Inside XEQT: A Deep Dive Into the Four ETFs That Make Up Your Portfolio

If you have been reading this blog for any length of time, you have probably heard me describe XEQT as a burrito. One purchase, thousands of companies inside, done. It is a useful analogy and it has helped a lot of people understand the basics.

But here is the thing about the burrito analogy – it tells you what XEQT is, but not what XEQT is made of. Today I want to open up the burrito, lay every ingredient on the table, and tell you exactly what each one does. What is the rice? What is the guacamole? Why is there that specific ratio of protein to salsa?

Because XEQT is not just “a bunch of stocks.” It is four carefully chosen ETFs, each playing a distinct role, combined in deliberate proportions to give you exposure to the entire investable world from a single Canadian-listed ticker. And once you understand those four building blocks, you will have a much deeper appreciation for what you actually own – and why it works so well.

This is the nerd-out post. If you want to understand what is under the hood, pull up a chair.

1. XEQT Is a Fund of Funds – And That Is a Good Thing

Before we get to the four ETFs themselves, it is worth understanding what “fund of funds” actually means.

When you buy a share of XEQT, you are not directly buying shares of Apple, or Royal Bank, or Toyota. Instead, you are buying a fund that holds four other iShares ETFs. Each of those underlying ETFs holds hundreds or thousands of individual stocks in its assigned region. XEQT is the manager sitting on top, deciding how much money flows to each specialist below.

Think of it like a restaurant with four expert chefs. One handles American cuisine, one handles Canadian, one covers European and Asian fine dining, and one specializes in emerging flavors from developing markets. XEQT is the head chef who sets the menu and decides how much of your plate comes from each station. You order one dish. You get the world.

Why did BlackRock structure it this way instead of just buying 9,000+ stocks directly? Three reasons:

• Efficiency. The underlying ETFs already exist and are already massive, liquid, well-run funds. Building on top of them avoids rebuilding infrastructure that works perfectly well.
• Cost. Running one fund that holds four ETFs is cheaper than running one fund that directly trades thousands of securities across dozens of countries with different currencies, settlement rules, and tax treaties.
• Simplicity for you. One ticker, one trade, one line item in your portfolio. All the complexity happens underneath, handled by professionals who do this for a living.

The result is that XEQT gives you exposure to over 9,000 companies across 40+ countries for a total MER of just 0.20%. That is the power of the fund-of-funds structure.

Now let us meet the four ETFs that make it all work.

2. ITOT – The American Powerhouse (~45% of XEQT)

The single largest ingredient in your XEQT burrito is ITOT, the iShares Core S&P Total U.S. Stock Market ETF. It commands roughly 45% of the fund, and for good reason – the United States is the largest and most liquid stock market on Earth.

What ITOT Actually Holds

ITOT does not just track the S&P 500. It tracks the entire US stock market. That means approximately 3,500 stocks spanning large-cap giants, mid-cap growth companies, and small-cap names you have probably never heard of. When someone says “the US market,” ITOT is the US market.

ITOT Key Facts

That MER is not a typo. ITOT charges three basis points – three cents per hundred dollars invested per year. It is one of the cheapest ETFs in existence. When you see XEQT’s overall MER of 0.20% and wonder where the money goes, very little of it is going to ITOT.

Why ITOT Gets the Biggest Slice

The US accounts for roughly 45-50% of global stock market capitalization. American companies dominate technology, healthcare, consumer goods, and financial services. By giving ITOT the largest allocation, XEQT is simply reflecting the economic reality that the US market is the gravitational center of global investing.

When you own ITOT through XEQT, you own a tiny piece of every major American company – plus thousands of smaller ones. Your neighbor’s favorite tech stock? You own it. That pharmaceutical company that just had a breakthrough drug approved? You own that too. The regional bank in Ohio with a $3 billion market cap? Yep, you own a sliver of that as well.

