XIU vs. XIC: Which S&P/TSX Index ETF Is the Better Buy for Canadian Investors?

Canada’s top indexes for tracking the domestic stock market go head to head.

| More on:

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

Canadian investors taking a passive approach to buying domestic stocks generally default to the tried-and-true S&P/TSX, but there is a difference in indexes. Investors can pick either the S&P/TSX 60 or the S&P/TSX Capped Composite. Thankfully, BlackRock provides a set of low-cost, high-liquidity, CAD-denominated ETFs for tracking both.

The two tickers up for consideration today are iShares S&P/TSX 60 Index ETF (TSX:XIU) and iShares S&P/TSX Capped Composite Index ETF (TSX:XIC). Which one is the better option? Keep reading to find out.

XIU vs. XIC: 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 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.

XIU has an MER of 0.20% compared to XIC at 0.06% The difference here is around $14 on a $10,000 portfolio, which can add up over the long term, especially as your portfolio gets larger. The clear winner here is XIC, which is as cheap as it gets in the Canadian ETF industry.

XIU vs. XIC: 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.

XIU currently has AUM of $13 billion, whereas XIC has AUM of $10 billion. Although both are more than sufficient for a buy-and-hold investor, XIU is clearly the more popular one. This is no surprise given that XIU is the oldest ETF listed on the Canadian market!

XIU vs. XIC: Holdings

XIU tracks the performance of a market cap-weighted index of the 60 largest stocks trading on the Toronto Stock Exchange (TSX) net of expenses. This makes it an excellent barometre for Canadian blue-chip stock performance. If you’re bullish on large caps, particularly energy and banking sector stocks, XIU could be a good pick.

However, the Canadian market doesn’t end at just 60 companies. What XIU does not include is the +100 small- and mid-cap stocks that make up the remainder of the market. These stocks are riskier but have higher potential for growth. Investing in XIC is the way to capture them, as the ETF holds 240 large-, mid- and small-cap stocks, with its top 10 holdings the same as XIU.

XIC is still concentrated in the financials and energy sectors, but there is a more balanced allocation to other sectors, such as materials, industrials, technology, utilities, and telecoms as a result of the small and mid-caps. The proportion of small and mid-caps is still small, but does introduce additional volatility, so be prepared for slightly higher risk if you choose XIC.

XIU vs. XIC: 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 2002 to present:

Here are the annual returns from 2002 to present:

XIU has outperformed over the last decade. I chalk this up to the excellent performance of Canadian large-cap stocks, in particular those from the banking sub-sector. Over time, I expect these differences to narrow, particularly if mid- and small caps make a resurgence.

The Foolish takeaway

My pick is for lower fees and broader diversification. For that reason, XIC is my choice for investing in Canadian domestic stocks. That being said, if you prefer the liquidity and large-cap focus of the S&P/TSX 60, XIU is a great pick as well.

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

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

It’s Time to Buy: 1 Canadian Stock That Hasn’t Been This Cheap in Years

A Canadian stock with visible growth potential could be worth buying, notwithstanding its depressed price.

Read more »

nugget gold
Stocks for Beginners

The Ultimate Mining Stock to Buy With $1,000 Right Now

This mining stock just saw a drop, but don't let that keep you from diving in. This miner is due…

Read more »

ways to boost income
Dividend Stocks

Invest $10,000 in These Dividend Stocks for $410 in Passive Income

Got $10,000 to invest in passive income? Check out this four stock portfolio for earning $410 of dividends every year.

Read more »

profit rises over time
Tech Stocks

2 Reasons to Buy Kinaxis Stock Like There’s No Tomorrow

Solid revenue growth, improving profitability, and its focus on AI-powered supply chain solutions make Kinaxis stock really attractive to buy…

Read more »

Dividend Stocks

This 8.77% Dividend Stock Pays Cash Every Month

This top monthly dividend stock is a top choice if you want essential cash flowing in every single month.

Read more »

senior man smiles next to a light-filled window
Dividend Stocks

Claiming CPP Later Could Be a Smart Move for Canadians

Claiming the CPP later is smart because a financial reward awaits each year past 65.

Read more »

Rocket lift off through the clouds
Investing

3 Top-Performing Stocks to Buy and Hold for the Next 5 Years

The following three stocks have outperformed the broader equity markets this year and could continue their uptrend.

Read more »

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

2 Stocks I’ll Be Adding to My TFSA – Even With the TSX at All-Time Highs

As reasonably valued TFSA stocks today, Bank of Nova Scotia and Canadian National Railway offer reliable dividends and long-term growth…

Read more »