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Welcome to a weekly collection the place I break down and evaluate among the hottest exchange-traded funds (ETFs) accessible to Canadian buyers!
Canadian buyers taking a passive method to purchasing excessive dividend paying shares can choose their very own, however a better and extra hands-off method is thru utilizing an ETF. Each BlackRock and Vanguard present a set of low-cost, high-liquidity ETFs that provide publicity to a portfolio of nice dividend shares.
The 2 tickers up for consideration immediately are iShares S&P/TSX Composite Excessive Dividend Index ETF (TSX:XEI) and Vanguard FTSE Canadian Excessive Dividend Yield Index ETF (TSX:VDY). Which one is the higher possibility? Preserve studying to search out out.
XEI vs VDY: charges
The payment charged by an ETF is expressed because the administration expense ratio (MER). That is the share that’s deducted from the ETF’s web asset worth (NAV) over time, calculated on an annual foundation. For instance, an MER of 0.50% implies that for each $10,000 invested, the ETF prices a payment of $50 yearly.
XEI has an MER of 0.22%, an identical to that of VDY at 0.22%. The ETFs are due to this fact tied on the subject of their charges. That being mentioned, Vanguard does have the higher observe file of decreasing charges on their ETF lineup owing to their “investor first” philosophy.
XEI vs VDY: measurement
The dimensions of an ETF is essential. Funds with small belongings below administration (AUM) might have poor liquidity, low buying and selling quantity, excessive bid-ask spreads, and extra danger of being delisted as a result of lack of curiosity.
XEI at the moment has AUM of $1.76 billion, whereas VDY has AUM of $1.77 billion. Each are just about an identical and are greater than enough for a buy-and-hold investor. Once more, it’s a tie right here.
XEI vs VDY: holdings
XEI tracks the S&P/TSX Composite Excessive Dividend Index, which holds a complete of 75 shares. Nearly all of the ETF is concentrated within the power (30.36%), financials (29.46%), telecommunications (14.81%), and utilities (13.96%) sectors. The present distribution yield is 3.51%.
VDY tracks the FTSE Canadian Excessive Dividend Yield Index, which holds a complete of 39 shares. Nearly all of the ETF is concentrated within the financials (57.1%), power (24.2%), telecommunications (8.3%), and utilities (5.4%) sectors. The present distribution yield is 3.41%.
XEI vs VDY: historic efficiency
A cautionary assertion earlier than we dive in: previous efficiency isn’t any assure of future outcomes, which might and can differ. The portfolio returns introduced beneath are hypothetical and backtested. The returns don’t mirror buying and selling prices, transaction charges, or taxes, which might trigger drag.
Listed here are the trailing returns from 2013 to current:
Listed here are the annual returns from 2013 to current:
VDY outperformed XEI over the previous couple of years. I attribute this to VDY’s larger focus of Massive 6 financial institution shares, which posted superb earnings, revenues, and dividend will increase within the final decade. Nonetheless, sectors are cyclical, and XEI has been outperforming to this point in 2022 because of its larger focus of power shares.
The Silly takeaway
If I had to decide on one ETF to purchase and maintain, it could be XEI. Each ETFs have an identical MERs and AUMs, however VDY is simply too concentrated within the TSX financials sector for my liking. Though the Massive 6 banks have carried out nicely, I’m personally not snug with taking up focus danger, so XEI is the higher, extra diversified possibility in my view. Nonetheless, in case you’re keen on Vanguard and like over-weighting the financials sector, VDY is a wonderful choose as nicely.
