# XAW vs. separate etfs



## christinad (Apr 30, 2013)

I am still debating between XAW and individual etfs. The advantage I see with XAW is when I have to start selling in retirement, it would be cheaper and easier for rebalancing to sell one fund instead of 2. On the other hand, is it possible the market capitalization of the US may increase and the allocation to the US in XAW would become even higher? I believe it is 55% now. Maybe I am overthinking things. I don't think I would want the allocation to be higher.


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## Jimmy (May 19, 2017)

Right now the US market is a little overvalued which is a concern w the P/E of the S&P at 25x, ~ 19 is more normal. Tech is ~ 24 % of the S&P 500 now making it more volatile too.

Maybe better to go individual and underweight the US. Another option is Vanguard Global low vol VVO. 50% US but in more defensive areas so you wont get hurt as much w a pullback. More banks, utilities, consumer staples etc


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## Butters (Apr 20, 2012)

Make some allocations and stick to them. Don't think this one country will preform better, etc...

http://www.canadianportfoliomanagerblog.com/whats-new-with-my-model-etf-portfolios-and-why/

has XAW.to broken into XUU.to / XEF.to / XEC.to 



It will be better to hold them separately, if you are making a larger deposit now, and are holding for at least a few year



But if you are just starting out, XAW.to might be easier to manage


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## james4beach (Nov 15, 2012)

I wanted to share this chart. VT is a highly regarded "world" ETF from Vanguard (US). It turns out that XAW tracks VT perfectly, which is really good news for Canadian investors.

The chart shows XAW (green line) and VT converted to CAD (black line). I'm actually surprised that the iShares XAW tracks VT this well even though they use different indexes.


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## Topo (Aug 31, 2019)

I think XAW and VXC are great choices for world ex Canada. You can't go wrong with either of them. 

Let the market capitalizations determine the weightings. There is not a major difference between 55% US and 45% US.


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## AltaRed (Jun 8, 2009)

Topo said:


> I think XAW and VXC are great choices for world ex Canada. You can't go wrong with either of them.
> 
> Let the market capitalizations determine the weightings. There is not a major difference between 55% US and 45% US.


I agree fully with XAW or VXC. No one knows where relative global market weights will be next year, or 5 years from now, or 10 years from now. Anyone who wants to break it up into multiple components only 'think' they know where markets are headed. They don't. No one does. Chances are they will be less than 50% correct.

Leave the guessing game to 'whatever will be will be'. The market is never wrong longer term. I have a healthy holding of XWD that is the entire world..... which was before either XAW or VXC was in existence. I would switch except for the well over 100% unrealized gains that I'd have to pay tax on prematurely.


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## digitalatlas (Jun 6, 2015)

I've had separate international ETFs (VUN, XEF, XEC) for years to allocate internationally, but couple years ago when I set up a new trading account (long story) for a portion of my money, I wanted it to be simpler so I looked into moving from 5 ETFs to 3. In this account, I hold canadian, XAW, and bonds.

I decided against VXC because I think they had 60% US whereas XAW was closer to 50%, and I wanted to balance it out with the rest of the world better. This was easier to get to my target allocation. It doesn't give me the slightly more granular control of rebalancing as with my 5 ETFs, but for this purpose I wanted the simplicity.

For most of my funds, I like the idea of 5 ETFs more than XAW. So it might work well if simplicity is your priority, but I think separate ETFs is better in the long run.


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## james4beach (Nov 15, 2012)

digitalatlas said:


> For most of my funds, I like the idea of 5 ETFs more than XAW. So it might work well if simplicity is your priority, but I think separate ETFs is better in the long run.


I think that seperate ETFs provide better rebalancing opportunities. This may be especially advantageous if someone is in retirement / withdrawal mode. As you liquidate to withdraw money out of the portfolio, you can sell from whatever is "high" (above target weight) while leaving the other ETFs alone.

If you had everything in an all in one fund like VBAL, then you have to sell everything indiscriminately.


