Passive Investing Has Won: Why XEQT Is the Final Boss of Canadian Portfolios

My uncle Rick was a true believer.

Every Thanksgiving, somewhere between the turkey and the pumpkin pie, he would hold court at the dinner table about his mutual fund manager. “Doug is a genius,” he would say, swirling his glass of Shiraz. “He got me into energy before the run-up. He pulled me out of tech before the correction. You can’t get that kind of insight from a computer.”

Rick had been investing with Doug since the early 2000s. He paid 2.3% in fees every year and never once questioned it, because Doug sent him a quarterly newsletter with charts and a personalized letter. Doug wore nice suits. Doug had a corner office in a tower on Bay Street. Doug must have known what he was doing.

I believed Rick. For years, I believed him. When I started investing in my mid-twenties, I very nearly walked into my local bank branch and asked for their “best” mutual fund. Why wouldn’t I? Every adult I trusted told me that investing was complicated, that you needed a professional, that trying to do it yourself was reckless.

Then I did something dangerous. I looked at the data.

It turned out that Doug – and the vast majority of professional fund managers like him – was not beating the market. He wasn’t even keeping pace with it. After fees, Rick’s portfolio had trailed a simple index fund by roughly 1.5% per year for over a decade. Compounded over that stretch, he had left tens of thousands of dollars on the table. Not because Doug was incompetent. Because the game itself is nearly impossible to win.

The debate between active and passive investing is over. Passive won. And for Canadian investors, XEQT is the cleanest, simplest expression of that victory.

Let me show you the scoreboard.

Disclosure: I may receive a referral bonus if you sign up through links on this page.

1. The Scoreboard: What the SPIVA Data Actually Says

Every year, S&P Global publishes the SPIVA (S&P Indices Versus Active) scorecard. It is the most comprehensive, methodologically rigorous study comparing active fund managers against their benchmarks. It covers dozens of countries and fund categories. And every year, it tells the same story.

Here are the numbers for Canadian equity funds:

Read that last line again. Over a 20-year horizon, roughly 95% of actively managed Canadian equity funds fail to beat a simple index. Not 50%. Not 70%. Ninety-five percent.

And those numbers actually understate the problem, because SPIVA corrects for survivorship bias. Funds that perform terribly often get quietly merged into better-performing funds or shut down entirely, erasing their poor track records from the data. If you only look at funds that still exist today, the survivors, active management looks somewhat less terrible than it actually is. SPIVA accounts for the dead bodies.

The results are similar in the United States, Europe, and virtually every market that has been studied. The specific percentages vary slightly from year to year and country to country, but the conclusion is always the same: the longer you give an active manager, the more likely they are to trail a passive index.

This is not a close call. This is not a “it depends on your situation” kind of finding. This is a rout.

2. A Brief History of Passive Investing: From Heresy to Orthodoxy

To appreciate how remarkable this moment is, you need to understand where passive investing came from.

In 1976, a man named John C. Bogle launched the First Index Investment Trust at his new company, Vanguard. The idea was radical: instead of paying a team of analysts to pick stocks, the fund would simply buy every stock in the S&P 500 index and hold them in proportion to their market weight. No stock picking. No market timing. No genius required.

Wall Street laughed. They called it “Bogle’s Folly.” They called it “un-American.” One competitor ran an ad featuring Uncle Sam in a poster that read: “Help Stamp Out Index Funds.” The initial public offering raised $11 million against a target of $150 million. It was considered a flop.

Here is a rough timeline of what happened next:

• 1976: Vanguard launches the first index fund for retail investors. Assets: $11 million.
• 1993: The first ETF (exchange-traded fund) launches in Canada – the Toronto 35 Index Participation Fund, or TIPs. The SPDR S&P 500 ETF (SPY) launches in the U.S. shortly after.
• 2000s: Academic research from Eugene Fama, Kenneth French, and others builds an overwhelming case that markets are difficult to beat consistently. Nobel Prizes follow.
• 2007-2009: The financial crisis decimates active managers who promised “downside protection.” Investors begin questioning what they are paying for.
• 2010s: The great migration begins. Trillions of dollars flow from active mutual funds into passive index funds and ETFs. Vanguard becomes the second-largest asset manager in the world.
• 2019: A watershed moment. For the first time, passively managed U.S. equity fund assets surpass actively managed ones.
• 2019: iShares launches XEQT and XGRO in Canada, offering all-in-one, globally diversified ETFs for a management expense ratio of just 0.20%.
• 2020s: All-in-one ETFs explode in popularity among Canadian investors. Passive investing goes from niche strategy to mainstream default.

