VEQT vs. XEQT vs. HGRO Equity ETFs
With so many equity ETFs to choose from it might be hard to figure out the top ones to own. Today’s post helps solve that problem by looking at and comparing Vanguard’s VEQT vs. iShares XEQT vs. Horizons HGRO fund.
In doing so, I hope to help you determine which all-in-one equity ETF could be right for you including any upcoming Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) or taxable account contribution for that juicy long-term wealth building journey.
What and why an all-in-one equity fund?
No doubt you’ve heard the following investing pearls of wisdom by now:
- Diversification is the only free lunch when it comes to investing.
- Don’t put your eggs in one basket.
- “Diversification is protection against ignorance.” – Warren Buffett.
The major tenet behind diversification is you can yield better long-term returns while reducing investment risk, by investing in many companies, in many sectors, from many countries around the world. This mantra usually applies to holding bonds in your portfolio as well but for long-term wealth building I think you should focus on holding equities for the decades ahead.
I believe in this premise myself, and invest in low-cost, indexed ETFs for extra diversification.
You can see what I favour and view what I actually own on this page here:
I’ve invested in low-cost ETFs for over a decade beyond my individual stocks.
In many cases, these three all-in-one equity ETFs below could be a game-changer for you.
Investing in just one all-in-one equity ETF is a hands-free, growth-oriented way to own a world of stocks. Essentially, you can put all your stocks eggs in just one basket!
The benefits of all-in-one equity ETFs are many:
- There is no re-balancing work between Canadian and U.S. and international stocks or ETFs.
- There is built-in global equity diversification.
- There are very low ongoing money management fees to own the fund with time.
- It works for TFSAs, RRSPs, RESPs, and many more wealth-building accounts.
- You can do it on your own, without an advisor, by managing your own brokerage account. More on that in a bit.
We’ll get into it below, but a reminder these are 100% equity funds. That’s one drawback.
What I mean is, you must expect some volatility now and then owning any of these products. Stock markets correct or crash or do a host of other wild and fluctuating things in the short-term. Expect it. As an equity investor you need to be prepared this can and will absolutely happen from time-to-time. But long-term, the stock market is largely very boring and predictable machine. It goes up.
As per Morningstar – This chart shows that over this period of almost 150 years, $1 (in 1870 U.S. dollars) invested in a hypothetical U.S. stock market index in 1871 would have grown to $18,500 by the end of June 2020.
If you are genuinely concerned about any constant stock market yo-yo ride, that’s OK.
Check out this post below. You can see some of the best low-cost all-in-one funds that include some bonds here.
For most ETFs in my best-of list, they have bonds. Owning some bonds in your all-one-fund could be smart since it will act like a parachute when equity markets tank.
VEQT vs. XEQT vs. HGRO
Let’s look at the tale of the tape and some matters than could be relevant to you!
|ETF||MER||# Holdings||Returns since inception||MOA Comments|
|Vanguard All-Equity ETF Portfolio (VEQT)||0.25%||12,000+||~7.5%||· Inception January 2019
· Eligible for RRSP, RRIF, RESP, TFSA, DPSP, RDSP
· >40% U.S. stocks
· ~30% Canadian stocks
|iShares Core Equity ETF Portfolio (XEQT)||0.20%||9,000+||~6.4%||· Inception August 2019
· Eligible for RRSP, RRIF, RESP, TFSA, DPSP, RDSP
· Almost 50% U.S. stocks
· Just over 20% Canadian stocks
|Horizons Growth TRI ETF Portfolio (HGRO)||0.19%*||A fund of 5 Horizons funds||~7.5%||· *As per Horizons’ site not to exceed this management expense ratio – very comparable to funds above.
· Inception September 2019
· Eligible for all registered and non-registered accounts
· >30% large-cap stocks but also includes >20% Nasdaq-100 ETF for the “tech growth kicker”
· <20% Canadian stocks
Information approximate and current at the time of this post.
Investing in beyond Canada’s borders matters
With so many investors, myself included, guilty of having a home bias to Canadian stocks over the years, XEQT and certainly HGRO are slightly appealing over VEQT – although all three products are great all-in-one solutions to consider.
For one, it will also be interesting to see if Vanguard lowers their Canadian content over time. A good reminder that only 3-4% of the world’s equity markets can be found here in Canada. There are other considerations below.
Further to the chart I included above, growth matters, meaning if your investing timeline is like mine 10, 20 or more years, I would consider keeping most of that money in equities. Again, no bonds.
