XEQT vs XIC: Do You Really Need Global Diversification Beyond Canada?

My uncle Dave is a proud Canadian investor. And by “Canadian investor,” I mean he only invests in Canadian stocks. His entire RRSP is a mix of XIC, a couple of Big Five bank stocks, and Enbridge. When I told him a few years ago that I had moved my portfolio to XEQT — a single ETF that holds stocks from 49 countries — he looked at me like I had just suggested we vacation in Antarctica. “Why would you invest in other countries when Canada has everything you need?” he said. “We have the banks. We have energy. We have mining. What else do you want?”

We went back and forth for a solid hour at a family barbecue. Dave’s argument was simple and seductive: Canada is a stable, resource-rich country with world-class companies, and XIC gives you the whole Canadian market for basically nothing. Why complicate things with international exposure you do not understand? I had to admit, it sounded reasonable on the surface. XIC is a phenomenal ETF. It is cheap, liquid, and gives you instant access to every major publicly traded company in Canada.

But the more I dug into the numbers — really dug into them — the more convinced I became that an all-Canadian portfolio is not the safe, diversified bet it appears to be. It is actually a massive concentration wager on a tiny sliver of the global economy. And in this post, I am going to show you exactly why. Let’s put XEQT and XIC side by side and settle this debate once and for all.

1. What Is XIC? A Quick Primer on Canada’s Most Popular Index ETF

XIC — the iShares Core S&P/TSX Capped Composite Index ETF — is one of the oldest and most popular ETFs in Canada. Launched by BlackRock in 2001, it tracks the S&P/TSX Capped Composite Index, which is essentially the entire Canadian stock market.

Here are the basics:

At a 0.06% MER, XIC is one of the cheapest ETFs in Canada. Period. You would be hard-pressed to find a lower-cost way to own the Canadian equity market. For every $10,000 you invest, you pay just $6 per year in fees. That is impressively low.

XIC holds roughly 230 stocks, weighted by market capitalization. The largest positions are the names you would expect — Royal Bank, Toronto-Dominion, Shopify, Canadian National Railway, Enbridge, and the other usual suspects of the TSX. If it is a publicly traded Canadian company of any meaningful size, it is in XIC.

For investors who specifically want broad Canadian equity exposure — and only Canadian equity exposure — XIC is the gold standard. No argument there. But the question is whether Canadian equity exposure alone is enough to build a well-diversified portfolio. That is where things get interesting.

2. What Is XEQT? The Global Alternative

If you have been reading this blog, you already know XEQT well. But here is the quick refresher for anyone new.

XEQT — the iShares Core Equity ETF Portfolio — is an all-in-one global equity ETF. One purchase gives you exposure to over 9,000 stocks across 49 countries. It is 100% equities, with automatic rebalancing built in.

XEQT achieves its geographic diversification by holding four underlying iShares ETFs:

• ~45% US equities (ITOT)
• ~25% Canadian equities (XIC — yes, the very same ETF we are comparing against)
• ~20% International developed markets (XEF)
• ~10% Emerging markets (IEMG)

This is a critical point that most people miss: XEQT already holds XIC inside it. Roughly one-quarter of every dollar you invest in XEQT goes directly into the Canadian market. So this is not really a debate about “Canada vs. the world.” It is a debate about “Canada only” versus “Canada plus the rest of the world.”

3. XEQT vs XIC: The Head-to-Head Comparison

Let’s lay everything out in a single table.

The numbers tell a clear story. XIC is cheaper — no question. The 0.14% MER difference means you pay roughly $14 more per year per $10,000 invested in XEQT compared to XIC. That is the cost of global diversification, and I think it is a bargain.

But look at those return numbers. Over the past decade, global equities have meaningfully outperformed the Canadian market, primarily driven by the explosive growth of US technology companies. That extra 0.14% in fees has been more than compensated by access to markets that Canada simply does not have.

4. Canada’s Market Concentration Problem

Here is the statistic that should make every XIC-only investor pause: Canada represents roughly 3% of global stock market capitalization.

Three percent. That is it. When you invest solely in XIC, you are putting 100% of your money into 3% of the world’s investable opportunities. You are ignoring the other 97%.