What took fifty years of data, dozens of academic papers, and a global financial crisis to prove, Bogle knew intuitively from the start: costs matter, and most active managers cannot overcome them.

3. Why Active Managers Lose: It’s Not About Skill

Here is the part that surprises people. Active managers are not stupid. Many of them are genuinely brilliant. They have MBAs from the best schools, access to sophisticated research, teams of analysts, and decades of experience. So why do they keep losing?

Three reasons.

Fees Eat Returns

The average Canadian equity mutual fund charges a management expense ratio (MER) of roughly 2.0% to 2.5%. XEQT charges 0.20%. That difference – roughly 1.8% to 2.3% per year – is the handicap every active manager must overcome before they add a single dollar of value.

Think of it like a footrace where the index starts at the starting line, but the active manager starts 20 metres behind. Every year. To merely tie the index, the active manager must be skilled enough to make up that gap. To actually beat the index, they need to be even better. Year after year, decade after decade.

This is the 1% rule in action, and the math is brutal. A seemingly small fee difference compounds into a massive wealth gap over time.

Markets Are Efficient Enough

You do not need to believe markets are perfectly efficient to accept that they are efficient enough. Thousands of professional analysts, algorithms, and institutional investors are all competing to find mispriced securities. When one of them spots an opportunity, they trade on it, and the price adjusts. By the time your mutual fund manager reads the same earnings report, the information is already baked into the price.

This does not mean prices are always “right” in some cosmic sense. It means that mispricings are rare, fleeting, and extremely difficult to exploit consistently after transaction costs and fees. The market is not perfect, but it is hard to beat.

Behavioral Mistakes Compound

Even the best managers are human. They get overconfident after a winning streak. They hold onto losing positions too long because admitting a mistake is painful. They chase trends. They herd with other managers. Study after study shows that the behavioral biases that afflict individual investors also afflict professionals, just with fancier vocabulary.

There is also the problem of career risk. An active manager who holds a boring, index-like portfolio will never get fired for underperforming the benchmark by a small margin. But a manager who makes a bold, contrarian bet and gets it wrong might lose their job. This creates an incentive to “closet index” – to hold a portfolio that closely mimics the index while still charging active management fees. Research suggests that a significant percentage of actively managed funds are effectively closet indexers, delivering index-like returns minus their much higher fees. You get the worst of both worlds: passive-like performance with active-level costs.

When you combine expensive fees, efficient markets, human psychology, and career incentives that discourage genuine risk-taking, the outcome is predictable: most active managers underperform most of the time.

4. “But What About During Crashes?”

This is the most common pushback I hear, and I understand the appeal of the argument. It goes something like this: “Sure, passive investing works in bull markets. But when the market crashes, that’s when you need an active manager to protect your portfolio.”

It sounds logical. It is also wrong.

The SPIVA data specifically looks at how active managers perform during downturns. The results are damning:

• During the 2008-2009 financial crisis, the majority of actively managed Canadian equity funds still underperformed their benchmark index. Most managers lost money – they just lost more money than the index did.
• During the 2020 COVID crash, the same pattern repeated. Active managers, on average, did not protect investors from the downturn any better than a passive index.
• During the 2022 rate-hike drawdown, once again, the majority of active managers failed to add value during the decline or the recovery.

Here is why this happens. To successfully protect a portfolio during a crash, an active manager needs to do two things correctly:

1. Get out before the crash. This requires predicting the crash, which almost nobody can do consistently. Every year there are people predicting an imminent crash, and they are wrong far more often than they are right.
2. Get back in before the recovery. Even if a manager manages to reduce equity exposure before a decline, they then need to buy back in at the right time. Many managers who went to cash during the 2008 crisis stayed in cash too long and missed the recovery rally that started in March 2009. Missing just the 10 best trading days in any given decade can cut your total returns nearly in half.