Sure, keep some cash, but consider some form of a cash wedge but I will personally avoid investing in bonds for the coming decades.
For the most part, I keep Canadian dividend paying stocks in my taxable account since they will be an efficient form of taxation for me long-term.
You can read about the tax advantages in this post here.
That said, I’m still working. So, any taxation from taxable investing including those from Canadian dividend paying stocks is not always appealing!
Should your TFSA and RRSP (and RESPs for your kids’ education be maxed out already – good on you!) this is how you can consider tax efficient investing.
Here’s where things get interesting. With Horizons TRI funds, those ETFs bundled within HCON, HBAL and HGRO are part of a corporate class structure whereby any taxable distributions can be offset within the corporation – such that the ETF would not be expected to pay out any taxable distribution. Not paying out distributions for taxation purposes makes these funds tax-efficient. This could make great sense to hold HCON, HBAL or HGRO inside a taxable account for long-term investing.
From content I previously read on this subject:
Within the corporate class fund structure, when ETFs are held within one corporation, you can pool losses and gains and offset any income that would normally occur within a derivatives contracts strategy. My understanding is there has been a corporate class fund structure in place for years – there is no reason why ETFs could not be managed the same way long-term as well – and they are under current legislative rules. This structure should offer benefits for the foreseeable future to unitholders – such that because there are no anticipated taxable distributions, deferral of income and tax benefits will compound over time on any fixed income let alone U.S., Canadian and international equity fund assets.
On this note, I hope to have a Horizons representative come on My Own Advisor in the future so we can dive deeper into the subject of corporate class funds. In doing so, we can learn more about the designs of these products including what Horizons products could be right for you.
All-in-one equity summary
In just a few short years, the ETF landscape has transformed in Canada to offer a host of exciting, pre-packaged all-in-one products for investors.
One of the biggest challenges for investors used to be what funds to pick, where to hold those funds and how much to invest in each fund after quarterly rebalancing efforts were completed.
These all-in-one equity ETF solutions have simplified the investing approach for investors with a long time horizon and for those with the stomach to ride out short-term market volatility for long-term gains. The future of low-cost ETF equity investing is getting better and better – with VEQT, XEQT and HGRO.
For retail investors like you and me, that’s a win.
Honourable mentions to this post:
Check out BMO’s MSCI All Country World High Quality Index ETF (ZGQ).
Mawer has a Global Equity Fund (MAW120).
What happens when investing takes over the world?
Save, Invest and Prosper with VEQT or XEQT or HGRO
Make sure you look at the top of my Deals page to take advantage any discount brokerage promo codes I have running. I keep that page updated for all readers.
What’s your take on these all-in-one equity ETFs? Would you own any of these above or just those all-in-one ETFs with a small bond component? Got a question for Horizons when I can get them on the site? Fire away and see you in the comments section.
I have a question regarding asset allocation ETFs and form T1135.
Usually, owning canadian listed ETFs with foreign assets allows investors not to fill T1135.
However, these asset allocations arise new questions in my mind. Sure, let’s say XEQT for example is listed on the TSX. But, if you look at the ETF under the hood, some of them are listed on the NYSE. So, does owning XEQT, if the underlying US listed ETFs are worth more than 100,000 $, requires investors to fill the T1135 form?
I can’t offer direct tax advice for any reason of course, but if you look up T1135 requirements, to my knowledge, as long as you keep such assets in an RRSP or TFSA then T1135 will not apply. It’s really a taxable account issue.
The complete list of what applies to T1135 is found by searching CRA. Investments held inside Canadian registered accounts (RRSPs, TFSAs, RRIFs, etc.) are exempt. Same goes for CDN ETFs.
For individuals with investments outside registered accounts, the form must be completed if the aggregate cost of all investments exceeds $100,000 CAD at any point during the year.
For HGRO, this is not an issue in a taxable account either. It is a CDN ETF. See reply from Horizons ETFs in that post.
Again, just what I know and not tax advice.
I wonder if the 0.19% HGRO mer is really all fees or whether that is on top of the management fees built ineach of the 5 underlying etfs it is consisted of? The fact sheet worries me it is the second option?
I’ve actually written Horizons ETFs directly about this. As far as I know, now, HGRO is subject to the fees of its underlying ETFs. That said, Horizons ETFs currently anticipates that the management expense ratio/MER of HGRO will be approximately 0.16%, and will not exceed 0.17%.
