VIU vs. XEF: Which International Developed Markets ETF Is the Better Buy for Canadian Investors?

Vanguard and BlackRock’s top international developed market ETFs go head to head.

| More on:
ETF chart stocks

Image source: Getty Images

Welcome to a series where I break down and compare some of the most popular exchange-traded funds (ETFs) available to Canadian investors!

An allocation to ex-U.S. and Canadian equities is sensible for most investors. Developed international markets like Europe and Asia-Pacific contain some great stocks that make good long-term holds. Thankfully, both Vanguard and BlackRock provide a set of low-cost, high-liquidity ETFs that offer exposure.

The two tickers up for consideration today are Vanguard FTSE Developed All Cap ex North America Index ETF (TSX:VIU) and iShares Core MSCI EAFE IMI Index ETF (TSX:XEF). Which one is the better option? Keep reading to find out.

VIU vs. XEF: Fees

The fee charged by an ETF is expressed as the management expense ratio (MER). This is the percentage that is deducted from the ETF’s net asset value (NAV) over time and is calculated on an annual basis. For example, an MER of 0.50% means that for every $10,000 invested, the ETF charges a fee of $50 annually.

VIU has a MER of 0.23%, compared to XEF at 0.22%. For a $10,000 portfolio, the difference works out to around $1 per year, which is miniscule and not worth fretting over. Still, if we had to pick a winner, the advantage goes to XEF.

VIU vs. XEF: Size

The size of an ETF is very important. Funds with small assets under management (AUM) may have poor liquidity, low trading volume, high bid-ask spreads, and more risk of being delisted due to lack of interest.

VIU has attracted AUM of $2.7 billion, whereas XEF has AUM of $5 billion. Although both are sufficient for a buy-and-hold investor, XEF is currently the more popular ETF among Canadian investors.

VIU vs. XEF: Holdings

VIU tracks the FTSE Developed All Cap ex North America Index, which holds a total of 3,914 mostly large-cap stocks. In terms of geographical exposure, VIU is approximately 58% Europe and 40% Asia-Pacific, with Japan, the U.K., France, Switzerland, Australia, Germany, and South Korea comprising 22%, 15%, 9%, 9%, 8%, 7%, and 5%, respectively.

XEF tracks the MSCI EAFE Investable Market Index, which holds a total of 2,605 mostly large-cap stocks. In terms of geographical exposure, Japan dominates at 23%, followed by the U.K. at 16%, France at 10%, Switzerland at 9%, Australia at 8%, and Germany at 8%.

VIU vs. XEF: Historical performance

A cautionary statement before we dive in: past performance is no guarantee of future results, which can and will vary. The portfolio returns presented below are hypothetical and backtested. The returns do not reflect trading costs, transaction fees, or taxes, which can cause drag.

Here are the trailing returns from 2016 to present:

Here are the annual returns from 2016 to present:

Both ETFs had virtually identical performance, with some variation year by year due to tracking error. Over the long run, I expect returns and risk to be indistinguishable.

The Foolish takeaway

Given that both ETFs perform more or less identically and have sufficient AUM, I would pick the one with the lower MER, which would be XEF. However, if you idolize Jack Bogle and love Vanguard, VIU is a good pick, too.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Investing

calculate and analyze stock
Investing

2 Top Value Stocks I’d Happily Scoop Up in November

Here are two top value stocks I'm seriously considering adding this month. They are likely to continue to accumulate over…

Read more »

A data center engineer works on a laptop at a server farm.
Tech Stocks

3 No-Brainer Data Centre Stocks to Buy With $500 Right Now

Data centres are going to be a huge growth opportunity in the next decade. And these are the top buys.

Read more »

Paper Canadian currency of various denominations
Bank Stocks

1 Magnificent Canadian Dividend Stock Down 28% to Buy and Hold for Decades

This top Canadian dividend stock is underperforming its large peers this year, but a turnaround could be on the horizon.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

hand stacks coins
Investing

Secure a Wealthy Future With These 3 Canadian Stocks

These Canadian stocks have the potential to appreciate substantially over time and may also enhance returns through dividend payments.

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

analyze data
Investing

3 Blue-Chip Stocks Every Canadian Should Own

These blue-chip stocks are backed by large-cap companies with well-established businesses, solid fundamentals, and a growing earnings base.

Read more »