But the concentration problem goes deeper than geography. The Canadian stock market is heavily tilted toward just three sectors:

Look at those numbers carefully. More than half of the Canadian stock market is concentrated in just three sectors: financials, energy, and materials. These are all cyclical, resource-dependent sectors that tend to move together. When commodity prices crash or the Canadian housing market wobbles, your entire portfolio takes the hit simultaneously.

Meanwhile, the sectors that have driven the majority of global wealth creation over the past two decades — technology, healthcare, and consumer discretionary — are massively underrepresented in the Canadian market. Canada has just 8% technology exposure compared to 22% globally. Healthcare is an even starker gap: 2% in Canada versus 11% globally.

This is what I mean when I say an all-Canadian portfolio is a concentration bet, not a diversification strategy. You are not just betting on Canada. You are betting on banks, oil, and mining. And you are doing it at the expense of tech, healthcare, and consumer companies that have been the dominant growth engines of the global economy.

For a deeper exploration of this issue, see my post on home country bias.

5. The “Canada Has Everything You Need” Argument — and Why It Falls Short

Let’s address my uncle Dave’s argument directly, because I hear it all the time. The claim is that Canada is a diversified enough economy on its own — that between the banks, the energy companies, the miners, and a few tech names like Shopify, you have all the exposure you need.

It sounds plausible. But let’s test it by looking at what you are actually missing in a Canada-only portfolio.

Companies you do NOT own with XIC:

• Apple — the most valuable company on Earth
• Microsoft — dominant in enterprise software and cloud computing
• NVIDIA — the backbone of the AI revolution
• Amazon — the everything store plus the largest cloud platform
• Alphabet (Google) — search, advertising, YouTube, cloud
• Meta — social media and the metaverse
• TSMC — manufactures the world’s most advanced semiconductors
• Novo Nordisk — maker of Ozempic and the leader in GLP-1 drugs
• ASML — the only company that makes the machines that make cutting-edge chips
• Johnson & Johnson, Pfizer, UnitedHealth — global healthcare leaders
• LVMH, Nestle, Procter & Gamble — consumer giants
• Samsung, Toyota, Sony — Asian industrial powerhouses

Not a single one of these companies is in XIC. Not one. These are the businesses shaping the future of the global economy, and a Canada-only investor has zero exposure to any of them.

Canada has some great companies. Shopify is impressive. The banks are solid. Our railroads are world-class. But we do not have a single top-20 global technology company. We do not have a major pharmaceutical company. We do not have a global consumer staples brand on the scale of Nestle or Procter & Gamble. We do not have a semiconductor manufacturer.

Saying “Canada has everything you need” is like saying your local grocery store has everything you need for dinner. Sure, you can make a meal. But you are missing most of the ingredients that make a truly great one.

6. Performance Comparison: How the Numbers Actually Stack Up

Let’s get into the data. Performance comparisons between XIC and a global portfolio like XEQT depend heavily on the time period you choose, and this is where the debate gets tricky. Canada has had periods of outperformance and periods of underperformance relative to global markets.

Recent Performance (Approximate Annualized Total Returns, CAD)

A few important observations:

XIC had its moments. In 2021, when commodity prices surged and Canadian banks roared back from the pandemic, XIC outperformed handily. In 2022, when global tech stocks crashed, XIC’s lower tech exposure meant a shallower drawdown. If you cherry-pick these periods, Canada looks great.

But over the full cycle, XEQT has come out ahead. The US technology boom of the past decade has been the dominant force in global equity markets. By owning XEQT, you participated in it. By owning only XIC, you watched from the sidelines.

The gap compounds over time. A 1.5% annual difference does not sound like much, but over 25 years on a $100,000 investment, it is the difference between roughly $610,000 and $720,000. That is over $100,000 of additional wealth simply from having global exposure.

And here is the thing — nobody knows which market will outperform next. Canada might have a fantastic decade ahead. Or it might not. With XEQT, you do not have to guess. You own everything and let the global economy do the work.

7. Sector Exposure: What You Actually Own

This is one of the most important comparisons in the entire post, because sector exposure drives long-term returns far more than most investors realize.

