The iShares S&P/TSX Capped Composite Index Fund (TSX: XIC) is one of Canada’s most diversified broad market index funds. It is based on the S&P/TSX Capped Composite Index, an index comprising roughly 223 stocks, of which XIC holds 217. The fund holds most of the securities in the underlying index, meaning it’s quite representative of the index it’s meant to track.
Over the years, investors have done quite well with the S&P TSX Capped Composite Index Fund. Over the last 12 months, it has delivered a 21.6% total return, beating the S&P 500 by two full percentage points. Over the last 10 years, the fund has compounded at 9.1% annually (CAGR), which is about the kind of return you expect a broad market index fund to deliver.
XIC is a particularly good fund for RRSP investors, because it is so diversified that you don’t need to think too much about specific sectors, companies and so on when you own it. You can pretty much count on the fund’s diversification to minimize your risk, leaving the market to power returns. That’s not to say that an investment in XIC is totally risk-free: you have to think about the fees, tracking risk, weighting compared to other funds, and other such factors. But in principle, it’s a relatively straightforward fund to make an informed investment in.
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Broad diversification
The main attraction of the iShares S&P/TSX Capped Composite Index Fund is its broad diversification. With 217 stocks, it represents the entire Canadian stock market quite well. Also, the fund represents many different sectors. Among its top 10 holdings, you’ll find many banks, a tech giant (Shopify), several energy companies, and utilities. So, XIC can still do well if one of the sectors represented in it does poorly. This is the main virtue of index funds: they spread your eggs across many baskets.
Low fees
Another virtue of the iShares S&P/TSX Capped Composite Index Fund is its low fees. The fund has a 0.05% management fee and a 0.06% management expense ratio (MER). A management fee is a fee paid to fund managers for their work; an MER is the total annual cost of holding a fund, including management fees and execution costs. XIC’s fees are among the lowest in the business, ensuring that the fund’s investors keep a fair share of their returns.
High volume & low spread
Last but not least, the iShares S&P/TSX Capped Composite Index Fund has high trading volume, which gives it a low bid-ask spread. The bid-ask spread is among the most nefarious costs of owning stocks, as it is not charged by stocks/funds themselves, but rather by behind-the-scenes market makers who execute trades. The lower the bid-ask spread, the less you pay to market makers. So, XIC is a good fund by this measure.
Foolish takeaway
When it comes to investing, slow and simple usually beats fast and difficult. By holding a broad market index fund, you’ll beat most active investors over the long term. If you’re Canadian, the XIC ETF fits the bill.
