Building a globally diversified portfolio does not require picking individual stocks, researching earnings reports, or trying to guess which country or sector will outperform next. For most Canadians, a pair of low-cost index exchange-traded funds (ETFs) can accomplish the same goal with far less work.
By combining one ETF that owns virtually the entire world outside Canada with another covering the domestic market, investors can create a simple portfolio that is globally diversified, inexpensive, and easy to maintain. Here are two ETFs that do exactly that.
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iShares Core MSCI All Country World ex Canada Index ETF
iShares Core MSCI All Country World ex Canada Index ETF (TSX: XAW) is designed to be the global core of a portfolio.
Rather than concentrating on a single country, XAW invests across developed and emerging markets worldwide through several underlying index ETFs.
The largest allocation is to the United States, followed by international developed markets including countries such as Japan, the United Kingdom, France, Germany, and Australia. The remainder is invested across emerging markets including China, India, Brazil, Korea, Taiwan, and others.
Because the portfolio is market-cap weighted, larger companies naturally receive larger allocations, while investors still gain exposure to thousands of businesses spanning every major sector of the global economy.
The ETF currently charges a 0.22% management expense ratio, offers a 1.2% trailing 12-month yield, and has generated 13.45% annualized total returns over the past 10 years.
iShares Core S&P/TSX Capped Composite Index ETF
To complement XAW, I would pair it with iShares Core S&P/TSX Capped Composite Index ETF (TSX: XIC).
XIC tracks the broad Canadian equity market, investing in roughly 200 of Canada’s largest publicly traded companies across sectors including financials, energy, industrials, materials, utilities, and telecommunications.
Owning a dedicated Canadian ETF also allows investors to maintain a home-country bias, which can be beneficial through greater exposure to eligible Canadian dividends and reduced currency risk.
Personally, I think an allocation of roughly 10% to 30% in Canadian equities is reasonable for many investors. That range is broadly consistent with the Canadian allocation used by many all-in-one asset allocation ETFs.
XIC currently charges a 0.06% management expense ratio, pays a 2% trailing 12-month yield, and has delivered 12.76% annualized total returns over the past 10 years.
