The iShares Core Equity ETF Portfolio (XEQT) is an all-equity exchange-traded fund (ETF) offered by BlackRock Canada. Designed for investors looking for diversified, long-term growth through a simple, all-in-one ETF, XEQT is part of BlackRock’s suite of asset-allocation ETFs that appeal to hands-off investors who prefer broad exposure across markets.
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Overview of XEQT
XEQT is a globally diversified, all-equity ETF that provides exposure to large, medium, and small-cap stocks across developed and emerging markets. The fund's asset allocation covers major regions, with a significant concentration in North America, as well as holdings in Europe, Asia-Pacific, and emerging markets.
Key details of XEQT include:
- Ticker: XEQT
- Management Fee: 0.18%
- Total Expense Ratio (MER): Approximately 0.20%
- Inception Date: August 7, 2019
- Dividend Yield: Approximately 1.7% (subject to change based on underlying holdings)
XEQT is structured as a "fund of funds," holding other iShares ETFs to achieve a diversified allocation across global equities. This structure enables XEQT to maintain a relatively low management fee and streamline rebalancing for investors who want broad market exposure without active management.
Asset Allocation and Holdings
The allocation within XEQT aims to replicate a diversified global portfolio with approximately:
- 40% in U.S. Equities (largest exposure, tracking the S&P 500 and related indexes)
- 25% in Canadian Equities
- 25% in International Developed Markets (mainly Europe, Japan, and Asia-Pacific)
- 10% in Emerging Markets
The exact allocation may vary slightly based on market changes and rebalancing. This geographic breakdown reflects an intentional overweight in Canadian equities, which appeals to Canadian investors due to currency and market familiarity.
Top Holdings
XEQT’s holdings are indirect, primarily comprised of other iShares ETFs, such as:
- iShares Core S&P 500 ETF (IVV): U.S. exposure, targeting the top 500 companies in the U.S.
- iShares Core MSCI EAFE ETF (IEFA): Developed international markets like Europe, Australia, and Asia. This ETF specifically excludes exposure to Canada and U.S.
- iShares Core MSCI Emerging Markets ETF (IEMG): Exposure to emerging markets that include large, mid, and small cap stocks.
- iShares S&P/TSX Capped Composite Index ETF (XIC): Canadian market exposure.
These ETFs give XEQT investors indirect ownership of thousands of individual stocks, with significant exposure to sectors like technology, financials, healthcare, and consumer goods.
Performance Analysis
XEQT’s performance depends on the equity markets across the regions it covers. While past performance is not necessarily indicative of future results, analyzing historical returns can provide insights into how XEQT performs in various market conditions.
Annual Returns
Since its inception in 2019, XEQT has delivered returns in line with global equity markets, benefiting from the strong growth of the U.S. and Canadian stock markets. However, like any all-equity fund, XEQT is subject to higher volatility and is sensitive to economic cycles, geopolitical risks, and market downturns.
Volatility
As an all-equity ETF, XEQT is expected to be more volatile than balanced funds containing fixed-income components. The fund experienced significant fluctuations during market downturns, such as the COVID-19 market crash, but rebounded as markets recovered. This volatility makes XEQT more suitable for investors with a high-risk tolerance and a long-term investment horizon.
Dividend Yield
XEQT offers a modest dividend yield of around 1.7%, which is distributed quarterly. While not a primary source of income, these dividends can supplement total returns, especially for reinvestment-focused investors.
Cost Efficiency
One of XEQT’s key advantages is its low cost. With a management fee of 0.18% and an MER around 0.20%, XEQT is more affordable than many actively managed funds. This cost efficiency makes it an attractive option for investors seeking low-cost diversification.
The fund’s structure as a "fund of funds" is part of what allows it to keep costs low. By holding other iShares ETFs, BlackRock can leverage economies of scale and streamline operational expenses. This makes XEQT especially competitive compared to other multi-asset and global equity ETFs available in Canada.
Tax Considerations for Canadian Investors
Tax efficiency is another consideration for Canadian investors in XEQT. The ETF's significant allocation to Canadian equities (around 25%) helps to reduce withholding taxes on foreign dividends relative to a U.S.-heavy portfolio. However, because XEQT is held in a Canadian-domiciled fund of funds structure, investors might still face foreign withholding taxes on dividends from international holdings. These taxes are difficult to reclaim in a tax-advantaged account (like a TFSA), so investors may find it more tax-efficient to hold XEQT in non-registered accounts where foreign tax credits can offset part of the withholding tax burden.
For Canadian investors, the fund's high allocation to domestic equities also reduces currency risk compared to a 100% foreign equity ETF, although the U.S. remains the fund's largest exposure.
Advantages of XEQT
- Simple, Diversified Global Equity Exposure: XEQT provides a straightforward approach for investors seeking diversified equity exposure across global markets without having to manage multiple ETFs.
- Low Cost: With a total MER around 0.20%, XEQT is one of the most affordable options for all-equity exposure, allowing investors to retain more of their returns over the long term.
- Passive Rebalancing: XEQT rebalances its holdings automatically, allowing investors to maintain target allocations without having to make manual adjustments.
- Canadian Focus: The fund’s allocation to Canadian equities appeals to Canadian investors, helping to reduce currency risk and provide familiarity with local markets.
- Ideal for Long-Term, Growth-Focused Investors: XEQT’s all-equity composition is well-suited for investors with a long-time horizon who can weather short-term volatility for the potential of higher long-term returns.
Potential Drawbacks of XEQT
- High Volatility: As a 100% equity fund, XEQT is subject to high volatility and is more susceptible to market downturns than balanced funds. This makes it unsuitable for conservative investors or those nearing retirement.
- Limited Fixed-Income Exposure: XEQT lacks any fixed-income component, which may leave investors exposed to significant downside risk during market corrections. For investors who require stability or income, adding a bond ETF or other fixed-income instruments would be necessary.
- Tax Complexity in TFSAs: While efficient in taxable accounts, the presence of international equities can lead to withholding taxes on dividends in TFSAs, reducing after-tax returns.
- Limited Customization: XEQT’s “one-size-fits-all” approach may not suit investors with specific regional or sector preferences.
Who Should Invest in XEQT?
XEQT is best suited for growth-oriented, long-term investors with a high tolerance for risk.
It appeals to investors who:
- Seek a simple, all-in-one equity solution with global exposure.
- Prefer a low-cost, hands-off investment that automatically rebalances.
- Are comfortable with higher volatility and do not require income from bonds.
- Have a long-time horizon and are able to ride out market downturns.
Investors nearing retirement, or those who need a balanced portfolio with fixed-income assets, may find XEQT too aggressive and should consider either mixing XEQT with bond funds or looking at more balanced multi-asset ETFs like Vanguard Balanced ETF Portfolio VBAL or Vanguard Growth ETF Portfolio VGRO.
Final Verdict
The iShares XEQT ETF is a solid choice for Canadian investors seeking a low-cost, diversified, and globally allocated equity portfolio. Its all-equity structure makes it ideal for long-term investors with a growth focus and high-risk tolerance. While XEQT is not a one-stop solution for all investors, it can serve as a foundational building block for those who want simplified equity exposure and a “buy and hold” strategy.
By balancing affordability, global exposure, and passive management, XEQT provides an attractive, well-rounded option for growth-oriented investors.
However, the absence of fixed-income assets means that investors may want to complement XEQT with bonds or other income-producing assets to create a more comprehensive portfolio, depending on their financial goals and risk profile.
