iShares Core Equity ETF Portfolio (TSX:XEQT) has built a kind of cult following. There’s a dedicated subreddit called r/justbuyxeqt, and someone went so far as to create an entire website around it.
To be clear, XEQT is not a bad ETF. For a 0.20% management fee, you get exposure to more than 9,000 stocks worldwide, split about 45% U.S., 25% Canada, 25% developed international, and 5% emerging markets. Honestly, I’m fond of it.
But XEQT is not a substitute for proper investment research. As a one-size-fits-all product, it’s really a jack of all trades and master of none. Depending on your goals, it may not be the best ETF to own. Here are three scenarios where “just buy XEQT” falls short.
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Lower risk tolerance
XEQT is a 100% equity solution — no bonds; no cash; just stocks. That makes it volatile in down markets. During corrections like 2022 or crashes like March 2020, XEQT can easily drop double digits.
If that level of volatility doesn’t sit well with you, a pure equity ETF is simply not the right fit. You need a way to de-risk. For me, that means adding something like BMO Money Market Fund ETF (TSX:ZMMK). This fund holds Treasury bills, bankers’ acceptances, and commercial paper, all with an average maturity of fewer than 90 days.
The result is very low price volatility and currently a 2.77% annualized yield, all for a 0.13% management fee. It’s not a portfolio on its own, but it can pair with XEQT or other stock ETFs to lower risk. Just buying XEQT completely ignores the usefulness of complementary ETFs like ZMMK.
Lack of control over emerging markets
XEQT allocates 5% to emerging markets like China and India. You might see that as diversification, but I have plenty of reasons for avoiding these markets, from regulatory crackdowns to geopolitical tensions and currency risks.
With XEQT, you don’t get a choice. You can’t call iShares and ask them to cut emerging markets out of the portfolio. If you want no emerging market exposure, a better option is TD Growth ETF Portfolio (TSX:TGRO). It’s structured as 40% U.S. stocks, 30% Canadian, 20% international developed, and 10% bonds.
TGRO even beats XEQT on fees, with a 0.17% MER versus 0.20%. That makes it a cleaner and cheaper option if you want global exposure but prefer to skip emerging markets altogether.
Not built for passive income
XEQT currently pays a trailing 12-month yield of 1.94%. That’s fine, but it’s not an income product. The yield is relatively low, it pays quarterly, and it’s not particularly tax-efficient. Only the Canadian dividend portion is eligible for the dividend tax credit. The rest is a mix of foreign income and return of capital.
If consistent, tax-efficient income is your goal, XEQT won’t get you there. A better option is Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX:VDY). It yields 3.92% on a trailing basis, with most of that being eligible Canadian dividends. There’s the occasional return of capital as well, which is also tax-friendly.
At 0.22%, VDY is only marginally more expensive than XEQT. And unlike many dividend ETFs, it has actually outperformed the S&P/TSX 60 historically. For investors focused on income, VDY is a much better fit.