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## AltaRed (Jun 8, 2009)

james4beach said:


> I think that seperate ETFs provide better rebalancing opportunities. This may be especially advantageous if someone is in retirement / withdrawal mode. As you liquidate to withdraw money out of the portfolio, you can sell from whatever is "high" (above target weight) while leaving the other ETFs alone.
> 
> If you had everything in an all in one fund like VBAL, then you have to sell everything indiscriminately.


Truth of the matter though is there is nothing 'factual' about one's target weight. It is a figment of one's imagination (belief) of what global distribution and/or asset allocation is right. Callan's Periodic Table tells you that in spades, and only in hindsight. One can pretend if they wish to do so though.


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## MarcoE (May 3, 2018)

XAW. It's a pain in the butt to balance individual ETFs. Whenever it's time to buy or sell, it's hard to decide which individual ETF to use, and it feels like timing the market. For me at least. I'd rather just have XAW and not worry about it. Simpler, easier. Only downside for me is slightly higher MER but I'm fine with that. YMMV.


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## james4beach (Nov 15, 2012)

MarcoE said:


> For me at least. I'd rather just have XAW and not worry about it. Simpler, easier. Only downside for me is slightly higher MER but I'm fine with that. YMMV.


Can't really complain about XAW ... new all time highs. The 5 year performance is 9.7% CAGR


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## afulldeck (Mar 28, 2012)

Yes it has. I'm happy with XAW and its performance.


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## MrBlackhill (Jun 10, 2020)

XAW or Global World is about the same because removing Canada is only removing about 2% out of the Global World.

Then why not pick on something like ZGQ, beating XAW and VT?


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## afulldeck (Mar 28, 2012)

MrBlackhill said:


> XAW or Global World is about the same because removing Canada is only removing about 2% out of the Global World.
> 
> Then why not pick on something like ZGQ, beating XAW and VT?


It didn't exist until a few months ago.


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## MrBlackhill (Jun 10, 2020)

afulldeck said:


> It didn't exist until a few months ago.


ZGQ is older than XAW


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## afulldeck (Mar 28, 2012)

MrBlackhill said:


> ZGQ is older than XAW


I stand corrected-got me beat by 3 months. However, if low cost MER is what you're looking for XAW (.2) < ZGQ (.45).


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## MrBlackhill (Jun 10, 2020)

afulldeck said:


> I stand corrected-got me beat by 3 months. However, if low cost MER is what you're looking for XAW (.2) < ZGQ (.45).


True, but then XAW is at +8% CAGR since inception and ZGQ is at +14% CAGR since inception, based on their fact sheets for total return.

But it's a preference. Some people may not want to try out factor-based indices, though MSCI's quality factor for its global index has beaten its basic MSCI global index for a long time.


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## afulldeck (Mar 28, 2012)

MrBlackhill said:


> True, but then XAW is at +8% CAGR since inception and ZGQ is at +14% CAGR since inception, based on their fact sheets for total return.
> 
> But it's a preference. Some people may not want to try out factor-based indices, though MSCI's quality factor for its global index has beaten its basic MSCI global index for a long time.


It might be time for an asset swap. But I need to investigate further. I know when I entered into XAW, I was not aware of the existence of ZGQ and I really didn't look at the BMO etf portfolio. (Yes they have grown in recent years.)


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## MrBlackhill (Jun 10, 2020)

afulldeck said:


> It might be time for an asset swap. But I need to investigate further. I know when I entered into XAW, I was not aware of the existence of ZGQ and I really didn't look at the BMO etf portfolio. (Yes they have grown in recent years.)


Yes, we'll see what others think about my comment on ZGQ. I'm a beginner investor, so it's just an observation from my hours of reading and research, but I don't have years of experience.

I think BMO are providing many good ETFs recently and they are competing with BlackRock's iShares and Vanguard. I'm also watching Horizons ETFs.

Also, quality factor may outperform in some contexts and underperform in other contexts. But I believe the same holds true for the traditional indices. After all, they are all algorithms with different level of complexity, the traditional being the most simple and the reference so far.

I personally like the rise of factor-based indices, especially by MSCI, so I'm biased towards them. In the last 25 years, MSCI's quality and momentum factors have been outperformers.









