The Ultimate Showdown: XEQT vs. VEQT

XEQT vs. VEQT: A Simple Comparison for Canadian Index Investors

For many Canadian investors looking to keep things simple, all equity ETFs have become a popular solution. Two of the most talked about options are XEQT and VEQT. Just do a quick search on Reddit and you can see it’s one of the biggest debates going. These funds offer a globally diversified stock portfolio in a single ETF, which makes them attractive for long term investors who prefer a hands off approach.

Both XEQT and VEQT hold thousands of companies around the world and are designed for investors with a long investment horizon who can tolerate the ups and downs of the stock market. Instead of building a portfolio of several ETFs, investors can buy just one fund and get exposure to Canadian, U.S., and international markets.

While the two funds look very similar on the surface, there are some differences worth understanding before choosing between them. Let’s take a look.

Who Manages Each ETF

XEQT is managed by BlackRock under its iShares brand. BlackRock is the largest asset manager in the world and iShares is one of the biggest ETF providers globally. The company offers hundreds of ETFs covering many asset classes and regions.

VEQT is managed by Vanguard, a company that has built a strong reputation for low cost index investing. Vanguard was founded by Jack Bogle and helped popularize the concept of passive investing. Many long term investors appreciate Vanguard’s philosophy of minimizing fees and tracking broad market indexes.

Both companies are well established and widely trusted in the investment industry.

Asset Allocation Differences

The most noticeable difference between XEQT and VEQT is how each fund allocates its assets across global markets.

XEQT typically holds about 25 percent Canadian equities. The rest of the portfolio is spread across U.S. stocks, international developed markets, and emerging markets. The U.S. portion tends to be the largest allocation, reflecting the size of the American stock market in the global economy.

VEQT generally holds slightly more Canadian equities, often around 30 percent of the portfolio. Like XEQT, the remainder is invested in U.S. stocks, developed international markets such as Europe and Japan, and emerging markets including countries like China and India.

The difference in Canadian weighting means VEQT has a slightly stronger home country bias, while XEQT leans a bit more toward global market weights.

Geographic Diversification

Both ETFs provide broad geographic diversification across the global stock market. Investors gain exposure to thousands of companies operating in many different industries and regions.

The United States makes up the largest portion of both funds because it represents the largest stock market in the world. Developed markets outside North America include regions such as Europe, the United Kingdom, Japan, and Australia. Emerging markets provide additional exposure to faster growing economies in Asia, Latin America, and other developing regions.

This global diversification helps reduce the risk of relying too heavily on any single country or sector.

Management Expense Ratios

Cost is always an important consideration when choosing an ETF.

XEQT has a management expense ratio of about 0.20 percent. VEQT has a management expense ratio of about 0.24 percent. The difference is relatively small, but over very long periods even small fee differences can have a modest impact on returns. Take a look at our XEQT vs. VEQT Calculator to get an idea of just how much something like a .15% difference can add up to over decades.

Both funds are still considered low cost compared with many traditional mutual funds in Canada.

Underlying Holdings and Structure

Another important point is that both XEQT and VEQT are fund of funds structures. This means they hold other ETFs rather than individual stocks directly.

XEQT holds several underlying iShares ETFs that track Canadian, U.S., international developed, and emerging market indexes. VEQT uses a similar structure but with Vanguard ETFs as the underlying holdings.

This design allows each ETF to efficiently provide global diversification while keeping the overall structure simple for investors.

Performance Considerations

Because both funds track similar global equity markets, their performance tends to be very close over time. The primary drivers of performance are the global stock markets themselves rather than differences between the two ETFs.

Small variations can occur due to differences in asset allocation, especially the slightly higher Canadian weighting in VEQT. Currency movements and changes in global market leadership can also create small performance differences from year to year.

Over the long term, however, the returns of the two funds have generally moved in a similar direction.

Home Bias and Canadian Exposure

The concept of home bias is often discussed in Canadian investing circles. Home bias refers to the tendency for investors to hold a higher percentage of domestic stocks than the global market would suggest.

Canada represents only a small portion of the global equity market, but many Canadian investors prefer holding a larger allocation to domestic companies for familiarity, currency exposure, and dividend income.

VEQT reflects this preference by holding a slightly larger Canadian allocation than XEQT. Investors who want a stronger Canadian presence in their portfolio may prefer VEQT for this reason.

Dividend Yield and Income Characteristics

Both XEQT and VEQT distribute income generated by the underlying holdings. This income typically comes from dividends paid by companies around the world.

Because the portfolios are broadly similar, the dividend yields of the two ETFs are usually close. Canadian stocks often have relatively higher dividend yields compared with some international markets, so the slightly higher Canadian allocation in VEQT can occasionally influence the overall income profile.

However, both ETFs are primarily designed for long term growth rather than income generation.

Liquidity and Size

Both funds are large and actively traded on Canadian exchanges. This means investors can generally buy or sell shares easily during market hours.

XEQT has grown quickly in size since its launch, while VEQT has also attracted significant assets. High liquidity helps keep trading spreads relatively tight, which benefits investors when entering or exiting positions.

Which Type of Investor Might Prefer Each

Choosing between XEQT and VEQT often comes down to personal preference. I’m an XEQT guy, my wife however has her set and forget strategy set for weekly VEQT buys. Awkward meals around the dinner table? Not at all!

Some investors prefer Vanguard because of its long history and philosophy around low cost indexing. Others are comfortable with BlackRock and the iShares lineup, which is widely used by institutional and retail investors.

Investors who prefer slightly higher Canadian exposure may lean toward VEQT, while those who want a slightly more globally weighted allocation might prefer XEQT.

Key Similarities

Despite the differences, the two ETFs share many core characteristics. Both funds hold 100 percent equities, meaning they are fully invested in stocks rather than bonds. They are globally diversified across thousands of companies and multiple regions. They are also designed for long term investors who want a simple portfolio solution.

For Canadians seeking a single ETF that provides broad global exposure, both XEQT and VEQT offer a straightforward and widely used approach.

Disclaimer

This article is for informational purposes only and should not be considered financial advice. Investing involves risk, and past performance does not guarantee future results. Investors should conduct their own research or consult a qualified financial professional before making investment decisions.