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Little to differentiate Canadian Equity ETFs.


What do Canadian equity market Exchange Traded Funds VCE, XIU and ZCN have in common?

Lots. Too much. There simply isn’t a lot of differentiation in the Exchange Traded Fund (ETF) products covering the Canadian Equity marketplace. (Between these three ETF’s, at least). The buy-and-hold investor would lean toward VCE. The active trader would stick with XIU.

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Canadian Equity ETFs VCE XIU ZCN

The (now updated) table comparing VCE, XIU & ZCN makes the point … there is little differentiation. How does an investor decide which of VCE, XIU and ZCN to use?

For a buy-and-hold investor, it’s likely VCE. It has lower MER and quarterly distributions (which mean that larger amounts get reinvested … no idle cash), is slightly more diversified and, as a buy-and-holder, liquidity of XIU isn’t needed.

For the Institutional investor or Trader, XIU is likely the better choice because of the ample liquidity.

Bonus points to iShares for disclosing ‘all-in’ MER for XIU and their ETFs in general.

Disclosure.

I own XIU (personally) but will buy VCE when I add to existing Canadian Equity holdings.

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Next time? More Risk Management.
Doug Cronk CFA is Manager, Investments for a Canadian Pension Plan
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7 Comments Post a comment
  1. Eli #

    Doug, you have to update your table, again :-)

    ZCN changed its mandate. It now tracks TSX Composite index (200+ stocks) instead of DJ Titans (60 stocks).

    The choice between VCE and ZCN is a tough one. VCE covers 85% of Canadian market, at a lower cost. ZCN covers total market, at a slightly higher cost.

    Like this

    September 22, 2012
    • Thanks.

      It’s tough to keep up with all the ETFs and changes. As the industry rationalizes and many ETFs merge or simply fade, expect to see more changes like ZCN. Also, expect to see more changes as index providers (DJ, MSCI, FTSE, S&P …) charge end-users for their indexes. MSCI is doing this at the Institutional level. Expect to see others follow. Maybe DJ started charging. More likely ZCN simply could not compete with XIU. See my blog post ‘Your MER is about to go up’ http://dougcronk.wordpress.com/2012/06/18/mers-going-up/

      Regarding VCE v ZCN, I personally prefer VCE. Frankly I don’t want the additional small cap Canadian exposure. Not enough liquidity and it’s al metals, materials, golds etc. No Thanks. Got enough of that thru my large cap Canadian exposure (XIU). New purchases will go to VCE. For a global portfolio, the additional 100 smaller cap Canadian stocks that one gets with the TSX composite index (ZCN) will have little impact. I would rather save the MER and add in a global small cap fund from Beutel or Mawer.

      Like this

      September 23, 2012
  2. Maple #

    If there is a litlle difference between XIU and VCE shouldn’t than their performance be similar? Looking at the chart indicates otherwise.

    Like this

    June 12, 2012
    • Good point.
      Y-T-D June 12/2012, MSCI Canada (VCE) is -4.0% while XIU is -2.7%.
      MSCI Canada (100 stocks) is a Large and Mid-cap index. (VCE is currently 102 stocks). XIU is Large cap only. (currently 61 stocks).
      So the Mid caps must be down (YTD) more than Large … and … MSCI Canada Mid-cap is -4.5%.
      (Still … 1.3% delta between the two … seems like the math doesn’t really work … I’ll snoop some more on this).

      See:
      iShares.ca Tools & Charts.
      MSCI.com performance.

      Like this

      June 13, 2012
    • More thoughts …
      As per the iShares.ca site XIU performance YTD May 31, 2012 is -2.55% (versus it’s index -2.49%). VanguardCanada.ca shows the MSCI Canada performance YTD May 30/12 as -2.67%. (VCE cannot show performance under a year … as per regulations).
      So I suspect one of my previous data sources is/was dodgey … (very common, unfortunately).
      So, the performance looks fairly close … as at end of May/12.

      Like this

      June 13, 2012
  3. Gordon Ross #

    Doug, on the iShares site it looks to me that the XIU distributions are quarterly.

    Like this

    June 11, 2012

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