When exploring Canadian ETF options, two popular choices are the iShares S&P/TSX 60 Index ETF (XIU) and the Vanguard FTSE Canada Index ETF (VCE). Both offer exposure to Canadian equities but have differences worth noting. Let’s dive into a comparison based on fees, size, and holdings – XIU vs VCE.
Executive summary XIU vs VCE
| Comparison Aspect | XIU ETF Details | VCE ETF Details |
|---|---|---|
| Performance | ||
| YTD Return | 0.50% | 0.61% |
| 3-Year Avg Return | 10.54% | 11.46% |
| 5-Year Avg Return | 9.77% | 10.33% |
| Fees (MER) | 0.20% ($200 fee on a $100,000 investment) | 0.06% ($60 fee on a $100,000 investment) |
| Size (AUM) | Over $10 billion (High liquidity) | $1.23 billion (Sufficient liquidity, but less than XIU) |
| Top Holdings | Royal Bank of Canada, Toronto Dominion, Shopify, Enbridge, etc. | Royal Bank of Canada, Toronto-Dominion Bank, Shopify, Enbridge, etc. |
| Sector Allocation | Financials: 34.36%, Energy: 17.17%, Technology: 10.29% | Financials: 40.51%, Energy: 16.94%, Technology: 9.36% |
| Number of Holdings | 60 stocks | 51 stocks |
| Index Tracked | S&P/TSX 60 Index | FTSE Canada Index |
Performance comparison
Fees: The Cost of Investing
The management expense ratio (MER) is a critical factor in choosing an ETF. It’s the annual fee deducted from the ETF’s net asset value (NAV), affecting your returns. XIU’s MER is 0.20%, meaning a $100,000 investment incurs a $200 annual fee. VCE, on the other hand, boasts a lower MER of 0.06%, resulting in just a $60 fee on the same investment. For cost-conscious investors, VCE emerges as the more economical option.
Size: A Measure of Popularity and Liquidity
Size and liquidity are crucial when considering ETF investments, as they can significantly influence your trading experience and investment security. The size of an ETF, often represented by its assets under management (AUM), can give us a good indication of its popularity among investors. A larger AUM generally means more investors are involved, contributing to higher trading volumes. This, in turn, enhances liquidity, making it easier for you to buy or sell shares of the ETF without causing significant price movements.
Taking XIU as an example, its AUM stands at a bit over $10 billion, positioning it as one of the larger ETFs in the Canadian market. This substantial size suggests not only its popularity but also implies high liquidity. High liquidity is beneficial as it means you can expect tighter bid-ask spreads, which reduces the cost of trading in and out of the ETF.
On the other hand, VCE, with an AUM of $1.23 billion, is smaller compared to XIU. Despite its smaller size, VCE still maintains sufficient liquidity for most investors, making it a viable option for those looking to diversify their portfolios. However, it’s worth noting that smaller ETFs like VCE, while still liquid, might not match the liquidity levels of their larger counterparts, which could lead to wider bid-ask spreads and potentially higher trading costs in certain situations.
Holdings: The Backbone of Your Investment
Both XIU and VCE heavily invest in the financial and energy sectors, reflecting the Canadian market’s composition. Their top 10 holdings include major companies like Royal Bank and Enbridge, underlining their similar investment focus. However, the ETFs track different indexes—XIU follows the S&P/TSX 60 Index, while VCE tracks the FTSE Canada Index. This leads to slight variations in their portfolios; XIU holds 60 stocks, and VCE has 51. These differences might be minor but could influence performance over time.
Sector allocation comparison XIU vs VCE
| Sector | VCE Allocation | XIU Allocation |
|---|---|---|
| Financials | 40.51% | 34.36% |
| Energy | 16.94% | 17.17% |
| Technology | 9.36% | 10.29% |
| Materials | 8.56% | 8.49% |
| Industrials | 8.53% | 12.73% |
XIU Holding details
| Ticker | Name | Weight (%) |
|---|---|---|
| RY | ROYAL BANK OF CANADA | 7.51 |
| TD | TORONTO DOMINION | 6.09 |
| SHOP | SHOPIFY SUBORDINATE VOTING INC CLA | 5.29 |
| ENB | ENBRIDGE INC | 4.14 |
| CP | CANADIAN PACIFIC KANSAS CITY LTD | 4.12 |
| CNR | CANADIAN NATIONAL RAILWAY | 3.97 |
| CNQ | CANADIAN NATURAL RESOURCES LTD | 3.81 |
| BMO | BANK OF MONTREAL | 3.73 |
| BN | BROOKFIELD CORP CLASS A | 3.11 |
| BNS | BANK OF NOVA SCOTIA | 3.09 |
VCN Holdings
VCN Holding details
| Holding Name | % of Market Value |
|---|---|
| Royal Bank of Canada | 8.2% |
| Toronto-Dominion Bank | 6.79% |
| Shopify Inc. | 5.19% |
| Enbridge Inc. | 4.4% |
| Canadian Pacific Kansas City Ltd. | 4.25% |
| Canadian National Railway Co. | 4.23% |
| Bank of Montreal | 4.12% |
| Canadian Natural Resources Ltd. | 4.05% |
| Brookfield Corp. | 3.48% |
| Bank of Nova Scotia | 3.39% |
Portfolio Building: How XIU and VCE Fit In
Incorporating XIU or VCE into your investment portfolio can enhance its diversification, especially if you’re looking to have a strong foundation in Canadian equities. Here’s how they might fit into different investment strategies:
For Conservative Investors: XIU, with its focus on the largest and often most stable companies, might be more appealing. Its larger AUM could also be seen as a sign of stability and liquidity.
For Cost-Sensitive Investors: VCE’s lower MER makes it an attractive option for those looking to minimize fees. Over time, the savings on fees can compound, potentially leading to better net returns.
For Broad Market Exposure: Investors seeking a slightly broader exposure to the Canadian market might lean towards VCE, despite its exclusion of some companies, as it still offers a wide view of the market’s top players.
Conclusion
Choosing between XIU and VCE comes down to what you value most in an ETF. If lower fees are your priority, VCE is the clear choice. However, if you prefer an ETF with a larger AUM, XIU might be more appealing. Despite their differences, both ETFs offer a solid foundation for investors looking to tap into the Canadian market. Remember, the best choice depends on your individual financial goals and preferences.
