xic vs xiu

XIC vs XIU: Best Canadian Index ETFs

In this post, we will be comparing two popular Canadian Index ETFs: XIU Ishares S&P TSX 60 Index vs XIC Ishares Core S&P TSX Capped Composite index. Fisrt, we will discuss the difference at the index level. Then, a full comparison of key metrics: Volatility, Management Expense Ratio, Historical performance and Dividend yield.

What’s an ETF?

refer to our previous post: Everything you need to know about ETFs

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 and sometimes to the whole market at a very low cost. 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.

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Does an index ETF pay dividend?

Yes they do. Since Index ETFs holds all shares of companies part of the index, if these companies pay dividends then a dividend will be distributed. See below the performance table, the dividend yield is included.

Index definition

S&P/TSX Capped Composite Index (Index)

includes over 200 top-ranked Canadian stocks, representing approximately 95% of the Canadian equity market. Constituent securities must pass minimum float-adjusted and liquidity screens to qualify and maintain membership in the Index. Index weights are capped at 10% of the Index’s float-adjusted market capitalization and are reviewed quarterly.

S&P/TSX 60

An index constituted of the 60 largest companies in the Toronto Stock Exchange

ETFs selected for the analysis (XIC vs XIU)

NameAUM 
in M
MER
Ishares S&P TSX
60 Index – XIU
10,7300.18
Ishares Core S&P
TSX Capped Comp – XIC
8,6100.06

XIU vs XIC (MER, Div yield, Performance)

Performance comparison – XIU vs XIC updated daily

Comparison volatility – XIU vs XIC

NameBeta
5 yrs
Morningstar
rating
XIU0.925 Stars
XIC0.984 Stars
XIU vs XIC

XIU has the lowest volatility. This is probably due the fact that its’ holdings are exclusively large Canadian companies. Large companies tend to be more stable than the overall market. The other ETFs have a beta of 1 which is not surprising since they track a more global market index.

How to pick the Best ETF that fits your need?

Diversification

The purpose of diversification is to minimize risk. XIC is the most diversified index ETFs with over 200 holdings. Next comes XIU with 60 holdings.

Taxation

Both XIC and XIU distribute taxable Canadian dividends. There is no difference in terms of tax impact.

If you are looking for an ETF that tracks the S&P60 index with no dividend distribution, then take a look at HXT. The latter is structured so that all income distributions are deferred. No dividend distribution means no tax.

Liquidity

There are two aspects to consider:

liquidity of holdings: XIU comes on top as its holdings are made up of the 60 largest Canadian companies listed on the Toronto Stock Exchange;
the liquidity of the ETF (average difference between the price ‘Bid’ and ‘Ask’ or what is commonly called the ‘spread’): Both XIU and XIC offer great liquidity.

Management fees

XIU is the most expensive with 0.18% management expense ratio.

How can I buy an index ETF?

It’s the same process as buying a stock. You need simply to access the online website of your broker and place the order using the ticker/symbol of the ETF

Who are the main issues of ETFs in Canada?

  • BMO Asset Management
  • Claymore Investments
  • BlackRock Inc (iShares)
  • Horizons ETFs Management
  • Vanguard Investments Canada Inc.

Why should I consider buying an index ETF?

The quick answer is diversification. Assume you have 5,000 $, you can’t buy a lot of stocks with that amount (may be 4 or 5). Also, you will incur fees to trade them. Your portfolio will be certainly too dependent on a performance of 1, 2 …or even 5 sectors that your stocks are in. If you buy with that 5,000 $ an ETF that tracks let’s say the TSX/S&P 60, it basically means you just bought share in 60 of the largest companies that are trading in the stock exchange in Canada. It’s clearly a powerful tool to diversify your portfolio with a small amount of money.

Ishares S&P TSX 60 Index ETF (XIU.TO)

iShares S&P/TSX 60 Index ETF as its’ name implies, it’s a fund that is constituted with the 60 largest companies that are members of the TSX. It’s the most popular ETF in Canada with 10 Billion dollars in Assets. This ETF is representative of the Canadian economy which is dominated by the Energy and Financial sector as you can see below n the sector allocation table.

The number of holdings for the ETF is 60. It has the highest MER in the list but this did not really impact its long term performance in comparison with the other funds.

XIU Holdings

NameWeight %
ROYAL BANK OF CANADA7.94
SHOPIFY SUBORDINATE VOTING INC CLA7.37
TORONTO DOMINION7.07
BANK OF NOVA SCOTIA4.35
ENBRIDGE INC4.28
CANADIAN NATIONAL RAILWAY4.22
BROOKFIELD ASSET MANAGEMENT INC CL3.76
BANK OF MONTREAL3.68
CANADIAN IMPERIAL BANK OF COMMERCE2.87
CANADIAN PACIFIC RAILWAY LTD2.86

Please consult issuers’ website for up-to-date data

XIC Sector allocation

SectorWeight %
Financials35.90
Energy14.30
Materials10.70
Information Technology10.69
Industrials9.89
Communication5.84
Consumer Discretionary4.16
Consumer Staples3.61
Utilities3.16
Health Care0.84

Please consult issuers’ website for up-to-date data

Ishares Core S&P TSX Capped Comp ETF (XIC.TO)

Seeks long-term capital growth by replicating the performance of the S&P®/TSX® Capped Composite Index, net of expenses. While XIU has 60 holdings in total, XIC is much larger with 219 Canadian companies. In terms of performance both XIU and XIC are quite close. XIC has a lower MER 0.06% in comparison to XIU at 0.18%. The Ishares Core S&P TSX Capped Composite ETF is dominated by Energy and Financial companies which is the same case for XIU.

XIC Ishares Core S&P TSX Capped Comp ETF Holdings

NameWeight %
ROYAL BANK OF CANADA6,24
SHOPIFY SUBORDINATE VOTING INC CLA5,79
TORONTO DOMINION5,55
BANK OF NOVA SCOTIA3,42
ENBRIDGE INC3,36
CANADIAN NATIONAL RAILWAY3,31
BROOKFIELD ASSET MANAGEMENT INC CL2,95
BANK OF MONTREAL2,89
CANADIAN IMPERIAL BANK OF COMMERCE2,26
CANADIAN PACIFIC RAILWAY LTD2,24

Please consult issuers’ website for up-to-date data

XIC Ishares Core S&P TSX Capped Comp ETF Sector allocation

SecteurPoids %
Finance31,61
Énergie13,07
Matières12,58
Valeurs industrielles11,44
Technologie de l’information9,55
COMMUNICATION4,93
Services publics4,54
Consommation discrétionnaire3,92
Biens de consommation de base3,60
Immobilier3,15

Please consult issuers’ website for up-to-date data