Global ex Canada Equity ETFs - VXC vs. XAW
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- Опубликовано: 10 июл 2024
- In this video, the Vanguard FTSE Global All Cap ex Canada Index ETF (VXC) faces off against the iShares Core MSCI All Country World ex Canada Index ETF (XAW). Justin compares the differences (or lack thereof) in their asset allocations, foreign withholding tax ratios (FWTRs), management expense ratios (MERs), and China A share allocations. He also discusses XAW's disappointing 2020 tracking error, as well as the longer-term tracking error of both funds, relative to their indexes.
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I have decided to begin my journey as a DIY investor (switching TFSA, RRSP, RESP accounts over to an online broker) and have been doing a significant amount of research (reading books, blogs etc., watching RUclips videos and talking with friends) and I have to say the content on your channel is amazing. It’s extremely easy to follow, well explained and overall a pleasure to watch. I hope to shake your hand and buy you a beer one day! Cheers and keep up the great work.
@Michael Brown - I'm so happy to hear you've been enjoying the channel! And you had me at "buy you a beer": ruclips.net/video/psJaPFxSgFc/видео.html
Good luck with your DIY investing journey :)
This is excellent, something I had been wondering for too long.
@chogno98 - Glad you liked the video :)
Appreciate your effort, new to Canada, was happy with VT, but had some doubts on VXC, now clear, thank you.
Hi Justin I like how your channel really dives deep into ETFs most channels are not as deep and thorough as yours about ETF most investment channels are all about stocks. After watching many of your videos I have definitely subscribed to your channels. Definitely educational along side my own research.
@Tarun Kataria - I'm glad to hear you appreciate the level of detail within my videos (I definitely enjoy diving deep into the nitty gritty of ETFs ;)
@@JustinBenderCPM I saw your video on combining international ETF's which focused on Korean and Non-Korean holdings. it really helped me to choose the correct ETF for global exposure.
Thanks for this informative video! I currently hold XAW in my taxable account but I am a non-resident Canadian. Therefore, I am exempt from capital gains tax. I am only charged withholding taxes on dividends and interest income. Your video has got me thinking about a possible switch to VXC.
New subscriber! Excellence presentation. Love love Thanks 🙏
@Old soul - I'm so glad you enjoyed the video - thanks for subscribing! :)
Thanks for the video! I’ve recently been weighting too much of my portfolio towards Canadian equity (home country bias). These products are exactly what I need to tilt it away from it.
@Alan JS Han Studio - I'm so glad you found the video helpful, Alan! :)
I just subscribed. Thank you for the information
Thanks for the fantastic content Justin! I think I'll stick to my XAW for now, but hopefully iShares will try to be more passive in their fund decisions moving forward - we indexers signed up for good diversification, low costs/tax, and good tracking to the index - not active management (I guess drawing the line can sometimes be a discussion point in its own right though).
@Steve P - Thanks for providing your comments - I definitely agree that iShares needs to thoughtfully transition XAW towards a more passive investment philosophy (the same goes for XUU, which suffers from the same issue to a lesser extent).
Thanks Justin! Great video, as always. I started my investing journey about 4 years ago and worked off of Dan's CCP models, so I hold XAW. Since, I have learned more and come to greatly respect Vanguard and prefer them as a company vs. BlackRock. Facts like what you presented here are another reason. However... overtrading is where us average investors get into trouble. Even in commission free accounts like questrade (free to buy...) you get hit with the network fee and potential loss in the bid/ask spread. Although I agree with your VXC recommendation I don't think its the right move to switch. I hope other young (or just new) investors take to heart that getting into a buy and hold, globally diversified portfolio is WAY more important than VXC vs. XAW. If you're watching this channel, and these videos to the end, you're already doing the right things.
@Sean Johnstone - Thank you for your comments. I tend to agree that you really can't go wrong holding either VXC or XAW (we experienced this proof over the past 5+ years).
I respect your pragmatic and very detailed explanations on these topics. I am a new investor looking to get into the ETF game and am learning a lot from you - thank you Justin and keep up the great work!
In my TFSA, I would like to start with VFV, VUN, and either XAW/VXC (I'll flip a coin). What do you think about this combo to start? I could keep it simple with 100% VEQT but I don't like that 30% Canadian holdings make up the entire fund. Would appreciate some feedback...
@jay dee - if you don't like the 30% allocation in VEQT, a solution would be to simply combine a Canadian equity ETF (like XIC, VCN or ZCN) with a global ex Canada equity ETF (like VXC or XAW), according to your preferred weightings. There's no need to also include VFV or VUN, as their U.S. equity holdings are already included in VXC or XAW.
