XEM ETF Review: Better than the TSX but not S&P 500

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…

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

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

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.

XEM ETF Country Ratios

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

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.

DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.

DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.