XEQT vs VEQT: Which Equity ETF Portfolio is Better?

ETFs or Exchange Traded Funds are known for the ability to combine diversification and convenience to your portfolio in one tradable asset.

These funds offer a basket of assets at a lower management cost than traditional mutual funds. ETFs can track sectors, indices, and even total stock markets.

Many investors who do not have the time to track individual companies will build a portfolio of ETFs. What many people are unaware of is that companies like iShares and Vanguard create full all-in-one equity portfolios in a single ETF.

These ETFs are referred to as Equity ETFs or All-Equity ETFs. This article will discuss two of the best Equity ETFs in Canada: iShares’ XEQT and Vanguard’s VEQT.

Understanding Equity ETFs

As their name suggests, equity ETFs provide investors with an all-equity portfolio. This means that they only hold a variety of different stocks.

You will not find other assets like bonds or futures contracts in an equity ETF. The goal is to seek long-term capital growth by investing in a broad range of stocks through underlying funds.

Since these equity ETFs typically hold thousands of stocks, the allocated weight to each is minimal. These ETFs also pay out a distribution to shareholders and are generally considered lower-risk investments.

The two ETFs in question also provide Canadian investors with exposure to global markets. It is an excellent way for Canadians to avoid paying foreign exchange fees for buying American or international stocks.

XEQT vs VEQT Fees

When discussing any ETFs, one of the first things to consider is the fees you pay for owning these shares. Every ETF has a management fee and an MER or Management Expense Ratio.

The MER is usually seen as the true ‘cost’ of owning the ETF as it encompasses the management fees. Here is a comparison of the fees for XEQT and VEQT as of March 2023:

ETF Name	Management Fee	MER
XEQT	0.18%	0.20%
VEQT	0.22%	0.24%

As you can see, XEQT has slightly lower fees. What does a 0.20% MER mean? For every $10,000 you have invested in XEQT, the fees will be $20.00 per year.

XEQT vs VEQT Returns

How have XEQT and VEQT performed? Both equity ETFs were established in 2019, so we do not have a long track record for either fund. Here is a comparison of how each has performed thus far on an annual basis:

ETF Name	2020 Returns	2021 Returns	2022 Returns
XEQT	11.71%	19.57%	-10.93%
VEQT	11.29%	19.59%	-10.78%

The two funds have very similar returns on an annual basis. Here is a comparison of how each has performed on a cumulative basis:

ETF Name	YTD	1-Year	3-Years	Inception
XEQT	5.08%	-0.76%	32.38%	35.84%
VEQT	5.13%	-1.16%	31.94%	43.5%

Overall, VEQT has provided slightly better returns since its inception. VEQT was also established about eight months earlier than XEQT.

XEQT vs VEQT Holdings

As we already know, since both of these are equity ETFs, they will hold a portfolio of 100% stocks. We also know that rather than holding thousands of individual stocks, these ETFs hold a portfolio of other ETFs. Here is a comparison of each fund’s underlying holdings:

ETF Name	Number of Holdings	Total number of Stocks
XEQT	4	9,291
VEQT	4	13,602

VEQT holds more than 4,000 more stocks than XEQT. Both funds have a significant weight towards both US and Canadian-listed stocks. Here is the geographic breakdown for each ETF:

Top Regional Allocations

Country	XEQT Allocation	VEQT Allocation
United States	43.88%	42.5%
Canada	23.54%	30.2%
Japan	5.91%	4.5%
United Kingdom	3.75%	3.1%
France	2.74%	2.0%
Germany	2.02%	1.5%
China	1.70%	2.5%

There are other markets included, but these are the largest weighted allocations in each fund. Notably, VEQT has a larger weight in Canadian and Chinese stocks.

Here are XEQT’s Holdings:

Asset Name	XEQT Weighted Allocation
iShares Total US Stock Market ETF (ITOT)	44.54%
iShares MSCI EAFE IMI Index (XEF)	25.49%
iShares S&P/TSX Capped Composite Index ETF (XIC)	24.38%
iShares Core MSCI Emerging Markets ETF (IEMG)	5.00%

Here are VEQT’s Holdings:

Asset Name	VEQT Weighted Allocation
Vanguard US Total Market Index ETF (VUN)	42.71%
Vanguard FTSE Canada All Cap Index ETF (VCN)	29.97%
Vanguard FTSE Developed All Cap EX North America Index ETF (VIU)	19.99%
Vanguard FTSE Emerging Markets All Cap Index ETF (VEE)	7.29%

Both equity ETFs also hold a minimal amount of both Canadian and US Dollars to hedge against currency fluctuations.

XEQT vs VEQT Dividends

These equity ETFs are primarily focused on long-term capital growth. If you are seeking dividends, you might want to look at other, more income-oriented ETFs. Here are the dividend facts for each ETF:

ETF Name	Distribution Yield	Distribution Frequency
XEQT	1.41%	Quarterly
VEQT	2.00%	Annually

The primary difference between XEQT and VEQT is the frequency of distributions. XEQT pays out quarterly, while VEQT only pays out once per year.

Pros and Cons of XEQT vs VEQT

XEQT

Pros

• Lower MER than VEQT
• Quarterly dividends
• Diverse market allocation of stocks

Cons

• An all-stock portfolio can be risky during market downturns
• A lower dividend yield than VEQT

VEQT

Pros

• Almost 4,000 more stocks than XEQT which adds more diversification
• Has outperformed XEQT since inception
• 80% allocation to large-cap stocks

Cons

• Higher MER than XEQT
• Annual distributions compared to quarterly
• Higher allocation to Canadian stocks might not be enough diversification for Canadian portfolios

XEQT vs VEQT: Which Equity ETF is Better?

Both equity ETFs provide excellent and instant diversification for Canadian portfolios. Since both XEQT and VEQT have provided similar returns, XEQT’s lower MER and quarterly distributions could make it a more attractive investment.

But if you want greater diversification with over 4,000 more stocks, then VEQT could be the better bet.

How To Buy XEQT and VEQT in Canada

You can buy either ETF easily using some of the best brokerage platforms in Canada:

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