Factors – Elements of Performance


MSCI Factor Indexes help capture the return of factors which have historically shown excess market returns over the long run. MSCI provides factor indexes like quality index, minimum volatility index, momentum index, dividend yield index, low size index, enhanced value index.




www.msci.com


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## afulldeck (Mar 28, 2012)

In reviewing this puppy, the one thing I like about ZGQ is holdings are capped at 5%.


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## MrBlackhill (Jun 10, 2020)

afulldeck said:


> In reviewing this puppy, the one thing I like about ZGQ is holdings are capped at 5%.


One thing you may not like is its average volume (8k for ZGQ vs 43k for XAW and price*volume of about $360k for ZGQ vs $1.3M for XAW). I think it's sad, I'm watching many solid ETFs with low volume.


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## afulldeck (Mar 28, 2012)

MrBlackhill said:


> One thing you may not like is its average volume (8k for ZGQ vs 43k for XAW and price*volume of about $360k for ZGQ vs $1.3M for XAW). I think it's sad, I'm watching many solid ETFs with low volume.


Yes. I was looking at those numbers. I haven't found any information (yet) pointing to why the volume is so low compared to its peers.


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## fireseeker (Jul 24, 2017)

MrBlackhill said:


> One thing you may not like is its average volume (8k for ZGQ vs 43k for XAW and price*volume of about $360k for ZGQ vs $1.3M for XAW). I think it's sad, I'm watching many solid ETFs with low volume.


I'm not sure volume from a major ETF provider is a concern these days.
An order placed between the bid/ask -- not right in the middle, but giving an edge to the liquidity provider -- will usually get filled by the market maker. If it doesn't, change your order price by a penny or two. 
These transactions aren't always recorded in the market -- they might be filled in dark pools, for instance -- meaning liquidity is often better than volume reporting suggests.


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## afulldeck (Mar 28, 2012)

fireseeker said:


> An order placed between the bid/ask -- not right in the middle, but giving an edge to the liquidity provider -- will usually get filled by the market maker. If it doesn't, change your order price by a penny or two.
> These transactions aren't always recorded in the market -- they might be filled in dark pools, for instance -- meaning liquidity is often better than volume reporting suggests.


Now that is an interesting tidbit.


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## AltaRed (Jun 8, 2009)

An interesting ETF I had never looked at before. Not much traction though, $188M in AUM over 6 years since inception with a rather, in my opinion, high MER. Typically, I don't like 'boutique indices' though this one is just a twist on the All Country World Index ZGQ - BMO MSCI All Country World High Quality Index ETF | BMO Global Asset Management

Agreed that volume is not an issue if the market maker is present, and should be to keep Bid/Ask within reasonable proximity of NAV during low volume periods. Can tell if that is the case most of the time with Real Time Level 2 quotes.


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## MrBlackhill (Jun 10, 2020)

AltaRed said:


> Typically, I don't like 'boutique indices' though this one is just a twist on the All Country World Index


Exactly, it's just a single factor that MSCI added to its index and I trust MSCI. They have full documentation with more historical data on those kind of indices on their website. They also have full research reports about their factor indices.

I don't know how to calculate the effect of MER but if it's plain simple as compounding the MER to the CAGR then it's not an issue. -0.20% x +8% leads to +7.784% for XAW while -0.45% x +14% leads to +13.487% for ZGQ. And if it's just a subtraction instead of a compounding, then it's even better.


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## james4beach (Nov 15, 2012)

I don't see any big problem with ZGQ, but it is a rather small fund with a low assets under management. It may not stick around long term because it hasn't been able to attract investors.

The main difference I see between them is the weighting in the US: ZGQ is 68% US while XAW is 58% US

The fund description has a bunch of fancy factor things going on, but the weight in the US may explain the difference in performance... so the outperformance of ZGQ doesn't excite me too much because I suspect it comes down to % exposure to US.

What happens when the US then enters a decade of underperformance? ZGQ would start underperforming, and then you would doubt your holding in it and feel bad that it has too much in the US, and then _chase performance_ by going into XAW or something else which is even lighter in the US, probably.

At the end of the day it doesn't matter which of these foreign ETFs you choose, but I think you need to be ready to stick with it "no matter what", including when it starts underperforming. Personally I think XAW is better diversified, plus it has the lower MER.


