The competition has been heating up in the global equity ETF space.  First, Vanguard released the Vanguard FTSE All-World ex Canada Index ETF (VXC), which gave Canadians instant exposure to large and mid-sized companies throughout the world in a single trade (excluding Canadian companies).  VXC is a “fund of funds” ETF, meaning that it simply holds other existing US-listed Vanguard ETFs to obtain its market exposure.

Now, iShares has released the iShares Core MSCI All Country World ex Canada Index ETF (XAW), which has basically the same market exposure as VXC (except that it includes small-sized companies).  Most of its underlying holdings are US-listed iShares ETFs, with one exception – the developed market exposure comes from the iShares Core MSCI EAFE IMI Index ETF (XEF), which is a Canadian-listed ETF that holds the underlying stocks directly.  XEF’s tax-efficient fund structure would be expected to lower the overall cost of XAW, relative to VXC.

To compare the overall costs of both ETFs (including the additional cost of foreign withholding taxes), I’ve used a similar methodology to the one found in our white paper, Foreign Withholding Taxes.   I’ve assumed that the ETFs are being held in either a tax-deferred or tax-free account.

After taking into account the additional tax drag from foreign withholding taxes, the estimated cost of VXC increases to 0.66% (from 0.27%), while the estimated cost of XAW increases to 0.56% (from 0.23%).

Estimated cost of the Vanguard FTSE All-World ex Canada Index ETF (VXC) when held in a tax-deferred or tax-free account

As of March 31, 2015 Vanguard Large-Cap ETF (VV) Vanguard FTSE Europe ETF (VGK) Vanguard FTSE Pacific ETF (VPL) Vanguard FTSE Emerging Markets ETF (VWO)
Dividend Yield Index 1.98 2.97 2.23 2.81
FWT Level I 0.28 0.11 0.11 0.27
FWT Level II 0.00 0.41 0.30 0.36
Expense Ratio 0.27 0.27 0.27 0.27
Total Cost 0.55 0.79 0.68 0.90
Region Weight Index 52.32% 23.45%* 14.87% 9.36%
Weighted-Average Cost 0.29 0.19 0.10 0.08
Estimated Cost of VXC 0.66%

Sources:  FTSE, Vanguard

*Israel is 0.26% of the FTSE All-World ex Canada Index, but is excluded in the component indices.  I have included its weight in the FTSE Developed Europe Index.

Estimated cost of the iShares Core MSCI All Country World ex Canada Index ETF (XAW) when held in a tax-deferred or tax-free account

As of March 31, 2015
  • iShares Core S&P 500 ETF (IVV)
  • iShares Core S&P Mid-Cap ETF (IJH)
  • iShares Core S&P Small-Cap ETF (IJS)
 iShares Core MSCI EAFE IMI Index ETF (XEF) iShares Core MSCI Emerging Markets ETF (IEMG)
Dividend Yield Index 1.91 2.80 2.57
FWT Level I 0.27 0.34 0.28
FWT Level II 0.00 0.00 0.32
Expense Ratio 0.23 0.23 0.23
Total Cost 0.50 0.57 0.83
Region Weight Index 53.74% 35.53% 10.73%
Weighted-Average Cost 0.27 0.20 0.09
Estimated Cost of XAW 0.56%

Sources:  S&P Dow Jones, MSCI, BlackRock

It’s important to take these differences into perspective.  An additional cost of 0.10% on a $10,000 holding is only $10 per year.  An investor choosing either of these ETFs to gain low-cost diversified exposure to global stocks would be making a prudent decision.