I will let you know what I get back!
Thanks for your question.
Got the answer from Horizons ETF JJ – as confirmed and thought:
re: HGRO’s MER is currently 0.16% and will not exceed 0.17% – as per Horizons ETFs team.
The TER (Trading Expense Ratio (TER)) is 0.18% but may be subject to change.
MER and TER are always separate costs.
Hope that helps!
I am so annoyed that vanguard does NOT allow automatic investments every month whereas XEQT DOES! I really like VEQT but the auto investment makes my life so much easier! Will vanguard ever allow that?
I just thought VEQT is well known but other than that, im seeing no difference in terms of returns
Really not much difference Shajedul other than XEQT has a bit less Canadian content I recall at time of posting. Splitting hairs between XEQT and VEQT in particular. Happy investing!
Did you end up investing in XEQT or VEQT if I may ask?
I actually own a bit of HGRO in my LIRA. I like that is has some Nasdaq-100 in it for some tech-growth in that fund.
I think any of those 3 funds are great and more importantly, your savings rate and discipline will help determine long-term success.
I’m on the fence between the 3 ETFs listed in this article.
Last year I maxed out my TFSA with VCNS and RSP with VGRO. After learning more I have made the decision to sell these funds and switch to a 100% equity portfolio. I like the one-fund solution as a passive DIY investor.
I’m 28 years old and plan to max out both accounts again this year. Any advice would help.
I really can’t offer advice of course but I can say that I’ve seen, heard from and know about many investors buying one of these three for sure – any of these all-in-one ETFs for portfolio simplification and diversified returns is great Evan 🙂
Very smart actually and if you don’t want to bother with any “explore” (i.e., own stock selection) I suspect you are going to be well rewarded with a long-term approach consistently contributing to any of these funds. If you can max out your TFSA and RRSP for the coming decades, you will likely be a millionaire. Historical math says so! I will write a post about that in the coming months.
There are a couple of other 100% equity ETF/Funds I think are also worth considering. These don’t have Canada exposure, which suits me fine as I buy individual Canadian dividend stocks for that part of my asset allocation:
XAW or VXC
Mawer Global Equity A (cant buy this via RBC DI btw)
Capital Group Global Equity Canada D
PH&N Global Equity Fund D
Opinions on these others – I think the Capital and Mawer funds have beaten the index for over 10 years
I own XAW myself and think it’s a great ex-Canada fund = one stop shopping for many Canadian investors.
Mawer funds have been outstanding from what I recall and I believe some dedicated readers of this site own MAW104 in particular for lazy investing and then own a few CDN dividend paying stocks to sprinkle around it, re: “core and explore”.
I don’t have any experience with Capital Group or the Phillips, Hager & North funds myself – the latter is now owned by RBC.
Like your “compare” posts Mark, always interesting. As you say, these are more for growth. I’ll forward this post to my son. Being retired, my formula is: Dividends=RRIF payout=income. Working quite well for last 8 years. If you get a chance, would like to see alternatives for companies like Exxon, who pay solid dividends (so far). And as we all know, more potential for growth, as alternative energy is coming into focus.
That’s great Paul.
I figure for us it’s about spending dividends (taxable) + withdrawing dividends + distributions (RRSPs) + part-time work in a few years. That should cover all basic expenses and a few extras before pensions kick-in. I’m not even thinking about withdrawing from our TFSAs until my 70s.
Big fan of alternative energy in Canada and around the world. Thoughts on AQN, INE, NPI and BLX here at home?
Great analysis Mark. I did a similar analysis recently and decided to switch our kids’ RESP to XEQT.
The tax swap structure of the Horizon funds is a little bit concerning to me, that’s why we ended up staying away from HGRO. 🙂
Thanks! Ya, I didn’t dive deeper but I figured this was a good comparison when it comes to equity holding. I will be interviewing the VP at Horizons soon for a future post – stay tuned!
Did you interview the VP of Horizons ? I am interested in knowing your findings as HGRO is what I have penciled for a large investment.
I will also have a follow-up question to this as well! re; specifically HGRO in a taxable account.
“The major tenant behind diversification is you can yield better long-term returns while reducing investment risk, by investing in many companies, in many sectors, from many countries around the world.”
This is not a REIT. There are no tenants.
Thanks Ron – understood and updated. I don’t always get all the typos during a proofread!
Hi Mark, great article! Just wondering what kind of ETFs would you recommend investing within a business investment account (opened with Questrade)?