The pattern is stark. XIC is massively overweight in financials, energy, and materials — the old-economy sectors. XEQT gives you a much more balanced exposure across all eleven sectors, with particular strength in the growth sectors that have driven returns over the past two decades.

I want to be clear: this is not about predicting which sectors will win in the future. Technology might underperform over the next decade. Energy might surge. The point is that with XIC alone, you are making a huge implicit bet on three sectors. With XEQT, you are spread across all of them and letting the market sort it out.

For a complete breakdown of what XEQT’s sector allocation looks like, I have a dedicated post on that.

8. The Dividend Argument: Does XIC’s Higher Yield Matter?

This is one of the most common arguments I hear in favour of XIC: “It pays a higher dividend.”

And it is true. XIC’s yield is roughly 3.0%, compared to XEQT’s roughly 2.8%. That is a real difference, and for investors who are focused on income, it can feel significant.

But let’s put this in perspective.

Total return is what matters, not dividend yield

On a $100,000 portfolio, the difference between a 3.0% yield and a 2.8% yield is $200 per year. Meanwhile, XEQT’s higher total return (driven by price appreciation from its US and international holdings) has historically more than made up for that gap. You would rather have a portfolio that returns 9.5% with a 2.8% yield than one that returns 7.5% with a 3.0% yield.

I have written extensively about why total return beats yield chasing. The short version: dividends are not free money. When a company pays a dividend, the stock price drops by the amount of the dividend on the ex-date. What matters is the total value of your investment over time — price appreciation plus dividends combined.

The tax dimension

In a TFSA, dividend yield is irrelevant because everything is tax-free. In an RRSP, all withdrawals are taxed as regular income regardless of source. The dividend tax credit only matters in a non-registered account, and even there, the benefit of deferring capital gains with a lower-yielding, higher-growth fund can offset the dividend tax advantage.

If you want income in retirement, you can always create a “homemade dividend” by selling a small percentage of your XEQT holdings periodically. This gives you more control over the timing and amount of your income, and it is more tax-efficient in many situations.

9. When XIC Actually Makes Sense

I have spent most of this post making the case for XEQT, and I stand behind that for the vast majority of investors. But I want to be fair to XIC, because there are legitimate situations where it earns a place in your portfolio.

As a supplementary holding for tax efficiency

This is the strongest case for XIC. Inside an RRSP, Canadian-listed ETFs that hold Canadian stocks directly (like XIC) avoid foreign withholding tax entirely. XEQT’s US and international holdings are subject to foreign withholding taxes on dividends, which creates a small but real drag on returns — typically around 0.3-0.4% annually on the foreign equity portion.

Some sophisticated investors use a strategy where they hold XIC (or VCN) in their RRSP for the Canadian allocation, and then hold US-listed ETFs for the US and international portions to minimize withholding tax across all accounts. This is a valid optimization, but it adds complexity and requires rebalancing across multiple accounts.

For most investors, the simplicity of just holding XEQT everywhere outweighs the small tax savings. But if you have a large portfolio (over $500,000) and are comfortable managing multiple ETFs across accounts, the tax savings can be meaningful.

As a deliberate tilt toward Canadian equities

Some investors consciously choose to overweight Canada — perhaps because their spending is in Canadian dollars and they want to reduce currency risk, or because they work in an industry that benefits from Canadian economic strength. If that is you, holding a small amount of XIC alongside XEQT (say, 10-15% extra) is a reasonable approach.

Just be aware that XEQT already holds roughly 25% Canadian equities. Adding more XIC on top means you could easily end up with 35-40% of your portfolio in Canada — well above Canada’s 3% weight in global markets. That is a lot of home country bias, even if it is intentional.

As a parking spot while you learn

If you are brand new to investing and genuinely uncomfortable with international markets, starting with XIC while you educate yourself is not the worst thing in the world. It is cheap, simple, and gets you into the market. Just make sure you eventually graduate to a global portfolio like XEQT as your knowledge and comfort level grow.

10. But Wait — XEQT Already Holds XIC

This is the punchline that ties the whole comparison together, and it is the single most important thing I can tell you in this post.

XEQT holds XIC as one of its four underlying ETFs.

