I am still debating between XAW and individual etfs. The advantage I see with XAW is when I have to start selling in retirement, it would be cheaper and easier for rebalancing to sell one fund instead of 2. On the other hand, is it possible the market capitalization of the US may increase and the allocation to the US in XAW would become even higher? I believe it is 55% now. Maybe I am overthinking things. I don't think I would want the allocation to be higher.
XAW vs. separate etfs
christinad
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@MrBlackhill I think you're looking for XWD - iShares MSCI World Index ETF
So ZGQ should be "Quality Factor" version of XWD.
Regarding the overweight Canadian exposure in the all-in-one ETFs: they call it home country bias and Dan has an article you might be interested in : Ask the Spud: Does Home Bias Ever Make Sense? | Canadian Couch Potato
So ZGQ should be "Quality Factor" version of XWD.
Regarding the overweight Canadian exposure in the all-in-one ETFs: they call it home country bias and Dan has an article you might be interested in : Ask the Spud: Does Home Bias Ever Make Sense? | Canadian Couch Potato
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Vanguard Canada has written papers on home country bias. Google them and decide for yourself. The paper suggests in the order of 30% of equities and hence why the Vanguard AA ETFs are positioned that way. I am typically in the 30-35% Cdn equity range.
A number of investors decide that global market cap weighting is the right thing and thus have only ~3% of their equities in Canadian domiciled securities.
A number of investors decide that global market cap weighting is the right thing and thus have only ~3% of their equities in Canadian domiciled securities.
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No, XWD doesn't include emerging markets. It's only the developed world. Moreover, it doesn't include small caps.
It's pretty confusing how many ETFs categorise "World" the market limited only to the developed markets.
MSCI's created the ACWI (All-Country World Index) which includes the EMs as opposed to MSCI's World Index.
There's also the categorisation "Global" from FTSE index which should include EM.
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Yes, I know about that bias and I totally agree with that paper. Therefore, XEQT's and ZEQT's exposure to Canada is only a "marketing strategy" due to investor psychology about the home-country bias. Still seems strange to me to overweight an all-in-one index in order to fit the irrational bias of investors. I prefer buying an unbiased ACWI with only 2-3% exposure to Canada knowing that anyways I'll add stock-picked Canadian stocks which increases my exposure to Canada in my portfolio (or I could just buy XIU or XIC). I understand though that people who only buys ETF and are looking for a single-ETF solution biased towards their home-country, then yes XEQT and ZEQT are there for them.
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Are you thinking of something like VT and wondering where the CAD-traded equivalent is? VT is roughly 3% Canada and also has 5% emerging markets so it seems to be a pretty complete "world" ETF which includes emerging.
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Yes VT is Vanguard's ETF based on FTSE Global and ACWI is iShares' ETF based on MSCI ACWI, both sold on NYSE, but I was simply wondering why we don't have the equivalent ETFs sold on the TSX. We have lots of ETFs available, but there's not even Global / ACWI. Again, I like the ZGQ based on ACWI Quality, but I feel that it is ironic that we have a quality ETF available before the traditional ETF, and we have ex-Canada or ex-North America, but no Global / ACWI.
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I am not sure what you mean but XWD based on the MSCI World Index is a market cap weighted global equity ETF, the single largest holding that both my ex and myself have. We bought it when it first made its presence and have huge unrealized cap gains. I don't like it due to its MER and would prefer, with the newer ETFs today, to have XAW and a separate Cdn equity allocation such as XIC just because of MER.
www.blackrock.com
iShares MSCI World Index ETF | XWD
The iShares MSCI World Index ETF seeks to provide long-term capital growth by replicating, to the extent possible, the performance of the MSCI World Index, net of expenses. The MSCI World Index is a free float-adjusted market capitalization weighted index provided by MSCI, Inc. that is designed...
