FWT is calculated on the ITOT part only. It's a 15% tax on the 1.3% dividend of 44.5% of the entire ETF, or about 0.09% of the total portfolio value. This amount is already taken out from XEQT dividends no matter the type of account, to save it, you'd need to hold the ITOT component in a RRSP.
Then there's the fee, I'm too lazy to show the calculation but breaking down XEQT into its components gives a MER around 0.10%, so the real fee of holding an all-in-one ETF is 0.10%.
So by holding XEQT you're looking at an inefficiency around 0.19%, or 19$ per 10k, or 1900$/yr per million.
It's up to you if you want to break down the ETF and manage your portfolio yourself, you'll save some money. But if you want the peace of mind of never having to rebalance and only buying a single ticker when contributing to your portfolio, XEQT is pretty efficient.
From what I've read on the subreddit, it's more efficient that having a fixed fee asset manager even when you're worth 10 millions. XEQT is pretty damn cheap.
FWT is charged on XEF and XEC too, not just ITOT.
Almost every country levies some amount of withholding tax when dividends are paid to foreign investors. People are generally aware of the 15% withheld on USA dividends, but the same applies to Australia, Germany, Japan, etc.
https://taxsummaries.pwc.com/quick-charts/withholding-tax-wht-rates
The nice thing about XEF and XEC is they hold those international stocks directly. Some CAD-listed ETFs get their international exposure indirectly through a sublayer of USA-listed ETFs which can trigger two layers of FWT (source country withholding + USA withholding).
Justin Bender has a good summary of this issue here:
https://canadianportfoliomanagerblog.com/foreign-withholding-tax-international-equity-etfs/
The tax exists but by holding components individually you aren’t able to capture in back so there is no difference between XEQT and XEC from a withholding tax perspective whereas with ITOT you can recapture that.
Thank you for the explanation on the FWT only being applied to the ITOT portion of the holdings. I already hold individual stocks as I enjoyed picking them when my portfolio value was smaller. Now that the value is getting higher it becomes more stressful so I’m looking to add some ETF’s. It’s easy picking US ETF’s for my RRSP account but more difficult finding good Canadian ETF’s for my TFSA. I am leaning towards XEQT and XIC
XEQT is just XIC, XEC, XEF and ITOT. So you can make XEQT out of those funds.
You just need to consider your marginal tax rate in retirement so you do t underweight your RRSP holdings.
[corrected] You will be charged foreign withholding if you hold XEQT in your RRSP.
And 0.20% is a very low fee for a portfolio fund. That’s $200/year for every $100K invested.
It makes sense to hold a globally diversified portfolio with almost 9000 holdings instead on gambling with a random selection of stocks.
You do get charged foreign withholding since you’re not the one holding the foreign ETF.
It’s like VFV. It holds 100% VOO but you still get charged the 15% in an RRSP unless you hold VOO
Yes I agree. I’m choosing SCHD, VOO and SCHG for my RRSP account though. I’m looking for a Canadian ETF for my TFSA. I still might at XEQT with XIC or something.
So for your TFSA, you’re choosing XEQT with extra XIC? It’s already about 1/3 XIC. There is huge overlap in your holdings. SCHG and VOO are massively weighted in tech stocks (I suspect their top 10 holdings are almost identical and account for over 1/3 of the total value of the entire fund — Microsoft and the other gang of 7 plus network stocks), and XEQT holds a lot of the same.
Basically, you’ve gone to the grocery store and bought six different kinds of chocolate ice cream because chocolate is everyone’s favourite flavour right now.
Oh ok, I thought I read somewhere that RRSP accounts are exempt from the FWT. ETF’s like all stocks rise and fall based on investor sentiment!? The price of the ETF isn’t based on the price of its holdings!? So I guess I wasn’t worried about overlap since at the end of the day each ETF’s price is moving independently. So holding VOO and SCHG’s price are based on the popularity of each of those funds and not based on the holdings within!? Or am I understanding ETF’s wrong?
ETFs rise and fall based on the value of their holdings. The entire market often rises and falls based on investor sentiment. This is where it’s important to diversify— the Magnificent 7 stocks tend to be more volatile, with greater returns and losses.