One thing I really appreciate about ITOT is the small-cap and mid-cap exposure. A lot of people compare XEQT to just buying the S&P 500 (which only holds 500 large-cap companies), and they miss this key distinction. ITOT holds the total market – including those 3,000+ smaller companies that are not in the S&P 500. These are the companies that often grow into tomorrow’s blue chips. By holding ITOT instead of an S&P 500 tracker, XEQT captures that entire growth spectrum. For more on this comparison, check out my post on XEQT vs the S&P 500.

This is the rice in your burrito – the foundation that holds everything together.

3. XIC – Your Home Base (~25% of XEQT)

The second-largest holding is XIC, the iShares Core S&P/TSX Capped Composite Index ETF. At roughly 25% of XEQT, this is your Canadian allocation – and it plays a more important role than its size might suggest.

What XIC Actually Holds

XIC tracks the S&P/TSX Capped Composite Index, which covers approximately 230 of the largest publicly traded companies in Canada. The “capped” part is important – it means no single stock can dominate the index beyond a set threshold, which prevents one mega-cap name from throwing off the balance.

XIC Key Facts

The Canadian Overweight – And Why It Is Intentional

Here is something that surprises a lot of people when they first learn it: Canada represents only about 3% of global stock market capitalization. Three percent. Yet XEQT gives it 25% of the allocation. That is roughly eight times Canada’s “natural” weight.

This is not a mistake. BlackRock deliberately overweights Canada for several smart reasons:

• Tax efficiency. Canadian dividends receive preferential tax treatment in registered and non-registered accounts. Eligible dividends from Canadian companies are taxed at much lower effective rates than foreign dividends thanks to the dividend tax credit.
• No withholding tax. When XEQT collects dividends from Canadian companies through XIC, there is no foreign withholding tax to worry about. US and international dividends face withholding taxes that eat into your returns.
• Currency alignment. You live in Canada. You spend Canadian dollars. Having a meaningful chunk of your portfolio in Canadian-dollar-denominated assets reduces the currency volatility you experience day to day.
• Local economy exposure. The Canadian economy is your economy. Your job, your housing market, your cost of living are all tied to it. Having exposure to Canadian banks, energy companies, and utilities means your investments have some connection to the economic conditions that affect your daily life.

The Canadian stock market is heavily concentrated in financials (the Big Five banks plus insurers), energy (oil sands, pipelines), and materials (mining, forestry). This makes XIC look very different from ITOT – which is a feature, not a bug. The Canadian market zigs when the American market zags, providing genuine diversification benefits.

I used to think the Canadian overweight was a drawback. “Why would I want 25% in a tiny market when the US has all the tech giants?” Then 2022 happened. US tech stocks cratered, and Canadian energy and bank stocks had a great year. My XEQT held up much better than a US-only portfolio would have, partly because of that XIC allocation doing its thing. Diversification does not always feel useful – until the one time it really matters.

For a deeper look at why XEQT overweights Canada and the tax implications of holding Canadian equities, check out my post on XEQT tax implications for Canadian investors.

Think of XIC as the protein in your burrito. It is hearty, it is local, and it gives the whole thing substance.

4. IEFA – The International All-Star (~20% of XEQT)

The third ingredient is IEFA, the iShares Core MSCI EAFE ETF. EAFE stands for Europe, Australasia, and the Far East – basically every developed market on the planet that is not the United States or Canada.

What IEFA Actually Holds

IEFA gives you access to roughly 2,500 stocks across some of the oldest and most established economies in the world. We are talking about Swiss chocolate empires and Japanese automakers and British pharmaceutical companies and Dutch semiconductor pioneers. These are not speculative bets on unproven markets – these are the blue-chip companies of the developed world.

IEFA Key Facts

Why IEFA Matters More Than You Think

A lot of Canadian investors – especially beginners – tend to think of investing as a two-horse race between Canada and the US. But the international developed world is huge. Japan alone has the third-largest stock market in the world. Europe is home to some of the most profitable and enduring companies in human history.