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What I mean is answered here:I am not sure what you mean but XWD based on the MSCI World Index is a market cap weighted global equity ETF, the single largest holding that both my ex and myself have. We bought it when it first made its presence and have huge unrealized cap gains. I don't like it due to its MER and would prefer, with the newer ETFs today, to have XAW and a separate Cdn equity allocation such as XIC just because of MER.
iShares MSCI World Index ETF | XWD
The iShares MSCI World Index ETF seeks to provide long-term capital growth by replicating, to the extent possible, the performance of the MSCI World Index, net of expenses. The MSCI World Index is a free float-adjusted market capitalization weighted index provided by MSCI, Inc. that is designed...
There's no exposure to small cap and no exposure to EM. Look at the exposure breakdown. No China. No South Korea. No Taiwan. No India. No Brazil. And so on.
When FTSE (Vanguard) say Global, it's everything. When MSCI (BlackRock iShares) say World, it's the developed market. The equivalent to FTSE's Global is MSCI's ACWI, not MSCI's World.
I would certainly like to have exposure to something like China's BABA for instance which is present in NYSE's VT and ACWI, in TSX's XAW and VXC, but not in XWD and interestingly ZGQ Quality factor didn't pick on BABA.
XWD isn't bad, it performed awesomely good, obviously because it's highly diversified. Pretty similar to XAW performance actually, which is interesting, but one should know that it doesn't have EM exposure and it doesn't have small cap exposure, so it's not truly a "everything-ETF". I mean here that it could be even more complete in its diversification, and that's FTSE Global or MSCI ACWI.
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Thank you for the clarification. I don't recall looking under the hood 11+ years ago to see that XWD was only developed markets, but I suspect I did. I also know I'never had any positive thoughts about EM markets or small cap stocks, so that is probably why I never recall any of that.
I have to say I don't get fussed about decimal points in returns. Given XWD has provided me with a CAGR of 12% over 11+ years, a half point either way isn't really very relevant.
I have to say I don't get fussed about decimal points in returns. Given XWD has provided me with a CAGR of 12% over 11+ years, a half point either way isn't really very relevant.
You're totally right. It got me too. I should have checked more carefully. Too many "worlds" I guess
Regarding small caps just wanted to point that according to the ZGQ Facts Sheet it doesn't seem to hold small caps either:
Also I found interesting that they restrict the number of companies according to their methodology down to "493 names for MSCI ACWI Quality Index", "Fixed number targets 30-40% coverage of parent index universe", "Allows for high quality exposure while maintaining sufficient index market capitalization and diversification".
At the same time ZGQ has "Number of Holdings: 306"
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Good point, so FTSE Global and MSCI ACWI are not equivalent in exposure. One has small caps while the other doesn't. Thanks for that. I've also found out that ACWI doesn't include what MSCI call "frontier market". I searched and MSCI ACWI seems to be equivalent to FTSE All-World.
In fact, the Vanguard's VT ETF has 8816 holdings while the iShares' ACWI ETF has 2236 holdings. And, yes, BMO's ZGQ ETF has 306 holdings, "only". Meanwhile, there's DXG actively managed with only about 20-25 holdings diversified around the world and sectors and performing awesomely good since its recent inception in 2017.
I personally believe that too much holdings doesn't provide any advantage. VT has 4 times the holdings of ACWI and they both have the exact same performance. I don't know if at some point in the future VT will outperform ACWI because historically small caps value stocks are outperformers and since ACWI doesn't hold small caps it's not exposed to that possibility.
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You have a valid point there.In this case I would keep a 50-50 exposure to passive and factor ETFs, in this case a split between XAW and ZGQ. I already do that for US with a combo of ZSP/ZUQ, my belief being that over the long run I can average higher returns than going with one strategy only. Thoughts?
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I see that as a diversification through different indexing strategies, so I can't be against it. We could call that another kind of exposure. I guess there's many types of exposures :
- Market cap sizes
- Sectors
- Industries
- Geography
- Active management vs Passive management
- Factors and any other algorithmic indexing alternatives
- Value vs Growth
- Income vs Equity
- Bonds, REITs, Materials, Commodities, Currencies, Cryptocurrencies, Cash
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