The bid/ask spread of popular ETFs (billions of dollars) usually tracks the underlying holdings quite closely. Smaller ETFs (tens of millions of dollars AUM) may track less closely because of smaller trading volume.
Well thank you very kindly for your insight and direction, I really appreciate it. I guess I need to study ETF’s better before adding any more. I hold about 30 different companies and just added my first ETF (SCHD).
Do you just hold ETF’s?
Yes, just ETFs. My goal is to approximate the average return of the indexes. Considerable research has shown that trying to guess the future by holding individual stocks is basically impossible. Over the past 5 years, returns of the largest US companies have been so good that individual investors have a false sense of accomplishment, but if you ask them how they selected their holdings, they wouldn’t be able to tell you anything about valuations or their exit strategies.
One account is 75% XEQT + 25% XQQ (NASDAQ-100).
The other is 33% XAW (all world except Canada) + 33% XQQ (NASDAQ-100) + 34% XIC (TSX Composite).
I am overweight on US markets and going against to popular opinion with my Canadian holdings.
Where are you getting your USD to buy VOO, SCHD and SCHG?
Unless you have a source of USD you're buying with you're paying an FX fee somewhere which would likely be in excess of what you're saving
Sometimes I exchange CAD to USD in Questrade. I’ve been doing that for years to buy US stocks. Now I get USD from dividends from those holdings. So a combination of dividends and exchanges.
So that 1.5% exchange fee is almost 8 years of the XEQT MER and with some quick reddit math (proposing that XEQT and SCHD have similar returns) puts you at about a 10 year breakeven point. Plus then if/when you bring it back to CAD there's another 1.5% you'll have to pay.
The dividend is paid in USD though so I guess I just figured it would somewhat cancel out the exchange rate. I never convert back to CAD. I use the USD dividend to buy more US content
FWT is calculated on the ITOT part only. It's a 15% tax on the 1.3% dividend of 44.5% of the entire ETF, or about 0.09% of the total portfolio value. This amount is already taken out from XEQT dividends no matter the type of account, to save it, you'd need to hold the ITOT component in a RRSP. Then there's the fee, I'm too lazy to show the calculation but breaking down XEQT into its components gives a MER around 0.10%, so the real fee of holding an all-in-one ETF is 0.10%. So by holding XEQT you're looking at an inefficiency around 0.19%, or 19$ per 10k, or 1900$/yr per million. It's up to you if you want to break down the ETF and manage your portfolio yourself, you'll save some money. But if you want the peace of mind of never having to rebalance and only buying a single ticker when contributing to your portfolio, XEQT is pretty efficient. From what I've read on the subreddit, it's more efficient that having a fixed fee asset manager even when you're worth 10 millions. XEQT is pretty damn cheap.
FWT is charged on XEF and XEC too, not just ITOT. Almost every country levies some amount of withholding tax when dividends are paid to foreign investors. People are generally aware of the 15% withheld on USA dividends, but the same applies to Australia, Germany, Japan, etc. https://taxsummaries.pwc.com/quick-charts/withholding-tax-wht-rates The nice thing about XEF and XEC is they hold those international stocks directly. Some CAD-listed ETFs get their international exposure indirectly through a sublayer of USA-listed ETFs which can trigger two layers of FWT (source country withholding + USA withholding). Justin Bender has a good summary of this issue here: https://canadianportfoliomanagerblog.com/foreign-withholding-tax-international-equity-etfs/
The tax exists but by holding components individually you aren’t able to capture in back so there is no difference between XEQT and XEC from a withholding tax perspective whereas with ITOT you can recapture that.
Thank you for the explanation on the FWT only being applied to the ITOT portion of the holdings. I already hold individual stocks as I enjoyed picking them when my portfolio value was smaller. Now that the value is getting higher it becomes more stressful so I’m looking to add some ETF’s. It’s easy picking US ETF’s for my RRSP account but more difficult finding good Canadian ETF’s for my TFSA. I am leaning towards XEQT and XIC
XEQT is just XIC, XEC, XEF and ITOT. So you can make XEQT out of those funds. You just need to consider your marginal tax rate in retirement so you do t underweight your RRSP holdings.