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> The fund description has a bunch of fancy factor things going on, but the weight in the US may explain the difference in performance... so the outperformance of ZGQ doesn't excite me too much because I suspect it comes down to % exposure to US.


Well, the quality factor made it pick more weight on US but also on other countries, which allowed it to significantly outperform the index, so that means the factor did a good job to pick on more US.

And if you want to know what will happen when the US will underperform, well it's an ETF and it will adapt, and it will most likely adapt better than the index, again.

In the link below that I provided in a previous post, you see how the quality factor and the momentum factor have been outperformers in many contexts: in World ex US, in EM, in Europe, in UK, in Asia ex Japan, in Japan, in Australia, in China, in Brazil, etc. It also performed better on the YTD during this pandemic crash. Also note that Brazil and LATAM have negative 10-year and the quality factor also outperformed in that bear context.









Factors – Elements of Performance


MSCI Factor Indexes help capture the return of factors which have historically shown excess market returns over the long run. MSCI provides factor indexes like quality index, minimum volatility index, momentum index, dividend yield index, low size index, enhanced value index.




www.msci.com





That's like the actively managed DXG that I'm watching for quite a while now. They are working with only 20-25 holdings around the world and they manage to be well diversified and to average +24% CAGR on the last 3 years. They also barely crashed during the pandemic. Actually, XAW crashed the worst while ZGQ and DXG crashed the least.

I'm also not sure about the MER argument when the performance difference is more than 1pp CAGR. Actually, the difference between XAW and ZGQ is 6pp CAGR, which is huge. But that's since inception, I prefer the average rolling returns but both ETF are pretty young so we can only analyse on a 3-year window and ZGQ's average outperforms XAW's average by 3pp CAGR. It's also 3pp CAGR difference on the 1-year window. And it has higher lows in all cases.

I don't agree about sticking to a plan "no matter what". I think most of us will be investing in the stock market for more than 40 years. So many things can change. New products, new strategies, new market context. I agree that we shouldn't be changing strategy every single year based on our mood, but we must be aware of the evolution of the market and adapt. That may require reassessing our strategy every decade or maybe even every 5 years.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> I don't agree about sticking to a plan "no matter what". I think most of us will be investing in the stock market for more than 40 years. So many things can change. New products, new strategies, new market context. I agree that we shouldn't be changing strategy every single year based on our mood, but we must be aware of the evolution of the market and adapt. That may require reassessing our strategy every decade or maybe even every 5 years.


That's a good point. I agree with occasional repositioning (which I've done myself), but one also has to also strike a balance to make sure it doesn't became constantly chasing past returns. Any hot investment you pick today will inevitably go through a period of bad performance, and then one gets tempted by whatever looks hot at the time ... if one isn't careful, this becomes a story of "buy high, sell low".


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## afulldeck (Mar 28, 2012)

MrBlackhill said:


> That's like the actively managed DXG that I'm watching for quite a while now. They are working with only 20-25 holdings around the world and they manage to be well diversified and to average +24% CAGR on the last 3 years. They also barely crashed during the pandemic. Actually, XAW crashed the worst while ZGQ and DXG crashed the least.


DXG is an interesting find with such a small number of holdings and sectors (health, industrials, IT) I think you maybe watching a concentration boost. If your inclined to higher risk portfolio this might suit the bill. I like it since I see the holding are advancing with technology adoption improvements. 



MrBlackhill said:


> I don't agree about sticking to a plan "no matter what". I think most of us will be investing in the stock market for more than 40 years. So many things can change. New products, new strategies, new market context. I agree that we shouldn't be changing strategy every single year based on our mood, but we must be aware of the evolution of the market and adapt. That may require reassessing our strategy every decade or maybe even every 5 years.


This is a fair point. The world is dynamic why aren't we?


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## john.cray (Dec 7, 2016)

For a more "apples to apples" comparison let's look at ZUG vs ZSP - it shows outperformance for the quality factor ETF.

I too wish the quality filter they use for ZGQ didn't result in such a heavy US weighting since that makes it a lot less of a "world" ETF but I also hope that this same filter would adapt the composition to a different country weight in a situation when the US does worse.