IEFA gives you exposure to:

• European luxury and consumer goods – LVMH, Nestle, Unilever
• Advanced manufacturing – Toyota, Siemens, Airbus
• World-class healthcare – Novo Nordisk, Roche, AstraZeneca
• Cutting-edge technology – ASML (the company that makes the machines that make the chips), SAP, Sony
• Stable financials – HSBC, Zurich Insurance, Macquarie Group

These companies are global leaders in their fields. Many of them have been around for over a century. And because they operate in different economic cycles, different currencies, and different regulatory environments than North American companies, they add a layer of diversification that you simply cannot get from US and Canadian stocks alone.

During periods when the US dollar is strong or US tech stocks are struggling, international developed markets often pick up the slack. The opposite is also true. This back-and-forth smoothing effect is exactly what diversification is supposed to do.

I will admit something: IEFA was the holding I understood the least when I first started investing in XEQT. I knew the US market. I knew the Canadian market. But “Europe, Australasia, and the Far East” felt abstract to me. Then I started actually looking at the companies inside IEFA and realized I interact with them every day. The watch on my wrist, the car in my driveway, the medication in my medicine cabinet, the chocolate in my pantry – there is a good chance several of those came from companies inside IEFA. These are not obscure foreign businesses. They are global brands that happen to be headquartered outside North America.

IEFA is the guacamole in your burrito – rich, complex, and quietly doing a lot of heavy lifting that you might not notice until it is gone.

5. IEMG – The Growth Engine (~10% of XEQT)

The final ingredient is IEMG, the iShares Core MSCI Emerging Markets ETF. At roughly 10% of XEQT, this is the smallest allocation, but it plays an outsized role in your portfolio’s long-term growth potential.

What IEMG Actually Holds

IEMG covers approximately 2,800 stocks across emerging market economies – countries that are industrializing, urbanizing, and growing at rates that developed markets can only dream of. We are talking about the factories, banks, tech companies, and infrastructure builders of the developing world.

IEMG Key Facts

The Case for Emerging Markets

I am going to be honest: emerging markets have frustrated a lot of investors over the past decade. While US tech stocks were compounding at jaw-dropping rates, many emerging market economies dealt with political instability, currency crises, and slower growth than expected.

So why does XEQT still hold them?

Because investing is about the next 20 to 30 years, not the last 10. And the math is hard to ignore:

• Demographics. Emerging markets are home to roughly 85% of the world’s population and an even larger share of the world’s young people. As these populations get richer, they spend more – on phones, cars, insurance, entertainment, financial products. This is the mother of all growth stories.
• Urbanization. Hundreds of millions of people are still moving from rural areas to cities across Asia, Africa, and Latin America. That migration drives demand for housing, infrastructure, consumer goods, and services.
• Innovation. Taiwan Semiconductor manufactures the most advanced chips on Earth. Samsung dominates memory chips and displays. Tencent and Alibaba are technology giants. India’s IT services sector is world-class. Emerging markets are not just cheap labor anymore – they are innovation hubs.

The smaller allocation (10% versus 45% for the US) reflects the higher volatility and risk. But that 10% gives you exposure to the economies most likely to grow faster than the global average over the next few decades. For a deeper dive into this slice of the portfolio, I wrote a full breakdown of XEQT’s emerging market exposure.

IEMG is the salsa in your burrito – it is the kick, the heat, the flavor that turns something good into something great. You do not want it to be the whole meal, but you definitely want it in there.

6. How the Four ETFs Work Together

Now that you know what each ingredient does on its own, let us zoom out and look at how they work together. Because the real magic of XEQT is not any single ETF – it is the combination.

Geographic Diversification

Notice something interesting? The sector concentrations are different for each region. The US is dominated by technology. Canada is dominated by financials and energy. International developed markets lean toward industrials and healthcare. Emerging markets have their own tech and consumer story.

This means you are not just diversified geographically – you are diversified by sector, by currency, by economic cycle, and by growth driver. When tech stocks are struggling, your Canadian banks might be thriving. When oil prices drop and your energy stocks suffer, your international consumer goods companies might be humming along. When developed markets hit a slowdown, emerging markets might be accelerating.

No one region or sector can sink your portfolio. That is the whole point.

A Visual Way to Think About It

I find it helpful to think about XEQT’s allocation as a pie chart with four slices, but what matters is not just the size of each slice – it is that each slice tastes different. If you made a pie with four slices of the same flavor, having four slices would not give you any benefit over having one. The diversification value comes from the differences between the slices.