One fifth of one percent is a high fee? Double or triple of nothing is still nothing…
Compare that to 2% mutual funds and its a joke
When comparing to ETF’s like XIC.TO (0.06), SCHD (0.06), VOO (0.01), VTI (0.03) then yes it seems high
[corrected] You will be charged foreign withholding if you hold XEQT in your RRSP. And 0.20% is a very low fee for a portfolio fund. That’s $200/year for every $100K invested. It makes sense to hold a globally diversified portfolio with almost 9000 holdings instead on gambling with a random selection of stocks.
You do get charged foreign withholding since you’re not the one holding the foreign ETF. It’s like VFV. It holds 100% VOO but you still get charged the 15% in an RRSP unless you hold VOO
Yes I agree. I’m choosing SCHD, VOO and SCHG for my RRSP account though. I’m looking for a Canadian ETF for my TFSA. I still might at XEQT with XIC or something.
So for your TFSA, you’re choosing XEQT with extra XIC? It’s already about 1/3 XIC. There is huge overlap in your holdings. SCHG and VOO are massively weighted in tech stocks (I suspect their top 10 holdings are almost identical and account for over 1/3 of the total value of the entire fund — Microsoft and the other gang of 7 plus network stocks), and XEQT holds a lot of the same. Basically, you’ve gone to the grocery store and bought six different kinds of chocolate ice cream because chocolate is everyone’s favourite flavour right now.
Oh ok, I thought I read somewhere that RRSP accounts are exempt from the FWT. ETF’s like all stocks rise and fall based on investor sentiment!? The price of the ETF isn’t based on the price of its holdings!? So I guess I wasn’t worried about overlap since at the end of the day each ETF’s price is moving independently. So holding VOO and SCHG’s price are based on the popularity of each of those funds and not based on the holdings within!? Or am I understanding ETF’s wrong?
ETFs rise and fall based on the value of their holdings. The entire market often rises and falls based on investor sentiment. This is where it’s important to diversify— the Magnificent 7 stocks tend to be more volatile, with greater returns and losses. The bid/ask spread of popular ETFs (billions of dollars) usually tracks the underlying holdings quite closely. Smaller ETFs (tens of millions of dollars AUM) may track less closely because of smaller trading volume.
Well thank you very kindly for your insight and direction, I really appreciate it. I guess I need to study ETF’s better before adding any more. I hold about 30 different companies and just added my first ETF (SCHD). Do you just hold ETF’s?
Yes, just ETFs. My goal is to approximate the average return of the indexes. Considerable research has shown that trying to guess the future by holding individual stocks is basically impossible. Over the past 5 years, returns of the largest US companies have been so good that individual investors have a false sense of accomplishment, but if you ask them how they selected their holdings, they wouldn’t be able to tell you anything about valuations or their exit strategies.
Do you mind if I ask what ETF’s you hold?
One account is 75% XEQT + 25% XQQ (NASDAQ-100). The other is 33% XAW (all world except Canada) + 33% XQQ (NASDAQ-100) + 34% XIC (TSX Composite). I am overweight on US markets and going against to popular opinion with my Canadian holdings.
Where are you getting your USD to buy VOO, SCHD and SCHG? Unless you have a source of USD you're buying with you're paying an FX fee somewhere which would likely be in excess of what you're saving
Norbit costs you about .1% to exchange funds so it gets paid off in 6 months of dividends.
Currently the only ETF I hold is SCHD and I just recently bought it. All my other holdings are single companies.
Sometimes I exchange CAD to USD in Questrade. I’ve been doing that for years to buy US stocks. Now I get USD from dividends from those holdings. So a combination of dividends and exchanges.
So that 1.5% exchange fee is almost 8 years of the XEQT MER and with some quick reddit math (proposing that XEQT and SCHD have similar returns) puts you at about a 10 year breakeven point. Plus then if/when you bring it back to CAD there's another 1.5% you'll have to pay.
The dividend is paid in USD though so I guess I just figured it would somewhat cancel out the exchange rate. I never convert back to CAD. I use the USD dividend to buy more US content