The history is short but I find the results impressive. In both comparisons I ran (the one above) and in ZGQ vs XAW I see: higher CAGR, about the same standard deviation (volatility), better worst year and much lower maximum drawdown.

The other thing worth mentioning is that the quality factor results in a much lower number of stocks holdings.


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## MrBlackhill (Jun 10, 2020)

The weighting is quite different, I must admit.

Below, ACWI, then ACWI Quality, then ACWI Momentum. As of October.


























Quality picked on tech, healthcare, consumer staples, US, Switzerland and Taiwan. It dropped financials big time, and it dropped consumer discretionary, materials, energy, utilities, REITs and Japan.

Momentum picked on tech, healthcare, consumer discretionary, China and... Canada. It dropped financials big time, and it dropped industrials, consumer staples and energy.


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## james4beach (Nov 15, 2012)

Though these factors are very interesting (ZLB was interesting too), I still wonder about the problems created by straying from any "standard index" approach. The pain of underperformance will always be hanging over you.

Going with the dumb old standard index (like TSX Composite, or MSCI etc) makes it easier to forgive a period of underperformance. You say, we're just in a bad period but the very long history shows us that the index will bounce back.

The situation does not create much confusion or emotional turmoil... no need to constantly second guess your investment.

What happens when you go into some exotic factor ETF instead and it doesn't keep outperforming like you were hoping. Now you find yourself paying extra fees for something which, over many years, is no longer proving its worth. Maybe the original concept wasn't great. *Maybe the fund manager is poorly executing the idea*. Maybe the technique had a brief period of greatness (shining moment) before it fizzled out.

I suspect that returns will suffer if every 2 years or 5 years, you hop from one awesome-looking ETF to another. There will always be something that's hot today. Mutual fund investors are notorious for this kind of return-chasing behaviour and I suspect that ETF investors tend to do the same.


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## AltaRed (Jun 8, 2009)

The more exotic (boutique) the ETF, the higher the fees seem to be. Also the more securities move in/out of that boutique index, the more phantom re-invested capital distributions one will likely have.


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## john.cray (Dec 7, 2016)

Some more data points that I find.

Dan's article on quality factor: Understanding the Quality Factor | Canadian Couch Potato
In contrast to the Canadian versions above, comparing QUAL vs SPY shows pretty minor differences.
In the case of IQLG vs VT it is even worse - VT wins by a lot.
Histories are short because of the recent development of the quality factor.


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## MrBlackhill (Jun 10, 2020)

john.cray said:


> In contrast to the Canadian versions above, comparing QUAL vs SPY shows pretty minor differences.
> In the case of IQLG vs VT it is even worse - VT wins by a lot.


About those comparisons, I would argue that they are not based on the same index. QUAL is not a quality factor applied to S&P 500, it's a quality factor applied to MSCI USA index, and it's beating it. You could argue though that Vanguard's USA index is better that MSCI's USA index because QUAL is not outperforming VTI. Therefore, even basic indices are not equal.










IQLT is ex-US, so it should be compared to IXUS (IQLT outperformed IXUS).






Backtest Portfolio Asset Allocation


Analyze and view backtested portfolio returns, risk characteristics, standard deviation, annual returns and rolling returns



www.portfoliovisualizer.com





It is also true that not all quality factors are made equal, that's why I said I was trusting the quality factor provided by MSCI.


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## Investor87 (Dec 1, 2020)

john.cray said:


> For a more "apples to apples" comparison let's look at ZUG vs ZSP - it shows outperformance for the quality factor ETF.
> 
> I too wish the quality filter they use for ZGQ didn't result in such a heavy US weighting since that makes it a lot less of a "world" ETF but I also hope that this same filter would adapt the composition to a different country weight in a situation when the US does worse.
> 
> ...


Hey guys, ETF investor here looking to gain insights. I have been using ETFs since mid 2010s and have used both XAW and ZGQ. I agree with John on this one, I like the lower number of stocks inside ZGQ's portfolio and the results are impressive.

