• ETFs

Breaking News, Familiar Ground: iShares Asset Allocation ETFs

“When a thing has been said and said well, have no scruple. Take it and copy it.”

Anatole France

If there’s an overnight success story to be savored from 2018, it would be Vanguard’s Asset Allocation ETFs. Since their launch earlier this year, their combined assets under management have already exceeded $800 million. What’s not to like about gaining access to a low-cost, self-rebalancing globally diversified portfolio with the click of a mouse?

So, no huge surprise: BlackRock Canada has noticed its rival’s success. Perhaps inspired by Anatole France’s words of wisdom, they’ve just launched a pair of matching iShares Asset Allocation ETFs of their own, with ticker symbols that are suspiciously similar to Vanguard’s.

What’s in a Name?

BlackRock is not new to the “fund-of-funds” game. They already had two balanced ETFs in their product lineup. But unlike Vanguard, they hadn’t generated much investor interest. After more than a decade, their two balanced ETFs had less than $150 million under management.

So – Abracadabra! – the old becomes new again. Instead of launching more ETFs, BlackRock took a slightly different approach: They simply changed the fund names, ticker symbols, management fees and investment objectives of their two existing balanced ETFs.


Old Name and TickerNew Name and Ticker
iShares Balanced Income CorePortfolio™ Index ETF (CBD)iShares Core Balanced ETF Portfolio (XBAL)
iShares Balanced Growth CorePortfolio™ Index ETF (CBN)
iShares Core Growth ETF Portfolio (XGRO)


BlackRock’s new tickers come as no surprise; their XBAL and XGRO will be in direct competition with Vanguard’s VBAL and VGRO (Note: The ticker for each iShares Fund is expected to change on or about December 18, 2018). The MER for each Vanguard fund is 0.25%; the projected MER for each iShares ETF is around 0.21%.

Asset Allocations and Underlying Funds

XBAL’s long-term strategic asset allocation will be approximately 40% fixed income and 60% equities. XGRO’s strategic asset mix will be more aggressive, with 20% fixed income and 80% equities.

The chart below includes the target weight for each asset class within the fixed income and equity allocations. I’ve also included the underlying ETFs that XBAL and XGRO will initially hold to gain exposure to each asset class.


Underlying ETFAsset ClassiShares Core Balanced ETF Portfolio (XBAL)iShares Core Growth ETF Portfolio (XGRO)
iShares Core Canadian Short Term Corporate + Maple Bond Index ETF (XSH)Canadian Short Term Corporate Bonds6%3%
iShares Core Canadian Universe Bond Index ETF (XBB)Canadian Bonds26%13%
iShares U.S. Treasury Bond ETF (GOVT)U.S. Government Bonds4%2%
iShares Broad USD Investment Grade Corporate Bond ETF (USIG)U.S. Corporate Bonds4%2%
iShares Core S&P/TSX Capped Composite Index ETF (XIC)Canadian Stocks15%20%
iShares Core S&P Total U.S. Stock Market ETF (ITOT)U.S. Stocks27%36%
iShares Core MSCI EAFE IMI Index ETF (XEF)Developed Markets Stocks (ex North America)15%20%
iShares Core MSCI Emerging Markets ETF (IEMG)
Emerging Markets Stocks


Investment Strategy

Following are some additional “under the hood” comparisons between our two contenders:


  • Canadian/foreign equity split: XBAL and XGRO each split their equity allocation 25/75 between Canadian and foreign stocks. VBAL and VGRO have a 30/70 domestic/foreign stock split.


  • Overweight US tilt: XBAL and XGRO underweight Canadian stocks by 3% and 4% respectively, relative to VBAL and VGRO. These “extra” assets are then fully allocated to US stocks, instead of being used to top-up US, international and emerging market equities alike. Vanguard allocates its VBAL and VGRO foreign equity allocations according to its current market capitalization; this makes Vanguard’s foreign equity weighting methodology arguably more “passive” than BlackRock’s.


  • Underweight emerging markets: Relative to VBAL and VGRO, BlackRock also underweights emerging markets in XBAL and XGRO. The underweight is even more significant than what appears in the chart below, because Korean stocks are allocated to developed markets in VBAL and VGRO, whereas the same stocks are allocated to emerging markets in XBAL and XGRO.