Roughly 25% of XEQT’s portfolio is allocated to the iShares Core S&P/TSX Capped Composite Index ETF — which is XIC. When you buy XEQT, you are already buying XIC. You are just also buying the US market, international developed markets, and emerging markets alongside it.

So the real question is not “XEQT or XIC?” It is “Do I want XIC alone, or do I want XIC plus 8,800 additional companies from 48 other countries?”

Framed that way, the answer becomes obvious for most investors. Choosing XIC alone means actively choosing to exclude 97% of the world’s investable opportunities. Choosing XEQT means getting everything XIC offers, plus everything else.

You are not giving up Canada by choosing XEQT. You are giving up the rest of the world by choosing only XIC.

11. What If You Already Own XIC?

If you are currently holding XIC and are now thinking about switching to XEQT, here is a practical roadmap.

In a TFSA or RRSP (no tax consequences)

This is straightforward. You can sell your XIC holdings and buy XEQT without triggering any tax events. The switch is essentially free in a registered account.

1. Sell your XIC holdings
2. Wait for the trade to settle (T+1)
3. Buy XEQT with the proceeds
4. Set up automatic contributions going forward

In a non-registered (taxable) account

Here, selling XIC triggers a capital gain (or loss) depending on your cost base. If you have significant unrealized gains, selling all at once could create a large tax bill.

Options:

• Gradual transition. Stop buying XIC and direct all new contributions to XEQT. Over time, XEQT will naturally become the dominant holding.
• Tax-loss harvesting. If XIC is below your cost base, sell it to realize the capital loss (which offsets gains elsewhere) and reinvest in XEQT.
• Lump-sum switch. If your gains are modest or you are in a low-income year, the simplicity of switching all at once might be worth the tax hit.

Whatever you do, do not let the perfect be the enemy of the good. Even if you cannot switch all at once, every new dollar you put into XEQT moves you toward a better-diversified portfolio.

For more on making the switch, check out my post on whether you should sell your stocks for XEQT.

12. The Verdict: XEQT Wins for Most Canadian Investors

Let me bring this home.

XIC is a fantastic ETF. It is incredibly cheap, highly liquid, and gives you instant access to the entire Canadian stock market. If all you want is Canadian equity exposure, there is nothing better. I have genuine respect for this fund.

But a portfolio that holds only XIC is not a diversified portfolio. It is a concentrated bet on one country that represents 3% of the global market, with massive overweights in financials, energy, and materials, and almost no exposure to the technology, healthcare, and consumer sectors that have driven global wealth creation for the past two decades.

XEQT is the better choice for most Canadian investors because:

• It already holds XIC inside it. You are not giving up Canada — you are adding the rest of the world.
• 9,000+ holdings across 49 countries versus 230 holdings in one country. That is real diversification.
• Balanced sector exposure that does not bet everything on banks and oil.
• Historically stronger total returns over most meaningful time periods.
• Lower overall volatility because your portfolio is not tied to the fate of a single economy.
• One fund, one purchase, done. The same simplicity as XIC, but with global reach.

The 0.14% higher MER is the price of admission to the other 97% of the global stock market. That is the best 14 basis points you will ever spend.

My uncle Dave still thinks Canada is enough. But last Christmas, after I showed him a chart of how much of the global tech rally he had missed, I noticed something interesting — he went quiet. No comeback. No rebuttal. He just said, “Huh. I did not know that.”

The next time I saw his portfolio, he had added XEQT alongside his XIC. He did not go all-in, and that is fine. But even he could see that the world is bigger than the TSX.

If you are still holding only XIC — or you are trying to decide between the two — the answer is XEQT. It gives you everything XIC offers, plus the rest of the world. And in a global economy, that is exactly what your portfolio needs.

You do not need to pick between Canada and the world. XEQT lets you have both.

Related Reading

• What Is XEQT?
• XEQT’s Geographic Diversification: Why Your Money Spans 49 Countries
• Home Country Bias and XEQT
• XEQT Sector Breakdown
• XEQT vs VFV: S&P 500 or Global Diversification?
• XEQT vs Canadian Dividend ETFs
• Foreign Withholding Tax and XEQT
• XEQT vs Canadian Bank Stocks
• Should I Sell My Stocks for XEQT?