BLK - BlackRock

XEI ETF Review: High Dividend ETF

Affiliate Disclosure

XEI ETF provides exposure to large companies in Canada. It replicates the performance of the S&P/TSX Composite High Dividend Index, net of expenses.

The Index is comprised of 50 to 75 stocks from the S&P/TSX Composite Index focused on paying a monthly income.

This ETF rebalances itself quarterly. Each constituent is capped at 5% weight, while each sector is capped at 30% weight.

Pros of iShares XEI ETF

  • It seeks to provide long-term capital growth.
  • It pays monthly dividends.
  • Low cost.
  • It has an attractive yield.

Cons of iShares XEI ETF

  • Not diversified geographically.

iShares XEI ETF Facts

  • Inception Date: April 12, 2011
  • Benchmark: S&P/TSX Composite High Dividend Index
  • Net Assets: $1,099M
  • MER: 0.22%
  • 12 Month Trailing Yield: 4.10%
  • Distribution Yield: 3.89%
  • Dividend Schedule: Monthly

iShares XEI ETF MER – Management Expense Ratio 

XEI’s management fee stands at 0.20% and MER is 0.22%. Its peers Vanguard VDY ETF and BMO ZDV ETF have an MER of 0.21% and 0.39% respectively. 

The MER is what Blackrock takes to manage the fund for you. It’s much cheaper than mutual funds and in some cases cheaper than investing on your own.

Mutual funds can charge over 2% and it robs you of your returns. It’s time to ditch your mutual funds and switch to ETF ASAP. Many brokers such as Questrade or Qtrade offer free ETFs.

iShares XEI ETF Performance

The annual rate of return for iShares XEI ETF since inception is 6.20%. It has underperformed the broader S&P500 index.

The performance is acceptable for an income portfolio in “retirement” but not during the accumulation years. You leave way too much money on the table. The SP500 gives you twice that return.

XEI ETF vs SP500 vs TSX
Dividend Adjusted Chart by Stock Rover - Try it out.

Take your TFSA account as an example. The rules are the same for everyone and I mean everyone. The growth is ultimately a factor of your investment performance provided you make your TFSA contribution limit every year. The annual performance of an ETF matters as you can see below the growth over 20+ years.

iShares XEI ETF Holdings

Investing in XEI is investing in the the Canadian stock market.

Below are the top holdings of XEI ETF at the time of writing. The ratio of weight can fluctuate on any month at the discretion of the fund manager in accordance with the fund target.

XEI focuses on established, profitable companies with long dividend track records. Some of its top holdings include leading Canadian names like Toronto Dominion, Royal Bank of Canada, TC Energy, BCE, etc. Toronto Dominion is its most significant holding with a ~5% weightage, followed by RBC with another 5% allocation.

TC Energy is its third-largest holding, accounting for ~4.9% of iShares XEI’s fund allocation. XEI is a good way of investing in the large-cap companies, listed on the TSX, and paying regular dividends.

iShares XEI ETF Sector Allocation

iShares XEI is diversified by sectors. The ETF is majorly inclined towards the Energy, Financials, and Communication sectors with a weightage of ~30%, ~30%, and ~13%, respectively. It also provides investors with exposure to utilities (~11%) and materials (~6%), and the balance of 10% towards consumer cyclical, healthcare, and industrials companies. So, the highest allocation is towards energy and the lowest weightage is in the healthcare sectors. However, these allocations may change from time to time. 

wdt_ID Sector Ratio
1 Financials 30.01
2 Utilities 10.95
3 Communication Services 12.92
4 Consumer Cyclical 2.68
5 Energy 29.68
6 Basic Materials 6.11
8 Industrials 1.04
9 Consumer Defensive 0.19
10 Real Estate 5.72
11 Cash 0.29
12 Technology 10.37
13 Healthcare 0.42

Why hold iShares XEI ETF

XEI ETF is similar to many other ETFs and dividend ETFs that are broadly following the TSX. In the end, you want to focus on the lower fees and the more consistent yield.

I must admit that I see it as only an income investment in retirement.

XEI vs CDZ vs ZDV vs VDY 2021
Dividend Adjusted Chart by Stock Rover - Try it out.

If you want the dividends, it’s not clear you will get the same growth but the the best banks and the best utility stocks will give you more income.