VXC vs. XAW – The battle of ex-Canada international index ETFs

If you’re a long time reader, you know that we deploy a hybrid investment strategy – we hold both individual dividend-paying stocks and index ETFs in our dividend portfolio. When it comes to an international index ETF, we hold VXC. Lately, I have been wondering if it makes sense to sell VXC and purchase XAW because of XAW has a lower MER fee and higher distribution yield. VXC vs. XAW, which one of these ex-Canada international ETF is better?

Update: XAW and VXC now have very similar MER and distribution yield. Unless there’s a compelling reason for you, it probably makes no sense to switch. Pick one of these ETFs and go with it.

History of VXC and XAW

In July 2014, Vanguard Canada released the Vanguard FTSE All-World ex Canada Index ETF (VXC). This international ETF gave Canadians exposure to large and mid-sized companies outside of Canada. Most of VXC’s underlying holdings are existing US-listed Vanguard ETFs. VXC has an extremely low MER of 0.27%.

In Feb 2015, iShares released the iShares Core MSCI All Country World ex Canada Index ETF (XAW) which mimics VXC closely but at a slightly lower MER of 0.22%. Similar to VXC, most of XAW’s underlying holdings are existing US-listed iShares ETFs with one exception. I’ll discuss this exception later.

VXC vs. XAW sector allocation

Below is the sector allocation breakdown for VXC and XAW. As expected, they are very close to each other.

Sectors VXCXAW
Financials 21.4%16.15%
Technology 14.5%15.12%
Industrials 13.6%11.45%
Consumer Services 11.7%10.91%
 Health Care 11.6%11.64%
Consumer Goods 11.2%7.93%
Oil & Gas 5.5%5.46%
Basic Materials 4.4%5.05%
Utilities 3.3%3.32%
Telecommunications 2.8%8.29%
Real Estate 0.0%4.09%
Other 0.0%4.00%
Cash and/or Derivatives 0.0%0.55%

VXC vs. XAW country allocation

Below are the country allocation breakdown for the two ex-Canada international index ETFs. Once again, the two index ETFs are very similar.

United States 55.90%56.03%
Japan 8.20%7.82%
United Kingdom 5.50%5.45%
China 3.70%3.70%
France 3.00%3.16%
Germany 2.70%2.61%
Switzerland 2.60%2.54%
Australia 2.30%2.21%
South Korea 1.70%1.65%
Taiwan 1.50%1.44%
Hong Kong 1.20%1.18%
India 1.20%1.17%
Netherlands 1.10%1.07%
Cash and/or Derivatives 0.00%0.55%
Other 9.40%9.42%

Why we own VXC

Now you are probably wondering, why the heck did we purchase VXC when XAW appears to be a better product due to its lower MER and higher yield? Well, when Dan Bortolotti and his team at Canadian Couch Potato constructed the ETF model portfolio a number of years ago, VXC was the recommended international ETF to use. So when we wanted to increase our international diversification, naturally, we picked VXC. Throughout the past number of years, we have been adding VXC shares in lumped sum transactions as well as a few shares every other month to take advantage of Questrade’s no commission ETF purchase. We own hundreds of shares of VXC across our RRSPs and taxable accounts.

When you look at Canadian Couch Potato’s model portfolio now, VXC is no longer the recommended international index ETF. Instead, XAW is the recommended international ETF. According to Justin’s analysis at Canadian Portfolio Manager, he noted that XAW has a lower overall fee because XAW holds iShares Core MSCI EAFE IMI Index ETF (XEF). XEF is a Canadian-listed ETF that holds the underlying stocks directly. Because XEF is a Canadian-listed ETF, it is expected to create a lower overall cost for XAW, compared to VXC.

In fact, according to Justin’s calcuation, the estimated cost of VXC increases to 0.66% (from 0.27%) while the estimated cost of XAW increases to 0.56% (from 0.22%).

In addition, XAW has a slightly higher distribution yield than VXC. XAW has a trailing12 months yield of 2.13% while VXC has a trailing 12 months yield of 1.93%.

As a result, XAW has a 0.10% fee advantage and a 0.20% distribution yield advantage over VXC. Or an overall advantage of 0.30%.

