XEI ETF

Review of XEI – Ishares S&P TSX Comp High Div Index ETF

What’s the objective of XEI ETF?

XEI managers follow a passive strategy consisting of tracking an index. The main objective is to replicate the performance of the S&P/TSX Composite High Dividend Index ETF. Standard & Poors manages the index and establishes the criteria’s used for selecting components. This ETF is ideal for investors who are seeking long term capital growth by investing in Canadian companies operating across diversified sectors.

XEI pays a monthly dividend income which can be appealing for investor who are looking for a frequent payout.

S&P/TSX Composite High Dividend Index

The S&P/TSX Composite High Dividend Index is an index focused on dividend income. The index is made up of 50 to 75 stocks selected from the S&P/TSX Composite. The weight of each Constituent Issuer is limited to 5%, while each sector is capped at 30% weight.

Criteria used by the index:

  • Market Capitalization: To be eligible for inclusion in the S&P/TSX Composite, a security must represent a minimum weight of 0.04% of the index
  • Liquidity
  • Domicile: The primary stock exchange listing is on the Toronto Stock Exchange.
  • Sector Classification. The index provides geographic and economic balance across the 11 GICS® Sectors. These Sectors are Communication Services, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Real Estate, and Utilities.

Note: Rebalancing frequency: quarterly

XEI ETF vs VDY vs XDV

In this section, we will compare XEI with Both XDV – Ishares Canadian Select Div Index and VDY Vanguard FTSE CDN High Div Yld Index. See tables below:

Table 1: AUM and MER

ETFAUM*MER*
XDV – Ishares Canadian
Select Div Index
                               1,7340.55
XEI – Ishares S&P TSX
Comp High Div Index
                               1,0880.22
VDY – Vanguard FTSE
CDN High Div Yld Index
                                1,1370.21
Source: Barchart as of October 8th 2021

Looking at the management fees, VDY and XEI are attractive. XDV stands at 0.55% which is the highest MER among our three contenders.

Table 2:  Performance comparison and analysis

ETFDiv
yld %
YTD*3yrs
**%
5yrs*
**%
XDV3.7322.5828.7931.71
XEI3.9025.7421.8120.02
VDY3.8325.8327.9834.32
Source: Barchart as of October 8th 2021, YTD year to date, **Cumulative returns: The cumulative return is the total change in the investment price over a set time.

Analysis

The tables above indicate clearly that both XDV and VDY are ahead of XEI in long-term performance. Though XEI offers better diversification across various Canadian sectors.

XDV and VDY are neck-to-neck in terms of performance. The banking sector dominates both VDY and XEI holdings (over 55% of their holdings). This is not the case for XEI, and it’s hurting its overall performance. The most reputable Canadian dividend stocks are in the banking/financial sector. The 30% cap on the financial industry seems to hurt XEI in terms of long-term growth potential. Diversification across sectors is desired, and it’s expected in principle to reduce the risk for holding XEI. Looking at table 3, we can see that XEI is riskier than XDV. The Beta of XEI is high compared to XDV.

XDV holds 30 high dividend-paying stocks in its holdings while VDY 39. In terms of volatility, XDV has a lower five years Beta suggesting less volatility. With a beta of 1.04, it means XDV is as volatile as the market. XEI stands at 1.33, meaning it’s 1.33 times more volatile than the market. An investor choosing XEI over XDV would incur added volatility without being compensated for it with higher performance. In my opinion, XDV is a better option as long as it’s part of a diversified portfolio.

XEI has the highest dividend yield but VDY and XDV are really close.

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Table 3: Dividend schedule and Beta

ETFMonthly
Div
Beta*
XDVYes1.04
XEIYes1.33
VDYYes1.38

Source: Yahoo Finance as of October 8th 2021, Beta is measure of volatility over 5 years period. The higher the Beta / The higher the volatility. A beta of 1 means the stock or ETF is as volatile as the TSX.

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XEI Morningstar rating

The Morningstar rating for XEI is 2 stars:

Rating: 2 out of 5.

XEI dividend history

XEI pays dividends on a monthly basis. Please refer the last column of the table below for the amount of dividend distribution.

Ex-DatePayable
Date
Total
Distribution
Sep 24, 2021Oct 1, 2021CAD 0.07800
Aug 25, 2021Aug 31, 2021CAD 0.07800
Jul 26, 2021Jul 30, 2021CAD 0.07800
Jun 24, 2021Jun 30, 2021CAD 0.07600
May 21, 2021May 28, 2021CAD 0.07600
Apr 26, 2021Apr 30, 2021CAD 0.07600
Mar 25, 2021Mar 31, 2021CAD 0.07500
Feb 22, 2021Feb 26, 2021CAD 0.07500

XEI holdings

NameWeight (%)
CANADIAN NATURAL RESOURCES LTD5.72
NUTRIEN LTD5.39
TC ENERGY CORP5.12
ENBRIDGE INC5.03
TORONTO DOMINION5.02
SUNCOR ENERGY INC4.85
ROYAL BANK OF CANADA4.83
BCE INC4.62
BANK OF NOVA SCOTIA4.43
TELUS CORP4.18
As of October 13th

XEI Sectors allocation

TypeWeight
%
Financials29.44
Energy27.49
Communication13.61
Utilities12.17
Materials7.26
Real Estate5.59
Consumer Discretionary2.61
Industrials0.94
Health Care0.39
Cash and/or Derivatives0.32
as of Oct 13, 2021