US tech stocks behave differently from Canadian bank stocks. Japanese industrials dance to a different tune than Brazilian miners. When you combine things that move differently, the overall portfolio becomes more stable than any individual piece. Academics call this “portfolio efficiency.” I call it sleeping well at night.

For more on how this geographic spread protects you, check out my post on XEQT’s geographic diversification across 49 countries.

The Correlation Benefit

Here is something that does not get enough attention: the four underlying ETFs do not move in lockstep. They are correlated – they all tend to go up and down with global markets – but they do not move by the same amount at the same time. This imperfect correlation is what gives diversification its power.

When one region drops 15%, another might only drop 5% or even go up. Over time, this smoothing effect reduces the volatility of your overall portfolio without sacrificing expected returns. You get a smoother ride without giving up where you are going.

I remember a period in 2022 when US tech stocks were getting crushed. My XEQT held up better than a pure US portfolio would have, because the Canadian energy stocks in XIC were having a phenomenal year. I did not plan that. I did not predict it. I did not need to. XEQT’s structure handled it for me.

7. The MER Math: What You Actually Pay

XEQT’s management expense ratio is 0.20%. But if the underlying ETFs charge their own MERs – ITOT at 0.03%, XIC at 0.06%, IEFA at 0.07%, and IEMG at 0.09% – how does that work? Are you paying double?

No. The 0.20% MER is the all-in cost. It already includes the fees of the underlying ETFs.

Here is how the math breaks down:

XEQT’s Fee Layers

So out of that 0.20%, about a quarter goes to the underlying ETFs and about three-quarters goes to BlackRock for managing the wrapper – the rebalancing, the administrative overhead, the regulatory compliance, and everything else that makes XEQT a one-ticket solution.

Is 0.20% a lot? Let us put it in perspective:

• The average Canadian mutual fund charges about 2.0% – ten times more
• A typical robo-advisor charges 0.50% to 0.70% on top of underlying ETF fees
• Managing a DIY four-ETF portfolio costs $0 in explicit fees – but we will get to the hidden costs in a moment

For every $10,000 you have invested, you are paying XEQT about $20 per year. That is less than a single nice dinner out. In exchange, you get professional rebalancing, global diversification, tax-efficient management, and the ability to never think about your asset allocation again. I think that is a phenomenal deal.

8. “Could I Just Buy These Four ETFs Myself?”

This is the question I get asked more than almost any other, usually from someone who has done some research and is feeling confident. And the answer is: yes, technically, you absolutely could. But here is why I think you should not.

The DIY Approach

You could open your Wealthsimple account, buy ITOT, XIC, IEFA, and IEMG in the right proportions, and manage your own globally diversified portfolio. You would save about 0.15% per year in XEQT’s wrapper fee. On a $100,000 portfolio, that is $150 per year. Sounds tempting, right?

Here is what you are signing up for:

Currency conversion costs. ITOT, IEFA, and IEMG are US-listed ETFs. To buy them, you need US dollars. The standard currency conversion fee on most brokerages is 1.5%. On a $45,000 ITOT purchase, that is $675 – gone before you even start investing. Yes, you can use Norbert’s Gambit to reduce this cost, but that takes days to settle and requires you to know what you are doing. XEQT handles all currency conversion internally at institutional rates that you will never get as a retail investor.

Rebalancing burden. Every quarter (or at least every year), you need to log in, check your allocations, calculate the drift, and execute trades to get back to target. This takes 30 to 60 minutes if you know what you are doing, longer if you do not. And you need to actually do it. I have talked to dozens of DIY investors who set up a four-ETF portfolio with the best of intentions and then stopped rebalancing after the first year because life got in the way. XEQT rebalances automatically – you never have to think about it.

Tax drag from rebalancing. In a non-registered (taxable) account, selling your overweight ETF to buy your underweight ETF triggers a capital gain. That gain is taxable. Over decades of quarterly rebalancing, those tax events add up. XEQT rebalances internally without triggering taxable events for you. This is a significant, often overlooked advantage.