Putting numbers into perspective

What do the 0.10% fee and 0.20% distribution yield advantages mean? We need to put this into a bit of quantitative perspective. Let’s imagine different portfolio values, starting at $5,000 to $3,000,000.

International Portfolio SizeVXC 0.66%XAW 0.56%Annual Fee DeltaVXC Yield 1.93%XAW Yield 2.13Annual Yield DeltaTotal Delta% of Porfolio

Note 1: We are assuming that the two ETFs have exactly the same rate of return

Note 2: The last column is a bit unnecessary but I wanted to show that the overall % as part of your international portfolio is 0.30% regardless what the dollar amount is.

So when the international portfolio size is relatively small (say less than $100,000), you’re talking a $100 annual difference in fee and a $200 annual difference in distribution. That’s $300 in total or 0.30% of your international portfolio. And if you’re using a balanced portfolio approach (40% bonds, 20% Canadian, 40% international), that means your overall investment portfolio is $250,000. The $300 cost difference is 0.12% of your overall portfolio.

When the international portfolio size is large (say $500,000), the total difference is $1,500. Again that’s merely 0.30% of your international portfolio or 0.12% of your overall portfolio (again, assuming the balanced portfolio approach). Below are the respective overall fees as part of the overall portfolio.

Overall Portfolio, at $500k international$2,500,000$1,666,667$1,250,000$1,000,000$833,333
$1,500 fee as % of overall portfolio0.06%0.09%0.12%0.15%0.18%

If you look at the “big” picture, the fee is a very small fraction of your overall portfolio value.

What should we do – some thoughts

I get it, nobody wants to pay extra fees when you don’t have to. But let’s put the total amount into perspective, it’s a very small fraction of your overall portfolio value. If your overall portfolio is $1.25M, paying an extra $1,250 each year is probably not going to cause you to lose sleep. Similarly, an extra $30 on a $25,000 portfolio ($10,000 international, balanced approach) probably won’t cause you to lose sleep at night either.

Heck, if we had $100k in international ETFs, the time it took me to analyze the data and write up this post has already exceeded $300 fee & distribution difference between holding VXC vs. holding XAW!

Given all the data available, what should we do moving forward?

As mentioned already, we hold a large quantity of VXC shares across different accounts (RRSPs & taxable accounts). So if we were to liquidate all of our VXC shares and replace them with XAW shares, we would need to do a total of 4 transactions. At $4.95 per transaction for Questrade and $9.99 per transaction for TD Waterhouse, this means we’d have to pay $24.84 to sell everything. We would need to spend another $9.99 to purchase XAW shares with TD Waterhouse (buying ETFs are free for Questrade). That’s a total of $34.83 in commissions for switching the international ETF, not to mention we’d have to pay taxes for the capital gains too.

In the end, I have to ask myself, does it make sense to switch from VXC to XAW and take the commission hit for the long term gain? After examining all the factors and considering that we plan to hold international ETF for the next 20, 30 years or longer, it makes sense to switch from VXC to XAW.

In the case that you want further diversification and don’t want to bother picking between equity ETFs and bond ETFs, you should take a look at some of the all-in-one ETFs that you can hold as a Canadian. These can result in simplicities for some people.


Does it make sense for us to switch from VXC to XAW given we own a large quantity of VXC? Considering the commission cost and capital gain tax to switch and the long term gain after switching, I believe the answer is yes.

Going through this exercise made me wonder about this question – how far do you go to save a few percentages? What happens if in the near future another company (say Horizons) releases an international ETF with an even lower overall fee than XAW? Do we switch again? When will the chase for a lower fee ETF end?

Dear readers, do you hold VXC or XAW? Have you made the switch?

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69 thoughts on “VXC vs. XAW – The battle of ex-Canada international index ETFs”

    • Withholding tax is taken out before you receive the distribution regardless which account you hold XAW in…. just that in non-registered you can recover via foreign tax credit

  1. With ETF’s have you ever looked at ETF’s that do a 5-15% cover call on what they own to boost the Dividend ? Im not saying pick a ETF that does 100% cover calls on the portfolio they have , but a more modest approach in a ETF . Great way to collect Div’s , without taking too much off the up-side .

