs
Funds hedged against currency risk often have additional costs related to the hedging strategies in place. These costs can reduce net returns to investors (higher Management Expense Ratio).
Potential loss of earnings
By protecting against adverse exchange rate movements, hedged funds can also limit potential gains when the foreign currency strengthens against the Canadian dollar. Investors may miss opportunities to benefit from foreign currency appreciation.
Funds not covered
These funds do not use currency hedging strategies. Investors who opt for unhedged funds accept currency risk and are exposed to fluctuations in exchange rates.
Unhedged funds do not seek to mitigate currency risk. So they can potentially benefit from favorable fluctuations in exchange rates. Investors may realize additional gains if the foreign currency in which the investment is denominated strengthens against the Canadian dollar.
Increased risk
Fluctuations in exchange rates can significantly impact the returns of investments denominated in a foreign currency. If the foreign currency depreciates against the Canadian dollar, investors may suffer losses in value and lower returns.
Increased volatility
Unhedged funds are often more volatile due to their direct exposure to currency risk. Fluctuations in exchange rates may cause significant movements in the value of foreign assets held in the fund. Therefore, investors should be prepared to accept some volatility in their investments and have an appropriate risk tolerance.
Conclusion
This article examined the pros and cons of currency-hedged and unhedged funds for Canadian investors. Hedged funds offer minimization of currency risk, predictability of returns and ease of management through the use of professional hedging strategies. However, these funds incur additional costs and may limit potential gains in the event of foreign currency appreciation.
On the other hand, unhedged funds offer higher opportunities for gains in the event of foreign currency appreciation. Still, they expose investors to a greater risk of downside losses and increased volatility due to direct exposure. Exchange risk.
