A Comprehensive Review of the iShares Core Equity ETF XEQT

WRITTEN BY Dan Kent | UPDATED ON: April 4, 2024

Disclaimer: The writer of this article or employees of Stocktrades Ltd may have positions in securities listed in this article. Stocktrades Ltd may also be compensated via affiliate links in this post. Stocktrades Ltd will run advertisements on our posts. These advertisements do not represent an endorsement by us.

Investing in the stock market often involves sifting through a plethora of options - a variety of stocks, sectors, and countries.

If you're looking to simplify this, the iShares All-Equity ETF Portfolio, or XEQT, offers a very easy solution for Canadians. 

This exchange-traded fund (ETF) provides a diversified portfolio by investing in a selection of domestic and international equities, making it a potentially attractive option for those looking to invest in the global markets with a single click. 

With its 100% equity allocation strategy, XEQT is tailored for investors willing to embrace equity volatility with a long-term investment horizon.

Let's take a deep dive into the fund so that you can understand how it works and my opinion on it.

iShares Core Equity ETF Portfolio (TSE:XEQT) overview

The iShares All-Equity ETF Portfolio (XEQT) is designed for investors seeking long-term capital growth through an all-equity investment strategy. If you're new to investing, "all equity" means that the portfolio is 100% comprised of stocks.

This is in contrast to something like the iShares Core Balanced ETF (TSE:XBAL), which contains 60% equities and 40% fixed income, or the iShares Core Growth ETF Portfolio (XGRO.TO), which is 80% equity and 20% fixed income.

These types of different asset makeups will ultimately lower your volatility. Generally, the higher your risk tolerance and the more aggressive your financial goals, the more equity exposure you have.

This ETF trades on the Toronto Stock Exchange with the same liquidity as a stock, making it very easy to own.

XEQT fees and expenses

XEQT has a management expense ratio of 0.2%, which is much higher than that of some ultra-low-cost index funds south of the border. 

However, the fee is reasonable considering the global exposure one gets with a single click of a button, and compared to actively managed funds, XEQT offers a cost-effective solution.

These fees contribute to the fund's operational costs, including management and administrative expenses.

XEQT top holdings

XEQT holds over 9,000 individual stocks. But, it does this mostly through exchange-traded funds. 

  • iShares Core S&P Total US Stock Market ETF (ITOT)
  • iShares Core MSCI EAFE IMI ETF (TSE:XEF)
  • iShares Core S&P/TSX Capped Composite ETF (TSE:XIC)
  • iShares Core MSCI Emerging Markets ETF (TSE:XEC)

These holdings will give you broad global exposure with a particular concentration on the United States. This means you'll still own powerhouses like Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), NVIDIA (NVDA), Meta Platforms (META), and more.

You'll also get your typical Canadian favourites like Shopify (TSE:SHOP), Royal Bank (TSE:RY), and Toronto Dominion Bank (TSE:TD), among many others.

Outside of North America, it is exposed to many developed countries in Europe, such as Germany, France, Switzerland, and the Netherlands.

Assets under management

The fund has assets under management of around $2.6B at the time of writing. Although this isn't as big as some of the major funds in Canada and the United States, it's important to understand that the fund only started out in 2019 as all-in-one funds were catching on in popularity.

It has recently witnessed larger inflows, and I have no doubt it will continue to grow.

Distributions

The fund has a distribution yield of 2% at the time of writing. It's important to understand that this is a distribution, not a dividend. A distribution can be made up of a wide variety of income types, like interest income, capital gains, dividends, and return on capital.

Because the fund has US-domiciled holdings like ITOT inside of it, you can shelter that portion of the distribution from withholding tax by placing the fund in an RRSP.

Who is XEQT for?

If you're considering buying XEQT, your decision will depend on your time horizon, risk tolerance, and financial goals. 

Those with a higher risk tolerance

XEQT is tailored for investors with a high-risk tolerance, as it holds a 100% equity allocation. 

Equities are typically more volatile than bonds or other fixed-income investments, suggesting that investors have to be prepared for market fluctuations. 

However, with greater risk comes the potential for higher returns, which can be attractive for those who are comfortable with market exposure and have the ability to withstand the wild swings.

Those with a longer investment horizon

Another pivotal factor is the investment horizon. XEQT, being fully invested in equities, is suited for a longer investment horizon. This is because the market is simply unpredictable over the short term, such as the next 2-3 years. Over the long term, however, it is a compounding machine.