Once again Justin hits a home run with this video.
Hi Justin, thanks so much for this! I hold VXC/VCN and don't plan on switching to VEQT because I am one of those 'control freaks' you mentioned! :) But I am curious, given that VXC holds underlying US-listed ETFs (VV, VB), do I still need to fill out a W-8BEN form in my TFSA and non-registered to avoid the additional 15% US withholding tax? My brokerage doesn't fill out the form automatically.
@Bethany C - Thanks for watching (and great question). VXC and XAW both hold U.S.-listed ETFs, but you do not need to complete a W-8BEN form in order to reduce the U.S. withholding tax from 30% to 15% (the fund companies will take the necessary steps in order to reduce the withholding tax for their unitholders).
@@JustinBenderCPM Amazing! Thank you so much!
Excellent information, thanks for your research. What are your thoughts on covered call ETFs for income generation?
@Marco Z - I take a total return approach to investing, so generating annual income is not a priority (I try to reduce the annual income to reduce taxes, and prefer capital gains instead - so covered call ETFs are not on my radar at all).
Great video as always Justin! I had one clarification around withholding taxes for ETF's that invest in international equities like VEQT or VXC.
1)My question is for these ETFs, would I be charged withholding tax for each foreign country that the ETF invests in. For instance, if the ETF invests in companies in Germany &Japan, would I be charged withholding tax separately for Germany and Japan stocks.
2) If yes, how do I calculate the total withholding tax percentage for all the foreign equities that VEQT or VXC invest in?
@Adhithya Krishnamachari:
1) Yes, any dividends paid from foreign countries (like Germany or Japan) would have taxes withheld by their governments (based on the tax treaties between the foreign country and Canada, or the foreign country and the U.S.).
2) This has already been estimated in our Foreign Withholding Tax Calculator, available on my blog:
www.canadianportfoliomanagerblog.com/calculators/
Great video as usual!
Justin: just to be clear, there would be no benefit (outside of MER) to hold VEA over VIU in a RRSP account?
I believe since VEA was updated with a ~9% Canadian equity complement, that the tax drag difference is now negligible, but I still can’t decide if the MER alone is a better reason to hold VEA.
Note: other RRSP holdings are VTI, VWO, ADUV, ADVD.
Merci.
@willbobig - If you already hold U.S.-listed ETFs in your RRSP, you could consider holding something like IEFA/IEMG to avoid Canadian equity in VEA...if this is what you're shooting for. This would lower your MER and could be worth it...as long as you avoid high FX costs by using Norbert's gambit to convert currencies.
@@JustinBenderCPM Thank you sir. Greatly appreciate you.
I still have the 5 found portfolio with ZAG, VCN, XUU, XEF and XEC. Has iShare made the same "active" compromise with XUU, XEF and XEC? Should I switch to Vangard equivalent ETFs, (VUN, VIU and VEE)?
@Guillaume Beaudin - XUU suffers from the same problems to some extent (not as bad as XAW), but XEF and XEC are fine. If there are no tax implications, you could consider switching XUU to VUN.
Thanks for the excellent presentation Justin. What would it be the difference between investing in VXC or VT (or any US equivalent ETF). Is there, as Canadian, a negative/positive implication in buying US ETF's. Is it advisable?
The main benefits of holding US-based global equity ETFs (like VT) over VXC or XAW in an RRSP is the reduction of foreign withholding taxes and product costs. The downside is you need to learn how to implement Norbert's gambit, so you don't get gauged by the banks high currency conversion costs. It's also more difficult to manage a portfolio is USD compared to CAD (as you need to constantly be converting the figures before placing your trades).
@@JustinBenderCPM Thanks! Uhmmm.. The benefits are not significant and worthwhile. I'll buy Canadian ETF's instead.
Thanks so much for all of your excellent videos and invaluable information! Is there any Canadian ETF that covers Small Cap Value stocks in the U.S. and Globally? I realize AVDV and AVUV do these, but these are only available in the U.S.
Nothing in Canada that covers similar ETFs as AVUV, AVDV. OK...I think there is maybe one or two, but the MER is not cheap if I recall correctly. So ultimately, you'll have to stick with US-domicile.
There is XCS. But, is it worth it?
