XEM ETF provides exposure to large and mid-sized companies in emerging markets countries.
It’s an option for investors that are truly buying into index investing as it covers a market sergments that is often under-invested but can provide a lift.
XEM primarily invests in securities of one or more ETFs managed by BlackRock. It replicates the performance of the MSCI Emerging Markets Index, net of expenses. The Index is a free float-adjusted market capitalization-weighted index.
Pros of iShares XEM ETF
- It seeks to provide long-term capital growth.
- It provides exposure to a broad range of large and mid-cap equities from emerging market countries.
- It provides international diversification.
Cons of iShares XEM ETF
- Expensive with an MER of 0.82% when compared to other cheaper options from iShares and others.
- A small ETF for transaction volumes.
iShares XEM ETF Facts
- Inception Date: June 18, 2009
- Benchmark: MSCI Emerging Markets Index
- Net Assets: $288M
- MER: 0.82%
- 12 Month Trailing Yield: 1.30%
- Distribution Yield: 1.85%
- Dividend Schedule: Semi-annual
iShares XEM ETF MER – Management Expense Ratio
XEM’s management fee stands at 0.82% and MER is 0.82% too. XEC ETF has an MER of 0.27% for comparison.
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 offer free ETFs.
iShares XEM ETF Performance
The annual rate of return for iShares XEM ETF since inception is 7.12%. It has underperformed the broader S&P500 index.
It is also barely beating the TSX which begs the question as to why take the risk with emerging markets. It will just end up playing with your emotions and you will sell and buy at the wrong time…
The annual rate of return for iShares XAW ETF since inception is 7.12%. When you compare with my annual ROR of 14.40%, there is a big difference. Just look at the S&P500 index to get a different perspective.
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.
| wdt_ID | Year | Yearly Limit | Cumulative | 5% Growth | 10% Growth | Dividend Earner | Spousal |
|---|---|---|---|---|---|---|---|
| 1 | 2009 | 5,000 | 5,000 | 5,250 | 5,500 | Not Tracked | Not Started |
| 2 | 2010 | 5,000 | 10,000 | 10,762 | 11,550 | Not Tracked | Not Started |
| 3 | 2011 | 5,000 | 15,000 | 16,550 | 18,205 | Not Tracked | Not Started |
| 4 | 2012 | 5,000 | 20,000 | 22,628 | 25,525 | Not Tracked | Not Started |
| 5 | 2013 | 5,500 | 25,500 | 29,534 | 34,128 | $41,742 | Not Started |
| 6 | 2014 | 5,500 | 31,000 | 36,786 | 43,590 | $52,820 | Not Started |
| 7 | 2015 | 10,000 | 41,000 | 49,125 | 58,949 | $56,307 | Not Started |
| 8 | 2016 | 5,500 | 46,500 | 57,356 | 70,984 | $70,200 | Not Started |
| 9 | 2017 | 5,500 | 52,000 | 65,999 | 84,034 | $78,900 | $13,308 |
| 10 | 2018 | 5,500 | 57,500 | 75,074 | 98,487 | $96,937 | $58,818 |
| 11 | 2019 | 6,000 | 63,500 | 85,128 | 114,986 | $129,467 | $82,596 |
| 12 | 2020 | 6,000 | 69,500 | 95,684 | 133,030 | $153,993 | $95,906 |
| 13 | 2021 | 6,000 | 75,500 | 106,769 | 152,933 | $181,601 | $113,194 |
| 14 | 2022 | 6,000 | 81,500 | 118,407 | 174,827 | $183,031 | $144,633 |
| 15 | 2023 | 6,500 | 88,000 | 131,152 | 199,459 | $217,738 YTD | $167,963 YTD |
| 16 | 2024 | 7,000 | 95,000 | 145,061 | 227,105 | ||
| 17 | 2025 | 7,000 | 102,000 | 159,664 | 257,516 | ||
| 18 | 2026 | 7,000 | 109,000 | 174,997 | 290,967 | ||
| 19 | 2027 | 7,000 | 116,000 | 191,097 | 327,764 | ||
| 20 | 2028 | 7,500 | 123,500 | 208,526 | 368,791 | ||
| 21 | 2029 | 7,500 | 131,000 | 226,828 | 413,920 | ||
| 22 | 2030 | 7,500 | 138,500 | 246,044 | 463,562 | ||
| 23 | 2031 | 7,500 | 146,000 | 266,221 | 518,168 | ||
| 24 | 2032 | 7,500 | 153,500 | 287,407 | 578,235 | ||
| 25 | 2033 | 7,500 | 161,000 | 309,653 | 644,308 | ||
| 26 | 2034 | 7,500 | 168,500 | 333,011 | 716,989 | ||
| 27 | 2035 | 7,500 | 176,000 | 357,536 | 796,938 | ||
| 28 | 2036 | 7,500 | 183,500 | 383,288 | 884,881 | ||
| 29 | 2037 | 7,500 | 191,000 | 410,327 | 981,620 | ||
| 30 | 2038 | 7,500 | 198,500 | 438,719 | 1,088,032 |
iShares XEM ETF Holdings
XEM ETF is a proxy to the US EEM ETF from BlackRock. Investing in XEM is investing in EEM but in Canadian dollars.
It holds over 1,200 companies. It’s not worth listing them all here and instead it’s much better to look into the country exposure you are getting from it.
iShares XEM ETF Sector Allocation
iShares XEM is heavy in the technology sector as seen above and also heavy in China which is a risk. Most recently, regulations around tech companies have impacted the performance.
| wdt_ID | Sector | Ratio |
|---|---|---|
| 1 | Financials | 19.70 |
| 2 | Utilities | 2.18 |
| 3 | Communication Services | 10.31 |
| 4 | Consumer Cyclical | 14.87 |
| 5 | Energy | 5.27 |
| 6 | Basic Materials | 8.95 |
| 7 | ||
| 8 | Industrials | 4.95 |
| 9 | Consumer Defensive | 5.90 |
| 10 | Real Estate | 1.88 |
| 11 | Cash | 0.16 |
| 12 | Technology | 21.09 |
| 13 | Healthcare | 4.74 |
Why hold iShares XEM ETF
Diversification through the mantra of index investing is the primary reason but it’s exposed to China and that’s a risk in itself with changing policies.
If you want emerging markets, look elsewhere. If you want simple and performing, have a look at the VFV S&P 500 ETF.
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.