Another thing that made me do the switch was how it performed in volatile times, where the quality factor really kicks in and protects you on the downside.


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## dcris07 (Nov 23, 2020)

Investor87 said:


> Hey guys, ETF investor here looking to gain insights. I have been using ETFs since mid 2010s and have used both XAW and ZGQ. I agree with John on this one, I like the lower number of stocks inside ZGQ's portfolio and the results are impressive.
> 
> Another thing that made me do the switch was how it performed in volatile times, where the quality factor really kicks in and protects you on the downside.



Interesting fact to note the "Quality" factor has really shinned especially during the COVID sell off ZGQ and ZUQ ( BMO US Quality)helped up better than the broad markets and outperformed when markets started recovering.


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## james4beach (Nov 15, 2012)

dcris07 said:


> Interesting fact to note the "Quality" factor has really shinned especially during the COVID sell off ZGQ and ZUQ ( BMO US Quality)helped up better than the broad markets and outperformed when markets started recovering.


And now what if, as COVID fears wear off, the quality factor underperforms the benchmark indexes for the next 3 years. Would you still hang on?

Going with any index/ETF, you really have to "believe" in it strongly enough that you will hang on. Everything takes turns outperforming and underperforming. You'll never find an investment which constantly outperforms the alternatives.

So it's important to invest in something you strongly believe in, because you'll need to hang on when it starts doing badly. It WILL eventually start doing badly, I guarantee you that.


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## MrBlackhill (Jun 10, 2020)

Well, yes, the question is : how much research documentation must you read, how much reports much you read, how much historical data much you analyse so that your belief in your investment fits your risk profile?

On another subject, I have a question for you guys.

BlackRock iShares and Vanguard have their all-equity bundles XEQT and VEQT. I see that they overweight in Canadian equities and I guess that's because those ETFs are sold to Canadians, but why? Why wouldn't I just buy ACWI (sold in USD) to simply have an all-country exposure bundle instead of their XEQT and VEQT? And why don't they have an equivalent ETF sold in Canada? They only have XAW and VXC which are both ex-Canada (but the difference is very slight as they only removed the 2% exposure to Canada)? So the only ETF sold in Canada which is all-country is ZGQ but that comes with a factor (which I like, but some people may be reluctant).

In the end, my question is linked the original subject. If we want exposure to an all-in-one ETF all-equity all-country, we don't have many options. If you buy separate ETFs, then your exposure is not index-adaptive, it's index-allocated.

For instance, instead of buying VEQT which overweights Canada, I'd just build my own bundle based on my preferences buying for example 40% VUN, 10% VCN, 10% VIU and 40% VEE or if I want to fit more like ACWI then I'd but 98% VXC and 2% VCN.

Anyways, that's why my ETF preference for all-in-one all-equity all-country is simply buying ZGQ.


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## john.cray (Dec 7, 2016)

@MrBlackhill I think you're looking for XWD - iShares MSCI World Index ETF
So ZGQ should be "Quality Factor" version of XWD.

Regarding the overweight Canadian exposure in the all-in-one ETFs: they call it home country bias and Dan has an article you might be interested in : Ask the Spud: Does Home Bias Ever Make Sense? | Canadian Couch Potato


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## AltaRed (Jun 8, 2009)

Vanguard Canada has written papers on home country bias. Google them and decide for yourself. The paper suggests in the order of 30% of equities and hence why the Vanguard AA ETFs are positioned that way. I am typically in the 30-35% Cdn equity range.

A number of investors decide that global market cap weighting is the right thing and thus have only ~3% of their equities in Canadian domiciled securities.


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## MrBlackhill (Jun 10, 2020)

john.cray said:


> @MrBlackhill I think you're looking for XWD - iShares MSCI World Index ETF
> So ZGQ should be "Quality Factor" version of XWD.


No, XWD doesn't include emerging markets. It's only the developed world. Moreover, it doesn't include small caps.

It's pretty confusing how many ETFs categorise "World" the market limited only to the developed markets.

MSCI's created the ACWI (All-Country World Index) which includes the EMs as opposed to MSCI's World Index.

There's also the categorisation "Global" from FTSE index which should include EM.