It's an option, but not a pure value play, although will still get a bit of factor tilt. Looking at it, it's a mix of value, blend and a bit of growth (42, 43, 12). Additionally, has a MER of 0.60%. Not terrible I suppose, but not cheap either.
@Mark Angelini - Not that I know of, but I wouldn't even bother overcomplicating portfolios with small/value tilts. There's no guarantee this will lead to higher returns, but it will lead to higher tracking error to the index (along with the inevitable behavioural issues that go along it).
Thanks to everyone's input. I appreciate this information very much! :)
would have one of these ETFs be helpful in addition to a paired emerging markets ETF like XEF + XEC or VIU + VEE
@Tarun Kataria - Both XAW and VXC already include international and emerging markets equity ETFs (like XEF/XEC or VIU/VEE), so there's no need to duplicate the holdings with additional international and emerging markets equity ETFs.
@@JustinBenderCPM Is it considered "duplicating" if I really want to go heavy on emerging markets hence investing on an ETF that solely tracks emerging markets?
@@aubreybondoc - You would be making an additional "active" decision by overweighting emerging markets (it might work out, but if you can't predict the future, I don't see a compelling reason to do so).
@@aubreybondoc I disagree with Justin. You're still investing in a passive index if you invest in VEE. The whole premise of this RUclips video is that you want to change the weighting of your regional holdings vs holding an all in one fund. That's not active in the same way having lower Canadian weighting is not active. Emerging markets are more risky but you could switch to a 5-set portfolio of etfs (CAN, US, Developed, EM, Bonds) instead of you wanted to increase your EM weighting. Especially if you're young the upside potential for EM is high over the next 30-40 years.
All your videos are excellent! It would be awesome if you could do one video about CDIC, IIROC, CIPF, and other protections and strategies that canadian investors should look before investment their money in a bank or online brokerage account.
@Luciano Cartela - Thanks for your feedback! My spouse and colleague, Shannon Bender, is planning to release videos on these topics at some point, so stay-tuned! :)
@@JustinBenderCPM that is really great news. Thanks! Congratulations for the excellent work that you and pwl are doing.
I hold 80% XAW and 20% XIC in both my TFSA and RRSP. Should I really be switching out XAW for VXC? I like seeing the % gain next to XAW and switching it fully to VXC would take that away (I know this is purely psychological), but if it really is better to do VXC over XAW for the long term (I still have 30+ years), then I'll do it
@Lux Gang - If you're comfortable holding XAW, I don't see any reason to switch it to VXC (there may possibly be more short-term tracking error with XAW vs. its index).
Hi Justin - Need help. I’m interested in investing in VEQT because it’s simple but not sure how Canada will perform in the future and at 30% weighting i feel like I can invest more towards emerging economy. Then I wonder maybe instead to invest in 10%VCN + 90%VXC but would I need to rebalance it yearly? Thank you.
@Jesse Sangha - If you prefer a different weighting than VEQT, combining VCN with VXC would be a suitable method (I unfortunately can't predict which allocation will outperform going forward).
Thank you Justin
hmm I do hold XAW in my RRSP....perhaps a switch to VXC now?
@Cari Mai Real Estate - It's not absolutely necessary, but if you prefer less rate of return surprises, it could make sense (as long as the trading commissions and bid-ask spreads are not too cost prohibitive). XAW is still a fantastic global ex Canada equity ETF, so don't feel like you need to change anything.
Thanks Justin. How is ZGRO?
@BronnBlackwater - I review ZCON, ZBAL and ZGRO is this video:
ruclips.net/video/LvUoxbVzCV8/видео.html
@@JustinBenderCPM thank you!
July 30.
Great video Justin, I can't believe I've been paying a 2% MER all these years to RBC for pretty much the same thing.
A worth watching and Subbing channel sir, Great Content. a fellow creator.
@Yasin Nabi - Thanks for subscribing, Yasin! :)
Sounds like we need to hedge against these etf providers. Instead of picking one or the other, pick both of them to hedge against tracking errors, active management, etc.
@howdy dude - I don't think that's necessary ;)
Investing locally is more than just a strategy. It is investment into quality of life. If you invest in say local restaurant - you get better stake and not just a number in your account. I choose better healthcare, utilities, roads, e-commerce, transportation, etc. over a slight change in stability. Besides, Canadian market is one of the best long-term performers. I wish we would focus on that instead of ex Canada ETFs
Excludes innovation for growth from US and international to create more bal coverage.
Might switch to vxc then
@Jet L - Do you hold VXC in a taxable account, or a registered (RRSP/TFSA) account?