# VEA vs XEF?



## Blush (Jan 9, 2014)

XEF or VEA? What's the best option etf, for cdn rrsp or Tfsa and why? Tks


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## leeder (Jan 28, 2012)

Not exactly an apples to apples comparison. VEA vs IEFA may be more comparable. 

My stab at this is VEA for RRSP is preferable. However, it's best if you have a sizable amount to convert to US dollar using Norbert's Gambit. If you have a small amount, XEF is ok. You get dinged on the withholding tax, but you save on the dollar conversion. It also depends on which brokerage you use. 

For TFSA, there's going to be a withholding tax applied regardless of VEA or XEF. XEF might cost less, but I haven't done the analysis. I believe Canadian Couch Potato blog had done the analysis couple months ago. You may want to check that out.


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## My Own Advisor (Sep 24, 2012)

I recall the hit on VEA in a TFSA is around 0.70% with you factor in withholding tax. Much better to put VEA in RRSP, closer to 0.4%.

XEF in TFSA or RRSP will cost close to 1% in RRSP or TFSA I recall, because this a CDN-listed that holds US-listed ETF and developing markets - no? This means withholding taxes are not recoverable.


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## llagebs (Feb 24, 2014)

http://canadiancouchpotato.com/2014/02/20/the-true-cost-of-foreign-withholding-taxes/


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## leeder (Jan 28, 2012)

llagebs said:


> http://canadiancouchpotato.com/2014/02/20/the-true-cost-of-foreign-withholding-taxes/


That's the article. Just keep in mind that XEF has lowered its MER (the article was using XEF's old MER of 0.35%... I believe XEF's current MER is about 0.23%...). 

One thing I don't think the article factors in is the cost of switching Cdn $ to US $. Even with Norbert's Gambit, typical brokerages would incur multiple trading commissions (buying, then selling a security or DLR/DLR.U, then buying the US traded ETF/stock). For small amounts, it's not worth converting to US $. Some may argue that, out of simplicity, it might be best to stick with the Canadian traded product.


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## Spudd (Oct 11, 2011)

You can also consider ZEA, which holds the foreign stocks directly and should be less withholding tax.


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## larry81 (Nov 22, 2010)

Spudd said:


> You can also consider ZEA, which holds the foreign stocks directly and should be less withholding tax.


I believe this passed under the radar here but XEF will start to hold stock directly starting 12 september.

http://www.marketwired.com/press-re...-announces-certain-changes-to-xef-1940864.htm

Investor with new money to deploy should use XEF in place of ZEA since its much more diversified (2500+ holdings vs 450 for ZEA). MER is equal at 0.20%.

However, take note that:



> BlackRock Canada's current expectation is that XEF will realize capital gains as a result of the changes to XEF's portfolio. The amount of any capital gains from the changes in XEF's portfolio and other investment activities will be disclosed and distributed to unitholders of XEF during the fourth quarter of 2014 in accordance with BlackRock Canada's standard procedures for capital gains distributions by the iShares funds.


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## mrPPincer (Nov 21, 2011)

larry81 said:


> I believe this passed under the radar here but * XEF will start to hold stock directly* starting 12 september.
> 
> http://www.marketwired.com/press-re...-announces-certain-changes-to-xef-1940864.htm
> 
> ...


Nice!

This is useful info for me. I have been sitting on some cash in the HISA since I moved from TDDI to CIBC IE a few months ago, & up til now waiting on attractive deals on British ADRs.
I haven't seen anything close to my target price yet, so it's been sitting in ATK5000 at a meager 1.3%.

Until I see what looks to me like some good deals, for the cost of just $6.95, I can put this cash into XEF for the time being, and remove & better deploy the corresponding amount of $(+/-) from the TDB906 that's still held with the big green.

I realize I will still be subject to some unrecoverable w/h tax, but not near as much as if for example I held VGK in the TFSA.

Thanks for the info larry81!


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## larry81 (Nov 22, 2010)

Beware mrPPincer, investing in a fund like XEF (or any equities fund) should not be considered for anything short term !. This position should be part of your "core" holdings.


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## mrPPincer (Nov 21, 2011)

Yes, thanks for the warning larry81, but in my case I would not be substantially changing any allocations, only rebalancing at best, and if/when I sell, it would only be to buy something within the TFSA which would have a similar beta, but not be subject to w/h taxes; I do tend to keep a close eye on my allocations, but your warning is good advice.


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