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## MrBlackhill (Jun 10, 2020)

AltaRed said:


> Vanguard Canada has written papers on home country bias. Google them and decide for yourself. The paper suggests in the order of 30% of equities and hence why the Vanguard AA ETFs are positioned that way. I am typically in the 30-35% Cdn equity range.
> 
> A number of investors decide that global market cap weighting is the right thing and thus have only ~3% of their equities in Canadian domiciled securities.


Yes, I know about that bias and I totally agree with that paper. Therefore, XEQT's and ZEQT's exposure to Canada is only a "marketing strategy" due to investor psychology about the home-country bias. Still seems strange to me to overweight an all-in-one index in order to fit the irrational bias of investors. I prefer buying an unbiased ACWI with only 2-3% exposure to Canada knowing that anyways I'll add stock-picked Canadian stocks which increases my exposure to Canada in my portfolio (or I could just buy XIU or XIC). I understand though that people who only buys ETF and are looking for a single-ETF solution biased towards their home-country, then yes XEQT and ZEQT are there for them.


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## james4beach (Nov 15, 2012)

MrBlackhill said:


> No, XWD doesn't include emerging markets. It's only the developed world. Moreover, it doesn't include small caps.
> 
> It's pretty confusing how many ETFs categorise "World" the market limited only to the developed markets.


Are you thinking of something like VT and wondering where the CAD-traded equivalent is? VT is roughly 3% Canada and also has 5% emerging markets so it seems to be a pretty complete "world" ETF which includes emerging.



https://www.etf.com/VT


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## MrBlackhill (Jun 10, 2020)

james4beach said:


> Are you thinking of something like VT and wondering where the CAD-traded equivalent is? VT is roughly 3% Canada and also has 5% emerging markets so it seems to be a pretty complete "world" ETF which includes emerging.
> 
> 
> 
> https://www.etf.com/VT


Yes VT is Vanguard's ETF based on FTSE Global and ACWI is iShares' ETF based on MSCI ACWI, both sold on NYSE, but I was simply wondering why we don't have the equivalent ETFs sold on the TSX. We have lots of ETFs available, but there's not even Global / ACWI. Again, I like the ZGQ based on ACWI Quality, but I feel that it is ironic that we have a quality ETF available before the traditional ETF, and we have ex-Canada or ex-North America, but no Global / ACWI.


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## AltaRed (Jun 8, 2009)

I am not sure what you mean but XWD based on the MSCI World Index is a market cap weighted global equity ETF, the single largest holding that both my ex and myself have. We bought it when it first made its presence and have huge unrealized cap gains. I don't like it due to its MER and would prefer, with the newer ETFs today, to have XAW and a separate Cdn equity allocation such as XIC just because of MER.





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www.blackrock.com


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## MrBlackhill (Jun 10, 2020)

AltaRed said:


> I am not sure what you mean but XWD based on the MSCI World Index is a market cap weighted global equity ETF, the single largest holding that both my ex and myself have. We bought it when it first made its presence and have huge unrealized cap gains. I don't like it due to its MER and would prefer, with the newer ETFs today, to have XAW and a separate Cdn equity allocation such as XIC just because of MER.
> 
> 
> 
> ...


What I mean is answered here:



> *Why XWD?*
> 1. Exposure to large and mid-cap equities from developed markets countries around the world


There's no exposure to small cap and no exposure to EM. Look at the exposure breakdown. No China. No South Korea. No Taiwan. No India. No Brazil. And so on.

When FTSE (Vanguard) say Global, it's everything. When MSCI (BlackRock iShares) say World, it's the developed market. The equivalent to FTSE's Global is MSCI's ACWI, not MSCI's World.

I would certainly like to have exposure to something like China's BABA for instance which is present in NYSE's VT and ACWI, in TSX's XAW and VXC, but not in XWD and interestingly ZGQ Quality factor didn't pick on BABA.

XWD isn't bad, it performed awesomely good, obviously because it's highly diversified. Pretty similar to XAW performance actually, which is interesting, but one should know that it doesn't have EM exposure and it doesn't have small cap exposure, so it's not truly a "everything-ETF". I mean here that it could be even more complete in its diversification, and that's FTSE Global or MSCI ACWI.


