All-Equity ETFs: XEQT vs. VEQT
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- Опубликовано: 10 июл 2024
- If you’re having trouble choosing an all-equity ETF to invest in, this tutorial should help you decide between XEQT and VEQT.
The below topics are explained in this asset allocation ETF tutorial:
00:00 Intro.
00:20 Underlying ETFs held by XEQT and VEQT.
01:07 Fee (MER) differences between XEQT and VEQT.
01:24 Are BlackRock and iShares double-dipping on fees (i.e., charging MERs on the underlying ETFs and on XEQT and VEQT)?
01:41 Home bias (i.e., Canadian equity allocations vs. foreign equity allocations) within XEQT and VEQT.
02:23 Differences in how XEQT and VEQT weight their foreign equity allocations (i.e., static allocations vs. market cap-weighted allocations).
03:28 How to determine VEQT’s target foreign equity allocations.
04:04 Target asset class differences between XEQT and VEQT (as of December 30, 2022).
04:20 Portfolio rebalancing differences between XEQT and VEQT.
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This is a fantastic review! Thanks for clarifying the MER calculation as I have seen several questions about it recently.
As usual - top quality content. Clean, no gimmicks BS. Clear speaking, and great visuals! I'm in the XEQT baby, ALL IN!
Thank you for simplifying this overwhelming (to me) topic!
Great refresher on the all equity ETFS available for Canadians. I've been an long time holder of TD e-series funds and moved everything over to XEQT when it came out in 2019. Couldn't be happier as an investor.
Thanks Justin 🎉
Very informative content !
I followed your advice and flipped my coin to choose between those two very similar fund…
Clear and concise. Well explained
Thanks for the great breakdown! I was wondering about tax efficiency differences between these two ETFs and whether one was better than the other. TIA!
Hi Justin, I just discovered your channel and have subscribed. Thanks! I will be working my way through the content over the coming days. I have a couple of questions so far: 1. Is there any reason you're not throwing the BMO ETFs into the mix e.g. ZEQT? 2. In addition to an all-in-one ETF like XEQT or VEQT, do you consider adding other ETFs? For example a US small cap ETF like AVUV or international small cap ETF like AVDV? The small caps in these all-in-one ETFs seems a bit on the low side.
Nice double dipping example 😄
currently 27 years old and im holding xeqt in my TFSA & RRSP, will think of adding bond etf later as I get older
Research has shown that bonds are a drag on portfolios no matter what they age so I would ditch bonds
I love that you covered this topic! The video is extremely clear and I wish this video had been around when I agonized over the decision a few years ago. The double dipping Seinfeld reference was top notch! Personally, I went with Vanguard, as I believe in Bogle's vision for Vanguard as a non-profit owned by the investors.
Do you happen to know if XEQT and VEQT are considered similar enough to trigger superficial loss rules, or alternately if you need to combine them for ACB purposes in a taxable account? I've heard something about how you can't sell one provider tracking the S&P 500 for a loss and then buy another provider 's S&P 500 fund while claiming the loss, and this seems like XEQT and VEQT might follow a similar logic given how much overlap they have.
@Spirit of The Law - I'm glad you enjoyed the video!
In my opinion, XEQT and VEQT are completely different securities, so they would be acceptable tax-loss selling pairs.
@@JustinBenderCPM Interesting, that's good to know. Thanks for the quick response!
Thank you very much for this information! it is really useful.
I am wondering, is there at any point when you reach a certain value of a portfolio it would be better to buy the underlyings ETFs of those asset allocation ETF in order to save on MERs (considering a someone hold a commission-free brokerage platform)?
@Freddy Banks - I'll be discussing this exact question in my next video (it should hopefully be released by the end of next week :)
Thanks Justin for another great video. There were some important distinctions here I didn't know about. Quick question, could you elaborate on how the underlying holdings each track different indexes and how that pertains to a "wash sale" event in a taxable account? Also the ownership structure of the companies, I personally like the shareholder structure Vanguard has setup. Thanks!
@Nik Lawrence - A "wash sale" is the American term for "superficial loss" (which pertains to tax-loss selling).
If you'd like to learn about tax-loss selling with ETFs, check out my other two videos:
ruclips.net/video/crVOQPVc-rk/видео.html
ruclips.net/video/ocBA8CGGYgQ/видео.html
Thanks Justin for great insight into it.
Is it wise to have both of them in the portfolio considering their slight difference in the allocation gives bit more diversity ?
Though hypothetical, but holding both protect in case of of the company goes bad in future?