I understand passive investment returns within a corporation can trigger higher taxes when held within a business a/c opposed to active income earned within the business. How do you get around this structure? Bring it out as personal dividend/salary then invest in a non-registered a/c (assuming all registered/TFSA are fully contributed)? Then how to so many business owners invest and keep funds within their corporations!?
RRick, your questions are VERY timely since I’m looking into incorporating now. Based on my knowledge from this subject, here are good reasons to incorporate and invest:
• You feel like you are paying way too much in personal taxes (yup, me).
• You are saving at least $25,000 a year (I hope to…)
• You will be able to sell your business in the future for a significant amount
of money (you never know!)
• You are investing significant sums into your RRSPs every year (RRSPs are already maxed)
• You are paying down debt aggressively (yes and no, all my debt should be done soon…)
• Your company’s revenue can be fairly variable from year to year (yes)
I’m considering opening a business investment account as well, could be Questrade myself. I need to do some research.
I do know that paying a small salary if any (rather than dividends) should (?) result in lower overall taxes for me. I will need to look into that and confirm that of course. I believe that process would also take advantage of the capital gains exemption.
I hope to have more articles on my site longer-term since this is space I’m personally getting into and could be of benefit to others.
Hope that provides some insights!? Thoughts?
Thanks Mark – that’s really the most important question. It’s more tax efficient on the accumulation side (no dividends to tax) and on the deccumulation side for larger portfolios (50% capital gains inclusion rate is better than the Cdn tax-advantaged dividend rate). Investors would have to fully embrace manufacturing their own dividends rather than receiving actual dividends, but that’s not a problem for me – the 3%-4% rule could be a useful guide.
A few follow up questions, the last I’m sure he can’t answer but may have an opinion on.
1) Their US HXS has a large TER on top of the MER, so I’d want to know if that exists here too (what are the total fees?)
2) Why the heavy US asset allocation vs. what VEQT/XEQT are doing?
3) What is the future legislative risk for holding these. Will the swap/no-dividend structure be disallowed?
Great list, I have 2) and 3) already in my list but I can add 1) to really get a “total cost” picture.
In terms of deferred capital gains per se I’m not against it since I’m at the age whereby taxable dividends, while nice, are not as good as capital gains.
I’m striving to be more tax efficient as I get older and using a small portfolio of corporate class funds might do the trick 🙂
Why do people tend to forget about BMO’s great line of ETF’s? ZGRO is also an alternative, is it not?
Absolutely Luc. I had that list here:
This post was about 100% equity ETFs.
Ok, my mistake! and I’m learning something new, didn’t realize HGRO was 100% equity! Great posts! Keep ‘em coming.
I wish BMO had 100% equity ETF now 🙁 falling a lil short of the pack..
BMO MSCI All Country World High Quality ETF (ZGQ) is a top performer in the global all equity ETF space. It has a longer track record than HGRO, VEQT and XEQT. Its current Canadian content is only 1.11% which is probably why it has done so well. If you want to increase the Canadian content in your portfolio an excellent ETF, also an outperformer, is BMO Low Volatility Canadian Equity ETF (ZLB). That said I prefer stocks over an ETF in Canada.
Thanks Bernie – added to the post as some honourable mentions per se!
I do like owning some of the stocks in ZLB. Utilities and REITs come to mind as well as grocery stores. I own Waste Connections directly already and trying to add more over time.
Ya, misleading a bit eh? All good. I’m sure more banks and companies will follow suit. Including BMO!
That’s a pretty concentrated portfolio for HGRO and I’m not sure I’d want to be that US/tech heavy at this point.
Different inception dates make comparisons difficult, and they’re all relatively short actual histories. I checked Morningstar for total returns and they really reflect US asset allocations, particularly for HGRO. These are fund (price) values.
YTD: HGRO: 11.38%; XEQT: 8.98%; VEQT: 8.54%
1-Year: HGRO: 15.40%; XEQT: 10.19%; VEQT: 10.08%
I know Justin Bender and Dan Bortolotti have modelled VEQT/XEQT back in time – it would be great to see if the Horizons team could do the same for comparison over a longer period, although I imagine the conclusion won’t be much different.
I hope to have an interview with Mark Noble this week Bart – let me know if you have more questions since now is the time to ask. I do have this question for Mark (VP, ETF Strategy there):
4. I just posted this article on my site – citing Horizons ETF HGRO could be a great product for investors who have maxed out their TFSA and RRSP. How would you rate HGRO against VEQT and XEQT in particular? Do you see a competitive advantage?