The managers who get both calls right are exceptionally rare, and there is no reliable way to identify them in advance. Past performance during previous crashes does not predict future crash performance. The data is clear: you cannot count on active management for downside protection.

Your actual protection during crashes is your time horizon and your behavior. If you hold XEQT through a crash and keep buying, you will buy more shares at lower prices, which accelerates your long-term wealth building. That is not a theory. That is what has happened after every single market decline in history.

5. The Great Migration: Trillions Moving from Active to Passive

The money is voting with its feet.

Globally, passive fund assets have surged past $15 trillion. In the United States, passive equity funds overtook active equity funds in total assets under management in 2019, and the gap has only widened since. According to Morningstar, passive funds have attracted net inflows every single year for over a decade, while active funds have experienced net outflows for most of that period.

Canada has been slower to catch up – and there are structural reasons for that, which I will get to in the next section – but the trend is unmistakable. Canadian ETF assets have grown from under $50 billion in 2010 to well over $400 billion. All-in-one ETFs like XEQT, XGRO, VGRO, and VEQT have become some of the most popular investment products in the country.

The shift is not just happening among retail investors. Institutional investors, pension funds, and endowments have also increased their passive allocations. The Canada Pension Plan Investment Board (CPPIB) uses passive indexing for a significant portion of its public equity portfolio. If it is good enough for the fund that manages the retirement savings of every working Canadian, it is probably good enough for you.

The generational component is worth noting too. Younger Canadian investors who grew up with the internet, who watched the 2008 crisis expose the limitations of so-called expert advice, and who have access to commission-free trading platforms like Wealthsimple are far more likely to invest passively than their parents were. The Canadian financial literacy community on Reddit, YouTube, and personal finance blogs has been overwhelmingly pro-passive-investing for years. The word is out. The old model is dying – not because of a top-down regulatory change, but because individual investors are figuring out the math on their own.

6. Why Canada Has Been Slow to Embrace Passive Investing

If the data is this clear, why did it take Canadians so long to get on board? The answer is structural, and it is worth understanding so you can recognize the forces working against you.

The Bank-Dominated Advice Model

Canada’s financial system is dominated by five large banks, and those banks have a massive financial incentive to sell you their own actively managed mutual funds. When you walk into a TD, RBC, or BMO branch and ask for investment advice, the person you speak with is almost always a bank employee whose compensation is tied, directly or indirectly, to the products they sell you.

Those products are overwhelmingly proprietary mutual funds with MERs of 2% or more. The advisor is not lying to you. They may genuinely believe they are helping you. But the system is designed to funnel you toward expensive products, because that is how the bank makes money.

Trailer Fees and Embedded Commissions

For decades, Canadian mutual funds paid “trailer fees” – ongoing commissions to advisors for keeping clients invested in the fund. This created a powerful incentive for advisors to recommend funds that paid the highest trailers, regardless of performance. While regulators have begun to crack down on these practices, the culture and the relationships built around them persist.

In the U.K. and Australia, trailer fees were banned years ago, and both countries saw a significant acceleration in the shift toward low-cost passive products. Canada’s regulatory changes have been slower and less comprehensive.

The “You Need a Professional” Narrative

There is a deeply embedded cultural belief in Canada that investing is too complicated for ordinary people and that you need a professional to manage your money. This narrative benefits the financial industry enormously. It keeps people paying 2%+ in fees when they could be paying 0.20%.

The truth is that buying XEQT on Wealthsimple is simpler than ordering from a restaurant menu. You do not need a designation, a degree, or a corner office. You need a brokerage account, one ticker symbol, and the discipline to keep buying.

Lack of Fee-Only Advisors

In the United States, the fee-only financial advisor model is well established. These advisors charge a flat fee or hourly rate and have no incentive to sell you expensive products. In Canada, fee-only advisors exist but are far less common. Most Canadians who seek financial advice end up with commission-based advisors at banks or fund companies, which reinforces the cycle.

If you want to understand the full cost comparison, I wrote a detailed breakdown of XEQT vs mutual funds that shows exactly how much more Canadians pay through the traditional advisory model.

7. XEQT: The Final Form of Passive Investing

Passive investing has evolved over fifty years, and XEQT represents something close to its final, perfected form. Here is why.