      • Hello Sir, thank you for your response. Doing cover calls can be fairly time-consuming however, if you get the covert calls done within an ETF it is probably the best way. You can get the pros to do the cover calls for you and reap the higher dividend. Just a thought … Cover call ETFs are becoming more and more popular. Some covered call ETFs do a 10% cover call on the underlying securities some do 80% or even 100% covered calls on the underlying securities. To explore these covered call ETFs and to find out which ones the best ones may be a great exercise.

  2. I did the same research recently, and now VXC and XAW are the same. Same MER at 0.01% and Same 12 months trailing yield of 1.32%. There is no reason to switch anymore. I would consider mention this in the upper part of your post, as it is mostly recent (April 2021) and people may think at first (me included) your argument was still valid.

      • Great post Tawcan and thanks for updating with latest information (no need to switch as of August 2021).
        I have a question, assuming (theoretically) if the difference in MER and Yield was still there, if/when switching from VXC to XAW, we will have to pay the capital gains tax. Won’t we lose the gains on the amount that is tax deferredred?

  3. Hi,

    I was researching VXC vs. XAW and noticed VXC MER is now (May 2021) at 0.21% vs. XAW MER is still at 0.22%. Minimal difference but I guess now that VXC is slightly lower it might be better to stick with VXC.

    Anyway thought I share this.

    Great post and very informative!


    • Interesting, it’s good to see VXC has lowered their MER. AT 0.01% difference, if you currently hold XAW, there’s no point switching to VXC. It’s likely that XAW will counter this lower MER from VXC in the near future.

  4. Hi Bob,

    I have a VEQT in my TFSA but it hold 30% of Canadian equities which I dont like. Like you, I already have Canadian exposure through my dividend stocks from blue chip Canadian companies. Would adding XAW to make sense? To somehow lessen my Canadian exposure index ETF exposure?

    • Hi Jonathan,

      That’s not correct.

      VXC – Management fee = 0.2%. MER = 0.26%
      XAW – Management fee = 0.2%. MER = 0.22%

      You need to look at MER to compare the overall fees.

  5. One of the main differences between these 2 funds is that XAW is a fund of funds (ie. hold other ETFs) whereas VXC holds the individual stocks directly. I would suspect that is likely the main reason for the higher fee. Are there any other benefits to owning ETFs that hold stocks directly vs just a basket of other ETFs? Are there risks to this additional layer of structure?

  6. Hi Tawcan,

    Good article. I have a question for you on VEQT vs XAW. I like XAW, due to its high exposure to the US and international stock, and I am okay with no Canadain exposure (I live in Canada), as Canada only makes up 4% of the global stock market.

    What are your thoughts on VEQT vs XAW? They are similar in that they both provide strong US and International exposure, but VEQT lumps 30% of the allocation in Canadain Funds.

    Right now, I have all my RRSP allocations into XAW, and my TFSA is VEQT. I am actually thinking of selling off my TFSA and putting that money into my RRSP, but I am also considering switching my from XAW to VEQT, as VEQT is performing better than XAW. I don’t actually need the TFSA, I simply bought it to compare the performance of VEQT vs XAW. The performance difference between XAW and VEQT currenlty has been .62 cent difference per share over the last year, with VEQT pulling ahead.

    I have 15% Canadian stock in my pension, with a 90/10 allocation, with 75% being foreign equity – 50% the US and 25% international, all with index funds.

    Let me know what you think.

  7. Tawcan, I currently have xaw but it pays a dividend every 6 month unlike vxc which pays it every 3 months. What if I sold the xaw before the ex-dividend date of vxc and bought vxc? 3 months later this would repeat for xaw. It seems like you could maximize dividends this way (asn long as your dividend payment is greater than your trade fee. What are your thoughts?

    • Yes XAW pays semi-annual dividends where as VXC pays quarterly. I don’t think it makes sense to switch back and forth simply to maximize dividends since you’d be incurring transaction costs and potential tax implications too (if you hold the ETFs in taxable accounts)

  8. I also have a lot of shares of VXC and have been thinking about the same thing. With Questrade, you underestimated the cost of selling a lot of shares. A thousand shares of VXC will be about $14 total by the time you add the $4.99 plus the ECN and SEC fees. So depending on how many shares you have in what accounts it might cost a bit more. But since buying XAW is free (not totally free, 1000 shares will cost you $3.50 from those same fees) it is still probably worth it considering the savings from lower MER and higher distribution. Have you made the switch yet?