@S.A. - I don't think including both of them in a portfolio noticeably increases its diversification, but if you're more comfortable holding both, I don't see any issues with this.
Thanks Justin great video. What is your position on the old XIC/XAW portfolio vs XEQT/VEQT? Is it worth the swap?
@Eccentric Rogue - I'll be discussing something similar in my next video :)
We carry both. I hold VEQT in my RRSP and have XEQT in my wifes RRSF. We do the same with our TFSA's. I hold VGRO in my TFSA while my wife has XGRO in hers.
It will be interesting to see how different your growth would be at the end. Although very minimal difference, I would say
@@ventorro8055 It might turn out otherwise. As per Justin Bender the relative weights of ETFs within VEQT are market cap-weighted and they will adjust over time, but it is not the case with XEQT which ETFs are not market cap-weighted- they are simply static target weights that don’t change. That could make a significant difference in total return between the two over time.
I have been a diy investor and learned many things through you videos and writings, the ccp website and the “ reboot your portfolio”. I never understood bonds. I understand that bonds started to performing badly about 2-3 years ago. When I read about it in different forums, I decided to do all my investments which were completely VBAL to 60% VEQT and 40% CASH. To. With any contribution I rebalanced my portfolio I have been very disciplined.
My question is that if I did the right thing and if it is the time to go back to vbal? Sorry I don’t have any other place to ask. CCP isn’t updated anymore and I feel left alone. Could you help?
Thank you so much.
So which one is better VEQT looks like it grew faster then VEQT
I'm curious to see if the asset allocation market will do anything to distinguish their products from each other. Right now, like you said, flip a coin. Perhaps more competitive MERs? Maybe a different flavor of robo advisor?
Top notch Canadian content! Justin - are there any tax-drag/other downsides to splitting up XEQT to it's individual components to save on MER? Would this choice be different on regular vs TFSA account? Thanks
@Billionaire Playbook - There would be additional currency conversion fees to buy ITOT (unless you used Norbert's gambit to convert the currency). There are also additional trading costs, behavioural issues, etc.
FYI - I'll be discussing splitting up asset allocation ETFs in my next video :)
@@JustinBenderCPM amazing, also alternatively using only Canadian ETFs: XIC, XUU, XEF, XEC. Thanks
Fantastic video Justin. Newbie to investing here, hope I'm making sense. Does it make sense to invest in Veqt in RRSP rather than xeqt as Itot is US listed which will incur withholding taxes ? Or is the difference going ro be negligible? Long term investor - id say about 30years or so. Thanks! Understand veqt also has slightly higher fees.
@syedqayyum8415 - Unfortunately, by holding ITOT, XEQT is still not eliminating the foreign withholding tax on U.S. dividends in an RRSP (you would need to hold ITOT directly in an RRSP to eliminate the FWT).
@@JustinBenderCPMThanks Justin. As a follow up if I hold VUN as part of VEQT, there's no FWT then ? I believe because ITOT is US listed (US flag against the ticker) the FWT is applied no matter where you invest. In that case VEQT makes it more attractive - undiit has higher MER fees.
Is it more advantageous to hold either of these ETFs or targeted (underlying) index ETFs for minimizing foreign withholding tax in a TFSA? (I watched that FWT video but am still unsure.)
@itsfaithyyy - Both of these ETFs would have similar foreign withholding tax implications when held in a TFSA (XEQT has slightly less withholding tax on its emerging markets' dividends, but EM equities are such a small portion of the fund, it wouldn't make much difference which all-equity ETF you choose).
Can you please include performances over past 1, 3, 5 and since inception in your videos?
Hi Justin, why are canadian ETF bond yields so low compared to their US counterparts? Do you suggest swapping out canadian bond etfs? Thanks
@ASMRsauce - Could you be more specific? I don't see a dramatic difference in Canadian vs. U.S. bond ETF yield-to-maturities (YTM)?
Do you know the turnover rates for both? I only found VEQT (29%) not sure if that's correct. If it is correct doesn't that make the overall cost (MER) 0.24 + 0.29?
@Kold - No, you wouldn't add the turnover rate to the MER (as it's not a cost). If you'd like to include additional costs from trading, you could add in the trading expense ratio (TER) - this is usually found in the ETF's management report of fund performance (MRFP).
Is the xeqt okay for the non-registered taxable account? My tfsa and rsp contributions are maxed and I’m looking for next steps until more contribution room in the registered accounts. Thank you?