Global Diversification in One Ticker

XEQT holds four underlying ETFs that give you exposure to:

• Canadian equities (~25% of the portfolio)
• U.S. equities (~45% of the portfolio)
• International developed market equities (~25% of the portfolio)
• Emerging market equities (~5% of the portfolio)

That is roughly 9,000 individual stocks across 40+ countries. You get exposure to Apple, Toyota, Nestle, Samsung, the Royal Bank of Canada, and thousands more – all through a single purchase. No research required. No rebalancing required. No opinions required.

Automatic Rebalancing

When U.S. stocks surge and Canadian stocks lag (or vice versa), XEQT automatically rebalances back to its target allocation. This is a significant advantage, because most individual investors who build their own multi-ETF portfolios never actually rebalance. They let their winners ride and their losers languish, which increases concentration risk over time.

With XEQT, iShares handles this for you, inside the fund, at no additional cost.

Rock-Bottom Fees

XEQT’s MER is 0.20%. That is not a typo. On a $100,000 portfolio, you pay $200 per year. Compare that to a typical Canadian mutual fund at 2.2% MER, which would cost you $2,200 per year on the same portfolio. The difference is $2,000. Every single year.

The Dollar Impact Over 25 Years

Let me run the numbers on what this fee difference actually means over a long investing career. Assume you invest $500 per month, earn an average annual return of 8% before fees, and invest for 25 years.

You read that right. The fee difference alone costs the mutual fund investor roughly $110,000 over 25 years. That is not money lost to bad performance or market crashes. That is money quietly siphoned away by fees, year after year, while you are told that you are getting valuable professional management.

That $110,000 is a down payment on a house. It is five years of retirement income. It is the difference between retiring at 60 and retiring at 63. And it comes from a fee difference that looks trivially small when you see it expressed as a percentage.

One-Ticker Simplicity

Perhaps the most underrated advantage of XEQT is psychological. When your entire investment strategy is “buy XEQT every month,” you eliminate the decision fatigue that leads to mistakes. You never have to decide which sector is going to outperform next quarter. You never have to agonize over whether to overweight or underweight any particular country. You never have to rebalance, tax-loss harvest across multiple positions, or wonder whether your asset allocation is still appropriate.

You just buy. Every month. Regardless of what the market is doing. It is boring. It works. It is the final boss of Canadian portfolios.

8. “But If Everyone Goes Passive, Won’t It Break the Market?”

This is the most intellectually interesting objection to passive investing, and it deserves a serious answer.

The argument goes like this: passive index funds buy stocks in proportion to their market capitalization, without any regard for whether a company is overvalued or undervalued. If everyone invested passively, nobody would be doing the analysis needed to set accurate prices. Stocks would become mispriced, markets would become inefficient, and the whole system would break down.

This is known as the Grossman-Stiglitz paradox, named after the economists who formalized it in 1980. And in theory, they are correct: if literally 100% of all capital were invested passively, price discovery would collapse.

But we are nowhere close to that scenario. Here is why this concern is premature:

• Active trading still dominates daily volume. Even though passive funds hold a growing share of total assets, the vast majority of daily trading volume is still generated by active traders, hedge funds, algorithmic trading firms, and other price-sensitive participants. These are the players who do the work of price discovery.
• Passive ownership is still a minority of total market cap. Depending on how you measure it, passively managed funds hold somewhere between 20% and 40% of total equity market capitalization globally. That leaves a massive amount of active capital doing the work of pricing securities.
• The market is self-correcting. If passive investing ever did grow large enough to create meaningful mispricings, those mispricings would create profit opportunities for active managers. Capital would flow back toward active strategies to exploit those opportunities, restoring equilibrium. The system has a built-in thermostat.
• Plenty of smart people are watching. Thousands of hedge funds, proprietary trading firms, and quantitative funds are actively hunting for mispricings. They are not going away just because your neighbour bought some XEQT.

The Grossman-Stiglitz paradox is a valid theoretical concern. It is not a practical reason to avoid passive investing in 2026. When passive ownership reaches 80% or 90% of total market cap – if it ever does – this will be a conversation worth revisiting. Until then, it is a distraction.