  9. is there a chance that Vanguard could reduce the fees and increase the distribution in order to be competitive ?

    if so it is not worth the fees to change and the extra taxes

    • Hmm good question, they might if they’re losing a lot of customers. My guess is that they probably won’t reduce the fees and increase the distribution. The fees are already very low to begin with. We are talking a difference of 0.30%. That’s really small.

  10. I just threw them both on a chart, and it seems that XAW has outperformed VXC by ~2% overall during the past ~3 years. Pay the $5-10 and make the switch…it will be worth it!

  11. Great post Bob and your chart showing the cost savings possible with larger holdings across retirement funds really makes it visual to see the benefit of the change. I made the move in early 2018 I believe and of course won’t really notice the difference without doing the homework you did. Awesome in depth review of why it makes sense to go with XAW.

  12. Hi – I’m a long time reader following a similar strategy to your dividend investment approach and like you have a growing annual passive income in my RRSP, TFSA, and taxable accounts…thanks for all your informative posts! I’ve own the ishares Canada ETF CUD (US Divd Grower Index) for a few years now. Every March, I receive a sizable “Capital Gains Dividend”. Did not realize till this year (duh!) that, although this CG dividend increases the Adjusted Cost Base (ACB) of my holdings, it does not translate into actual cash into my account. So my actual annual passive income from dividends in cash is a thousand or two lower than the amounts I previous just recorded off of the monthly broker statements. A bit of a downer but at least I understand now. Just wondering if you ever made the same mistake early on?

    • Hi Tom,

      Thank you for being a long time reader. 🙂

      That’s another reason why I don’t utilize dividend index ETFs. I’d rather build “my own” dividend index ETFs to avoid paying for these capital gains dividend.

  13. Great article and very timely as I help my son switch from his expensive mutual fund to ETF’s. I did a similar comparison of VXC and XAW two days ago, not as detailed as yours, and came to same conclusion. Thanks for confirming my thought process.

  14. Well done! Very nice post with good analysis. Thanks.

    As we discussed earlier, I also own XAW. I’m with National Bank Direct Brokerage, where they don’t charge anything to buy or sell ETFs as long as you buy/sell more than 100 shares. It’s easy there to switch from one fund to the other.

    Talking about Dan Bortolotti and Justin Bender, have you seen the youtube channel of their colleague Ben Felix? He has a great series covering many many personal finance topics, and he goes into more depth than most. Check it out.


    There is one video he made on the problems of investing in dividend giving stocks:



  15. You could also hold your existing VXC shares, and switch to XAW for future purchases. This may complicate your allocation tracking though. Either way, XAW sounds the best going forward. I’m actually in the process of helping my parents switch over to XAW from their overpriced mutual funds!

  16. I’m not buying Canadian Index Funds (for obvious reasons), but I concur with your reasoning. If the stocks held are largely similar, and there’s very low frictional costs to changing funds, why not take the lower fee version!

    Makes sense to me!

      • In my opinion it’s not a big enough difference to consider switching.. .30 % is arguably …negligible being two years later now… VXC’s return right now over the past 3 years and 1 year is arguably better than XAW. The last 3 years VXC’s return is greater by .41. Furthermore XAW’s current dividend is 1.43 and VXC’s 1.34. Let’s minus .09 from .41 we get .32 VXC>XAW.

        I would argue it’s statistically insignificant to switch. It would be interesting to use statistical significance formula to deliberate its findings.

        • Good point Ryan! On top of that, if/when switching from VXC to XAW, capital gains is being paid, won’t we lose the advantage from tax defferal?

          • Remember, we held VXC in our TFSA and RRSP so switch from VXC to XAW so we had no capital gains problem. But yes, if you hold these ETFs in your taxable account you need to consider capital gains.

    • I believe you are on the right track\ I am going to replace my current fee based advisor with efs and cash for a year PS I like xaw and hgro is that a good approach


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