This approach allows the effects of market volatility to even out over time, potentially leading to significant growth. 

Investors who plan to invest in vehicles like the Tax-Free Savings Account (TFSA), Registered Education Savings Plan (RESP), or Registered Retirement Savings Plan (RRSP) might find XEQT an appropriate choice if their investment timeline is lengthy, as these accounts often facilitate long-term investments without tax implications on growth within the account.

How does XEQT work?

Asset allocation

XEQT allocates its assets entirely to equity securities, targeting 100% stock composition for its portfolio. This aggressive strategy is designed to capitalize on the growth potential of equities by excluding bonds, which are often used to mitigate volatility. 

The fund's asset allocation model is structured to appeal to investors with a higher risk tolerance looking for substantial growth opportunities over a long time horizon.

Diversification

A core characteristic of XEQT's strategy is its broad diversification across various sectors and geographies, offering exposure to both Canadian and worldwide markets. 

Here is an overview of the sector allocation to the fund. Keep in mind this changes on a whim, so make sure to check the fund's website for the most up-to-date allocations:

  • Basic Materials: 5.58%
  • Consumer Cyclical: 9.65%
  • Financial Services: 18.60%
  • Real Estate: 2.87%
  • Communication Services: 6.38%
  • Energy: 7.11%
  • Industrials: 12.31%
  • Technology: 19.7%
  • Consumer Defensive: 5.84%
  • Healthcare: 9.23%
  • Utilities: 2.71%

By spreading investments across different sectors, investors can remove unsystematic risk, which is company-specific risk. Systematic risk, on the other hand, is a broad market-related risk that cannot be reduced via diversification.

Rebalancing

XEQT employs automatic rebalancing to maintain its desired asset allocation. This means when certain stocks or sectors deviate from the predetermined allocation due to market fluctuations, the portfolio is adjusted accordingly. 

Such periodic rebalancing ensures that XEQT stays aligned with its objectives while managing the portfolio's risk profile. 

This automated process also relieves investors from having to manually rebalance their investments, which is a huge bonus for holding an ETF.

How has XEQT performed?

XEQT's performance and your opinion on it will be largely dependent on the benchmark you choose as your barometer for investment success.

For example, the fund has outperformed the TSX 60 Index, which tracks the largest 60 companies in Canada, since its inception. However, it has underperformed the S&P 500, which tracks the 500 largest companies in the United States, by a wide margin.

Keeping up with the S&P 500, at least over the last decade or so, has been an increasingly difficult accomplishment. So, I wouldn't knock the fund for that. Its global exposure has held it back in relation to the S&P 500, but there is zero guarantee that US stocks will continue to outperform in the future.

What are the alternatives to XEQT?

In comparing ETFs below, I'll stick with all-in-one ETFs that deploy a 100% equity strategy.

  • VEQT: Vanguard's All Equity ETF Portfolio (TSE:VEQT) is a key competitor that offers a similar 100% equity allocation across various markets. However, it has a higher management fee than XEQT.
  • ZEQT: This is the Bank of Montreal's version of an all-equity ETF. The ETF has similar broad global exposure and identical management fees. The only difference is that it is much newer than XEQT and, as a result, doesn't have as many assets under management. However, since its inception, the yield, fees, and total returns have been virtually the same.

My overall opinion on XEQT

Overall, XEQT is an outstanding ETF. It is managed by one of the largest asset managers on the planet, Blackrock Canada, and is one of the best exchange-traded funds for those who want an all-in-one ETF to buy, hold, and forget about.

In addition to this, if you have your portfolio at Wealthsimple Trade or another broker that offers commission-free purchases like Questrade, you can buy and sell this fund with no fees. Over the long run, this will allow you to dollar cost average into the fund and amplify your returns.

The fund doesn't exactly have a low MER, but it's certainly lower than a lot of mutual funds. In Canada, we have less capital flowing into ETFs, and as such, we tend to have to pay higher management fees than our US counterparts, which can have fees that are only about a quarter of XEQTs.

My main issue with the fund is its Canadian exposure. It is made up of around 25% Canadian holdings, which is completely appropriate. However, I would have liked to see it hold a TSX 60 ETF rather than a broad composite ETF. 

The TSX is very cyclical in nature due to its energy, financial, and material exposure, and I'd find it appropriate to hold the 60 largest stocks rather than the 250~ it currently holds.

Outside of that, I can't find too much wrong with it for those who are looking to set and forget. It is a great asset allocation ETF.