@medwayhistory3101 - XEQT is okay for non-registered accounts as well :)
X is cooler than V and it also sounds like “Execute” if you pronounce it like a word. 😃
Nice one 😊
How does the IEMG and XEC changes impact returns? Since it’s in XEQT now
@Dennis Anthonipillai - Generally speaking, the overall foreign withholding tax drag in XEQT would be reduced by around 0.02%.
im 100% xeqt 🎉
Thanks very much Justin for a great explanation of both ETFs. One question however, both ETFs are market cap weighted, so let’s say in the future if USA market falls behind and China or India for example increase their dominance in the stock market, is this going to be adjusted accordingly, thanks in advance.
@Andrew D. - The relative weights of the U.S., international, and emerging markets equity ETFs within VEQT are market cap-weighted, so they will adjust over time, within the constraints of the fund's 70% target foreign equity allocation.
The relative weights of the U.S., international, and emerging markets equity ETFs within XEQT are NOT market cap-weighted - they are simply static target weights that don't change.
@@JustinBenderCPM So VEQT could over perform XEQT over time and it is a better choice ?
@@Andrew21882 - VEQT could outperform XEQT going forward, or XEQT could outperform VEQT going forward (no one knows).
@@JustinBenderCPM Yes, I totally agree, but given that VEQT’s ETFs are market cap-weighted and will adjust over time as opposed to XEQT it makes VEQT a better and safer choice. Please correct me if I’m wrong.
@@Andrew21882 you're splitting hairs on the already split hair man.
XEQT in an RRSP for long-term growth, as the only investment? Or QQQM (NASDAQ 100) for perhaps more growth?
If Xeqt has Us holdings, should I keep it in a rrsp account? Or it okay in a TFSA?
@saints39 - The foreign withholding tax implications are the same whether you hold XEQT in an RRSP or TFSA.
Do you have a video on how XEQT dividends are taxed(withholding tax) in a non registered account ?
@the_noble_lefty - Not yet, but it's in the works :)
Hey! How does this compare to Ben's Five Factor Investing Model Portfolio? I am so confused as to go to all in XEQT vs that.
Nvm, I chatgptd it: :D
XEQT and Ben Felix's Five Factor Model Portfolio are both popular investment options, but they have different approaches and considerations.
XEQT (or similar all-equity ETFs):
XEQT is an all-equity ETF offered by iShares, providing exposure to global equity markets.
It's a simple and convenient option for investors seeking broad diversification across global stocks.
XEQT holds a mix of Canadian, US, and international equities, providing exposure to various sectors and regions.
As an all-equity ETF, it carries higher volatility and risk compared to balanced portfolios that include bonds or other fixed-income assets.
It's suitable for investors with a long-term investment horizon and higher risk tolerance who seek growth potential over time.
Ben Felix's Five Factor Model Portfolio:
Ben Felix's portfolio is based on academic research and incorporates factors such as market, size, value, profitability, and investment.
It's designed to capture specific risk factors that have historically shown to provide higher returns over the long term.
This portfolio typically includes a mix of Canadian, US, and international stocks, but with a tilt towards certain factors such as value and small-cap stocks.
By incorporating multiple factors, it aims to enhance returns while managing risk.
It requires more active management and periodic rebalancing compared to a simple all-equity ETF like XEQT.
@VancouverPOV - If you're confused, this would indicate you should stick with the simplest solution, which would be an asset allocation ETF :)
What are your thoughts and Vanguard VSP and XEQP? Are they identical the same or I could have both in my portfolio or one is enough
@evertonweekes5829 - VSP invests only in larger U.S. companies (and hedges it's exposure to the U.S. dollar), while XEQT invests in a diversified portfolio of Canadian, U.S., international, and emerging markets companies, and does not hedge it's foreign currency exposure (so they are not identical). If you hold XEQT, you don't need VSP.
@@JustinBenderCPM Hey Justin love your content
I have $5000 to invest, and I'm looking for more diversity in my portfolio.
I would like to invest 70% to Vsp or XEQt...
I was told the VSP: S&P 500 should be the foundation of my investment.
I would like to have
XEQt or VSP 70%
VIU 10%
XIU 10%
VRE 10%
Am I overlapping too much, or should I just put everything into XEQT or VSp?
I am still struggling between the two. At this moment, I have both $100 in both...
Although another albeit very small difference is: XEQT considers South Korea as developed market, while VEQT considers it as part of their emerging markets allocation.
@Ventorro - You've unfortunately misunderstood these nuances.
- XEQT's international and emerging markets equity ETFs follow MSCI indexes, which consider South Korea to be an EMERGING market (so South Korean companies are included in XEC).
