An Exchange-Traded Fund (ETF) is an investment fund that trades on stock exchanges like a regular stock. Think of it as a basket of investments—it can hold a mix of stocks, bonds, or other assets, providing built-in diversification with just one purchase. Most ETFs are designed to track the performance of a specific index (such as the S&P 500), a sector, or even a combination of different markets.
ETFs have gained popularity because they offer low costs, transparency, and flexibility. Unlike mutual funds, which trade only once per day, ETFs can be bought and sold throughout the trading day.
One example of a well-diversified ETF is iShares Core Equity ETF Portfolio (XEQT), a popular choice for Canadian investors seeking global equity exposure.
What is XEQT?
XEQT is an “all-in-one” ETF offered by iShares (BlackRock). It’s designed for long-term capital growth by holding a mix of equities from various global markets: U.S., Canada, international developed markets, and emerging markets. With XEQT, you own a globally diversified portfolio without needing to buy multiple ETFs or individual stocks.
Top 5 Holdings in XEQT (as of February 7, 2025)
If you invest in XEQT, you indirectly own thousands of companies across different regions and sectors. Here’s a breakdown of its top five holdings, which account for most of its allocation:
1. iShares Core S&P Total U.S. Stock Market ETF (ITOT) – 47.47%
This ETF invests in a wide range of U.S. stocks, from large-cap giants to small-cap companies. Its top holdings include:
- Microsoft (MSFT)
- Apple (AAPL)
- NVIDIA (NVDA)
- Alphabet (Google) (GOOGL)
- Amazon (AMZN)
2. iShares Core S&P/TSX Capped Composite Index ETF (XIC.TO) – 24.84%
This ETF tracks Canada’s largest public companies, primarily in the financials, energy, and materials sectors. Key holdings include:
- Shopify (SHOP)
- Toronto-Dominion Bank (TD)
- Royal Bank of Canada (RY)
- Canadian National Railway (CNR)
- Enbridge (ENB)
3. iShares Core MSCI EAFE IMI Index ETF (XEF) – 22.61%
This ETF holds stocks from developed markets outside of North America, including Europe, Australasia, and the Far East. Top holdings include:
- Nestlé (Switzerland)
- ASML Holding (Netherlands)
- Toyota (Japan)
- Samsung (South Korea)
- Roche (Switzerland)
4. iShares Core MSCI Emerging Markets IMI Index ETF (IEMG) – 4.83%
This fund invests in stocks from emerging economies with high growth potential. Notable holdings include:
- Tencent (China)
- Alibaba (China)
- Taiwan Semiconductor (Taiwan)
- Reliance Industries (India)
- Vale (Brazil)
5. Cash and Cash Equivalents – 0.25%
A small portion of the fund is held in cash or short-term investments to manage liquidity and facilitate portfolio adjustments.
Simplifying Tax Management with XEQT
Investing in ETFs like XEQT within a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) offers additional benefits when it comes to taxes and record-keeping. In a non-registered (taxable) account, you would have to deal with various complexities, such as:
- Return of Capital (ROC): Some ETFs pay out part of your original investment as distributions, which can affect your cost base.
- Phantom Distributions: Reinvested distributions that increase your Adjusted Cost Base (ACB) without providing actual cash payouts.
- Adjusted Cost Base (ACB): This is the value used to calculate capital gains or losses when you sell your investment. It can be tricky to track with ETFs that frequently rebalance or distribute capital.
When held in a TFSA or RRSP, however, you avoid these complications. There’s no need to track ACBs, phantom payments, or ROC since all income, growth, and withdrawals (in the case of TFSAs) are tax-free. This simplifies your investing experience, allowing you to focus on long-term growth without the administrative headaches.
What Does Owning XEQT Mean for You?
By investing in XEQT, you own a globally diversified portfolio without the need to manage multiple funds or stocks. Through its top holdings, you indirectly own shares in some of the world’s most successful companies, including:
- Microsoft, NVIDIA, and Apple in the U.S.
- Shopify and TD Bank in Canada
- Nestlé, Toyota, and Samsung in developed markets
- Tencent and Alibaba in emerging markets
This level of diversification reduces your exposure to risk from any single company or sector, making XEQT a powerful, all-in-one solution for equity investors.
Why Choose an ETF Like XEQT?
- Low Maintenance: XEQT rebalances automatically, meaning you don’t need to worry about keeping your portfolio diversified.
- Diversification: It offers exposure to hundreds (or thousands) of companies across multiple regions and sectors.
- Cost Efficiency: ETFs typically have lower fees than actively managed funds.
- Transparency: The fund’s holdings are updated regularly, so you always know what you own.
Is an ETF Right for You?
If you’re looking for a simple and diversified equity investment, an ETF such as XEQT can be a strong option. It’s ideal for long-term investors who want global exposure without the hassle of managing multiple investments. However, it’s important to ensure that it fits your overall financial goals and risk tolerance.
For guidance, consider speaking with a financial coach or advice-only financial advisor. Be cautious when dealing with traditional advisors who earn commissions or fees from actively managed funds. Many such advisors may steer clients away from ETFs in favor of higher-cost products that generate income for them but reduce your overall returns. A coach or fee-only advisor, on the other hand, can offer unbiased advice tailored to your needs.
Investing in an ETF could be a simple yet powerful way to grow your wealth and achieve long-term financial stability.