Fractional share problems. If you are investing $500 per month and ITOT costs $120 USD per share, you cannot buy exactly 45% worth of ITOT. You end up with rounding errors that compound over time, making your actual allocation drift from your target. XEQT handles this seamlessly because it trades in Canadian dollars at whatever price per share is available.

Behavioral risk. This is the big one. When you hold four separate ETFs, you see four separate performance numbers. You watch ITOT go up 25% while IEMG drops 10%, and your brain starts whispering: “Why am I holding this emerging markets loser? I should put it all in the US.” That temptation to tinker is incredibly powerful, and it destroys returns. With XEQT, you see one number. You cannot easily compare the parts and talk yourself into making a mistake. The simplicity is a feature.

XEQT vs DIY Four-ETF Portfolio: The Comparison

That $150 per year in fee savings looks a lot less attractive when you factor in the currency conversion costs (which can eat up multiple years of savings in a single transaction), the time you spend managing it, the tax drag from rebalancing, and the very real risk that you will start making emotional decisions with your allocations.

There is one more hidden cost that rarely gets discussed: the cost of getting started. When you buy XEQT, you research one ETF, place one trade, and you are done. When you build a DIY four-ETF portfolio, you need to research four ETFs, understand the tax implications of holding US-listed ETFs in different account types, learn about currency conversion strategies, decide on your target allocation, and then set up a system for tracking and rebalancing. The upfront education and decision-making cost is significant. Many people who go down the DIY path end up spending weeks in analysis paralysis before they invest a single dollar – and during those weeks, they are earning exactly nothing.

I am not saying the DIY approach is bad. If you genuinely enjoy managing your own portfolio, understand the tax implications, and have a disciplined rebalancing process, you can make it work. There are people on the Canadian personal finance forums who run beautiful four-ETF portfolios and save that 0.15% per year. I respect them.

But for the vast majority of Canadian investors, XEQT is the better choice. Not because the DIY approach does not work in theory – it does. But because investing is not a theory exercise. It is a real-life, decades-long commitment, and the strategy that is easiest to stick with is the strategy that wins.

I have said it before and I will say it again: the best investment strategy is the one you actually follow.

9. Putting It All Together

Let us step back and appreciate what XEQT actually gives you with a single purchase on your phone:

• ~3,500 US stocks through ITOT – the entire American market from Apple to the smallest publicly traded company in Nebraska
• ~230 Canadian stocks through XIC – every major bank, energy company, and tech name north of the border
• ~2,500 international developed stocks through IEFA – Europe, Japan, Australia, and everything in between
• ~2,800 emerging market stocks through IEMG – China, India, Taiwan, Brazil, and dozens more

That is over 9,000 companies across 40+ countries, automatically rebalanced, tax-efficiently managed, available for $0 commission on Wealthsimple, for a total cost of 0.20% per year.

I spent years trying to build the “perfect” portfolio by picking individual stocks and timing markets. I wasted time, I paid unnecessary fees, and I underperformed. When I finally switched to XEQT, the relief was immediate. Not because I stopped caring about my investments – I still nerd out about this stuff (clearly). But because I stopped worrying about them.

Understanding what is inside XEQT does not change my strategy. I still just buy it and hold it. But it does give me confidence. I know exactly what I own, I know why each piece is there, and I know how they work together. That knowledge is what lets me stay the course during market downturns, ignore the noise, and keep investing month after month.

If you want to project how your XEQT investment could grow over time, try the XEQT calculator and play with different monthly contribution amounts. It is a great way to see the power of compound growth across all four of these underlying ETFs working together.

The burrito is delicious. Now you know exactly what is in it.

Related Reading

• What is XEQT? A Comprehensive Guide
• XEQT Holdings Breakdown: What You Actually Own
• XEQT Automatic Rebalancing Explained
• XEQT MER: Understanding the Fees
• How BlackRock Builds and Manages XEQT
• XEQT Geographic Diversification: 49 Countries
• XEQT Emerging Market Exposure Explained
• Use the XEQT Calculator to Project Your Growth