- VEQT's international and emerging markets equity ETFs follow FTSE indexes, which consider South Korea to be a DEVELOPED market (so South Korean companies are included in VIU).
I've already covered these differences when I discussed their underlying international and emerging markets equity ETFs:
ruclips.net/video/UcFUBtCJAM4/видео.html
ruclips.net/video/rrt_1PRgDx0/видео.html
@@JustinBenderCPM Sounds good, thanks for clarifying
XEQT - VEQT - All these cuties, but I think Justin is the only cutie. 😜
Hello Justin,
First of all - Thank You!
You and your team provide clear and unbiased financial information which is rare these days.
I’m not certain if you have answered this question so I apologize if you have already answered this one. (I was not able to find this on your website.)
I am lucky enough to be in a position where I have access to a government DB benefit plan. I will be eligible for an unreduced pension (non-indexed) at the age of 61. (NS PSSP)
Additionally I have access to the RDSP which includes being able to access matching grants backdating 10 years.
My question is: Would my DB pension be considered the Bond (Fixed/Guaranteed Income) of my investment plan? If so, should I be leaning more towards an _EQT vs a _GRO AIO AA ETF?
(I personally prefer Vanguard’s options as they allocate foreign equity fluidly based on market value vs Blackrock’s static allocations. In my opinion fluidity to adjust depending on market value is more logical. This coupled with Vanguard’s lower rebalancing threshold explains why MER is higher on Vanguard products vs Blackrock.)
@Marc-André Delisle - Thanks for watching!
I'm not a big fan of this concept of considering your pension as fixed income (and then loading up on equities). I don't disagree with the argument in theory, but I worry it may push more conservative investors into aggressive portfolios, which they may abandon at the first sign of trouble.
In my opinion, you should work with a financial planner to assist you with determining how much risk you need to take with your portfolio assets (and whether you are comfortable with this risk). If not, you may need to adjust some of your goals or make other life adjustments).
@@JustinBenderCPM - Thank you for your reply and comments.
When I met with two FPs both had recommended going all equity as they considered my pension to be "secure."
With this being said, I still believe there is a value in having bonds in a portfolio as they help "even" out the drops and in previous times bond rates were relatively decent.
When I completed my Vanguard investor questionnaire, as well as others, I landed either at 80/20 or all equity. I'm thinking as I value bonds and have a ~22 year horizon until I can withdraw any funds from my RDSP I'll split it down the middle and go with 90/10 as Warren Buffet suggests. (I get the best of both worlds!)
Though I was initially considering VGRO and I now leaning towards XGRO for the following reasons:
1) Lower MER and unit cost will allow me to purchase more units maximizing my personal investment and government grants YOY until age 49.
2) XGRO when backtested to JAN 2019 has better returns, as well as Sharpe and Sortino ratio than VGRO. (I recognize that past results will not be indicative of future results!)
In your professional opinion am I on the right track here?
Thanks again and all the best to you and yours!
There is a small difference in yield also.
I never understood why all equity ETF's are not equally weighted with major markets (25/25/25/25) OR weighted based on their overall % of their respective economy. ( 50% US, 4% canada etc.) or am I missing something?
@Flip Flop Finance - There can be several reasons:
- Lower volatility for an allocation with greater home bias than market cap-weighted allocation (for Canadian investors)
- Greater tax-efficiency for Canadian vs. foreign dividends (for most tax brackets)
- Sector diversification is already maximized when home bias is higher than market cap-weighted allocation (for Canadian investors)
- Behavioural benefits of having a greater home bias allocation than a market-cap weighted allocation (for Canadian investors)
www.canadianportfoliomanagerblog.com/home-bias-in-the-vanguard-asset-allocation-etfs/
@@JustinBenderCPM thanks!! I’ll check out the article
I’ve gradually migrated my holdings to Vanguard ETFs due to Blackrock’s political stance on environmental, social and governance pressure on its holdings.
I have been a diy investor and learned many things through you videos and writings, the ccp website and the “ reboot your portfolio”. I never understood bonds. I understand that bonds started to performing badly about 2-3 years ago. When I read about it in different forums, I decided to do all my investments which were completely VBAL to 60% VEQT and 40% CASH. To. With any contribution I rebalanced my portfolio I have been very disciplined.
My question is that if I did the right thing and if it is the time to go back to vbal? Sorry I don’t have any other place to ask. CCP isn’t updated anymore and I feel left alone. Could you help?
Thank you so much.
I would look at the recent research regarding bonds. They serve no purpose in a portfolio. They are simply a drag on returns even when stocks are in the gutter.