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## Spudd (Oct 11, 2011)

There's also MIVG, which is actively managed and includes BABA.


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## AltaRed (Jun 8, 2009)

Thank you for the clarification. I don't recall looking under the hood 11+ years ago to see that XWD was only developed markets, but I suspect I did. I also know I'never had any positive thoughts about EM markets or small cap stocks, so that is probably why I never recall any of that.

I have to say I don't get fussed about decimal points in returns. Given XWD has provided me with a CAGR of 12% over 11+ years, a half point either way isn't really very relevant.


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## john.cray (Dec 7, 2016)

MrBlackhill said:


> No, XWD doesn't include emerging markets. It's only the developed world. Moreover, it doesn't include small caps.
> It's pretty confusing how many ETFs categorise "World" the market limited only to the developed markets.


You're totally right. It got me too. I should have checked more carefully. Too many "worlds" I guess 

Regarding small caps just wanted to point that according to the ZGQ Facts Sheet it doesn't seem to hold small caps either:


> MSCI All Country World High Quality Index (“Index”) is based on the MSCI All Country World Index, its parent index, which includes large and mid cap stocks from global markets including developed and emerging markets.


Also I found interesting that they restrict the number of companies according to their methodology down to "493 names for MSCI ACWI Quality Index", "Fixed number targets 30-40% coverage of parent index universe", "Allows for high quality exposure while maintaining sufficient index market capitalization and diversification".
At the same time ZGQ has "Number of Holdings: 306"


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## MrBlackhill (Jun 10, 2020)

john.cray said:


> Regarding small caps just wanted to point that according to the ZGQ Facts Sheet it doesn't seem to hold small caps either


Good point, so FTSE Global and MSCI ACWI are not equivalent in exposure. One has small caps while the other doesn't. Thanks for that. I've also found out that ACWI doesn't include what MSCI call "frontier market". I searched and MSCI ACWI seems to be equivalent to FTSE All-World.

In fact, the Vanguard's VT ETF has 8816 holdings while the iShares' ACWI ETF has 2236 holdings. And, yes, BMO's ZGQ ETF has 306 holdings, "only". Meanwhile, there's DXG actively managed with only about 20-25 holdings diversified around the world and sectors and performing awesomely good since its recent inception in 2017.

I personally believe that too much holdings doesn't provide any advantage. VT has 4 times the holdings of ACWI and they both have the exact same performance. I don't know if at some point in the future VT will outperform ACWI because historically small caps value stocks are outperformers and since ACWI doesn't hold small caps it's not exposed to that possibility.


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## Investor87 (Dec 1, 2020)

james4beach said:


> And now what if, as COVID fears wear off, the quality factor underperforms the benchmark indexes for the next 3 years. Would you still hang on?
> 
> Going with any index/ETF, you really have to "believe" in it strongly enough that you will hang on. Everything takes turns outperforming and underperforming. You'll never find an investment which constantly outperforms the alternatives.
> 
> So it's important to invest in something you strongly believe in, because you'll need to hang on when it starts doing badly. It WILL eventually start doing badly, I guarantee you that.


You have a valid point there.In this case I would keep a 50-50 exposure to passive and factor ETFs, in this case a split between XAW and ZGQ. I already do that for US with a combo of ZSP/ZUQ, my belief being that over the long run I can average higher returns than going with one strategy only. Thoughts?


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## MrBlackhill (Jun 10, 2020)

Investor87 said:


> You have a valid point there.In this case I would keep a 50-50 exposure to passive and factor ETFs, in this case a split between XAW and ZGQ. I already do that for US with a combo of ZSP/ZUQ, my belief being that over the long run I can average higher returns than going with one strategy only. Thoughts?


I see that as a diversification through different indexing strategies, so I can't be against it. We could call that another kind of exposure. I guess there's many types of exposures :

Market cap sizes
Sectors
Industries
Geography
Active management vs Passive management
Factors and any other algorithmic indexing alternatives
Value vs Growth
Income vs Equity
Bonds, REITs, Materials, Commodities, Currencies, Cryptocurrencies, Cash


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