9. The Psychological Edge: Why Passive Investors Actually Stay the Course

There is one more advantage of passive investing that rarely gets discussed: it is psychologically easier to stick with.

The biggest destroyer of investment returns is not fees or bad stock picks. It is investor behavior. Dalbar’s annual Quantitative Analysis of Investor Behavior consistently shows that the average investor earns significantly less than the funds they invest in, because they buy after prices have risen (greed) and sell after prices have fallen (fear). The gap between fund returns and investor returns is called the “behavior gap,” and it typically costs investors 1-3% per year.

Passive investing shrinks the behavior gap for several reasons:

• No individual stocks to panic about. When you own 9,000 stocks through XEQT, no single company’s bad earnings report or scandal feels catastrophic. You never have to decide whether to sell a specific holding.
• No performance chasing. When your strategy is “own the whole market,” you cannot chase last year’s hot sector or feel envious of a fund that outperformed. You own everything.
• Less monitoring, less anxiety. Active investors check their portfolios constantly because they have decisions to make. Passive investors can check once a month – or once a quarter – because there are no decisions to make. Less monitoring means less anxiety, which means fewer emotional mistakes. I personally went from checking my portfolio multiple times a day to checking it maybe once a week after switching to XEQT. The reduction in stress was immediate and profound.
• A clearer narrative. “I own the entire global stock market and I buy more every month” is a much easier story to believe in during a downturn than “I own 23 individual stocks that my research suggested were undervalued.” The simpler the story, the easier it is to hold on when things get scary.

This matters enormously. An investment strategy that earns 8% per year but that you actually stick with for 30 years will crush a strategy that earns 10% per year but that you abandon after the first 20% drawdown.

XEQT is not just a good investment. It is a good investment that you can actually maintain. And in investing, the strategy you stick with always beats the strategy you abandon. Always.

There is a famous study often attributed to Fidelity that looked at which of their accounts performed best. The answer? Accounts belonging to people who had forgotten they had the account, or who had died. In other words, the less you tinker, the better you do. XEQT is built for not tinkering. It is a “set it and forget it” portfolio that does all the sophisticated work – global diversification, rebalancing, currency exposure – behind the scenes while you live your life.

10. The Verdict: Passive Investing Has Won – Now What?

Let me circle back to my uncle Rick.

A few years ago, over a quieter Thanksgiving dinner, I walked Rick through the SPIVA numbers. I showed him the fee comparison. I showed him what his portfolio would have looked like if he had been in a simple index fund instead of Doug’s mutual fund for the past 20 years.

He was quiet for a long time. Then he said something I did not expect: “I think I always kind of knew.”

Rick did not fire Doug the next day. It took him a few months. But eventually he opened a self-directed account, transferred his holdings, and bought XEQT. He texts me occasionally to ask if he should be worried about whatever the latest headlines are. I always tell him the same thing: keep buying. Keep holding. The strategy works.

Here is what I want you to take away from this:

• The data is overwhelming. Over long periods, roughly 90-95% of actively managed funds underperform a simple passive index. This is not a matter of opinion. It is a matter of arithmetic.
• Fees are the primary culprit. The MER difference between a typical Canadian mutual fund and XEQT can cost you six figures over a lifetime of investing. That money does not go to better returns – it goes to fund companies and advisors.
• Active management does not protect you in crashes. The evidence shows that most active managers lose money during downturns just like everyone else – often more.
• Canada’s bank-dominated advisory culture has slowed adoption. But the shift is happening anyway, because the data is too clear to ignore.
• XEQT is the simplest, most elegant expression of this proven strategy. Global diversification, automatic rebalancing, 0.20% fees, one ticker. It is passive investing perfected.
• The Grossman-Stiglitz paradox is interesting but not relevant at current levels of passive adoption. Active traders still dominate price discovery.

The active-versus-passive debate is over. The results are in, and they are decisive. Passive investing did not just win a close game – it won in a blowout.

The best time to start investing passively was twenty years ago. The second best time is today.

If you want to join the winning side, all it takes is one ETF, one brokerage account, and a commitment to keep buying. That is it. No genius required. No corner office. No quarterly newsletters with fancy charts.

Just XEQT. Every month. For decades.

Rick finally gets it. I hope you do too.