Let me know 🙂
BartBandy & Mark,
Have a look at TD Active Global Enhanced Dividend ETF (TGED). Despite a higher MER TGED has consistently outperformed HGRO, XEQT, VEQT in total return and has a higher yield.
Hummm, interesting and will have a look. Yet another post maybe about all these big bank funds available now?
TGED definitely has a much higher MER at 0.71% which is not very appealing given alternatives available at fractions less.
Looks like a fair bit of U.S. tech and financials for ~ 40% of fund. >60% US assets and much lower CDN content which is good if you’re an investor in many CDN stocks already.
Thanks for sharing Bernie!!
The MER doesn’t tell you much unless you’re comparing apples to apples, ie; similar indexes. I really don’t care what the MER is, I’m more driven by performance. Returns are always given post MER anyway. This makes performances numbers easy to compare in ones search. TGED is definitely worth considering if one is seeking an one all-in-one equity fund. Also worth considering are long term outperformers BMO MSCI All Country World High Quality ETF (ZGQ) which I mentioned below and Mawer Global Equity (MAW120). The three are overseen by excellent management teams. The proof is in the pudding (performance).
Yes, performance is post MER which at least is good.
That Mawer product sounds interesting given their impressive track record on other fund products. I also wasn’t aware BMO had an all-in-one ETF. Looks like it holds those stocks directly vs. a fund of BMO funds. Interesting. I’ve updated the blogpost to include that as an honourable mention!
Again, thanks for flagging that.
It may be confusing to some to call HGRO, VEQT, XEQT, TGED, ZGQ, MAW120 all-in-ones. I would just call these globally diversified equity funds, funds being mutual funds and exchange traded mutual funds (ETFs). IMO a true all-in-one would contain at least some fixed income content. Mind you the “all-in-ones” that do contain global diversified equities and fixed income used to be, and could still be, called global balanced funds. lol
Interesting perspective on all in ones Bernie. From what I can find the 2 etfs you reference TGED, ZGQ are global but have a tiny fraction of holdings, are actively managed, and have much higher MERs compared to the other all in one equity etfs Mark and BB references. Just me but I tend to view all in ones as having the broadest indexes and most diversified holdings (relatively “all”).
Your suggestions seem to have merit as being well managed to date and good backward looking performance.
Ya, I hear ya, although I do context these as all-in-one equity funds 🙂
Bernie, do you hold any Mawer products? I can’t recall. If so, which ones?
Mark, I don’t currently own any Mawer funds but have owned their Global Equity, Global Small Cap, Balanced, Global Balanced, U.S. Equity & Canadian Equity funds in the past…not all at once. IMO its a no-brainer to own one or more of these in their portfolio during their accumulation phase as I have done. Unfortunately these funds have very low yields so they aren’t ideal for retirees who prefer to live off their investment income without selling any capital. Mawer funds are built for capital gain not income, That is why I don’t own them now.
Unfortunately its become increasingly difficult to purchase them. Mawer no longer sells their funds directly so they have to be purchased through discount brokers. To make matters worse at least two discount brokers now refuse to sell Mawer funds. They won’t admit to it but it is because Mawer doesn’t pay trailer fees. Another popular discount broker who doesn’t charge commissions on ETF purchases charges $9.95 commission on mutual fund transactions.
Shenanigans aside I feel Mawer Global Equity Fund would be an excellent hold for Canadians wanting all equity global exposure in their portfolios. Either Mawer Balanced Fund or Mawer Global Balanced Fund would be a good add for those seeking both Global equity and fixed income content in a single fund.
Yeah, that’s what I thought from previous comments, you don’t own any but yes, I absolutely see some appeal like you.
You wonder if Mawer might develop an income fund like VRIF or similar to BMO’s ZMI? I haven’t looked too much at their line-up so maybe they already have a product?
If folks don’t want to spend as much time enjoying their dividends like I do, I always tell other investors to consider an all-in-one fund now since there are so many choices available. Truly amazing how much the landscape has changed. A great win for small retail investors!
Mark — if you do additional research you will find that MacKenzie also provides all in one portfolios even with one addition to complement offerings…. MBAL, MCON etc…. In addition some of their personnel are probably the best when it comes to understanding Canadian and US tax implications followed by Horizons TRIs.
Excellent Chet. More research and future questions for that management team 🙂 Thanks for sharing.