  • Fixed income allocations: Vanguard targets 60% domestic and 40% foreign bonds, while BlackRock targets 80% domestic and 20% foreign bonds. XBAL and XGRO do not currently have an allocation to non-US foreign bonds, whereas Vanguard does. Over time, I would not expect these differences in fixed income strategy to have a material impact on fund performance.


Canadian Bonds32.0%23.5%16.0%11.7%
U.S. Bonds8.0%7.3%4.0%3.7%
Global Bonds (ex U.S.)-9.2%-4.6%
Canadian Stocks15.0%18.0%20.0%24.0%
U.S. Stocks27.0%23.7%36.0%31.7%
Developed Markets Stocks (ex North America)15.0%14.2%20.0%18.9%
Emerging Markets Stocks3.0%4.1%4.0%5.5%


Rebalancing Strategy

BlackRock plans to occasionally rebalance its portfolios (at their discretion). They do not expect to allow any asset class to deviate by more or less than 10% of its target weight.

For example, XBAL has a Canadian equities target weight of 15%, invested in the iShares Core S&P/TSX Capped Composite Index ETF (XIC). If XIC were to become more than 16.5% of the portfolio [15% + (15%/10)], BlackRock would likely sell a portion to bring the asset class back in line with its target.

Likewise, if XIC were to become less than 13.5% of the portfolio [15% – (15%/10)], BlackRock would likely sell a portion of any overweight ETFs, and use the proceeds to buy more shares of XIC.

Vanguard also plans to rebalance their portfolios from time to time (at their discretion).

Currency-Hedging Strategy

BlackRock will not employ a currency-hedging strategy for the foreign equity portion of both ETFs. This means that Canadian investors will want foreign currencies like the US dollar, British pound and Japanese yen to appreciate relative to the Canadian dollar.

BlackRock will implement a currency-hedging strategy for its non-Canadian fixed income allocations. As the ETFs both hold US-listed bond ETFs (the iShares U.S. Treasury Bond ETF (GOVT) and the iShares Broad USD Investment Grade Corporate Bond ETF (USIG)), XBAL and XGRO will have to directly enter into currency forward contracts to offset the US dollar exposure of this fund.

Vanguard has a similar currency-hedging strategy in their asset allocation ETFs.

So, Vanguard or iShares? You Decide … We’ll Provide the Models

Time will tell which firm’s solutions will reign supreme … or whether there’s room for both in this big, wide world of opportunities. As single-ETF solutions continue to gain traction among DIY investors, I’ve decided to include both Vanguard and iShares Asset Allocation ETFs as additional model portfolios on my blog. I’ll also continue to update our 3-ETF and 5-ETF model portfolios. As with the current model portfolios, I’ve back-tested each of the funds’ performances using appropriate index returns minus fees. Going forward, I’ll update the data with actual fund performance as it is available.

Where does that leave us? If you ask me, it’s good to have a few good choices. Healthy competition helps keep costs under control. That’s good for you too, no matter which model you may choose.


By |2018-12-13T14:01:36+00:00December 13th, 2018|Categories: ETFs|70 Comments


  1. Alex January 18, 2019 at 8:06 pm - Reply

    Hi Justin, great write up, thank you! How have you determined that Vanguard is more passive?

    I’ve seen you write comments like: “I prefer the Vanguard AA ETFs, as I find them to be less active in their methodology (i.e. the global equity weights are based on plain-vanilla market capitalization, not arbitrary weights).”

    Aren’t the ETFs used in XGRO and VGRO all market-cap weighted ETFs?


    • Justin January 19, 2019 at 6:24 pm - Reply

      @Alex: The allocations between US, international and emerging markets equities in XBAL and XGRO are not weighted according to their global equity market capitalization (even though the underlying stocks of the individual equity ETFs are weighted according to their float-adjusted market capitalizations).

      If the foreign equities in XBAL and XGRO were market cap weighted, their US/Intl/EM allocations as of December 31, 2018 would be 25.0%/14.6%/5.4% (XBAL) and 33.4%/19.4%/7.2% (XGRO). This would be similar to holding XAW in place of the 45% and 60% foreign equity allocations in XBAL and XGRO (XAW is 55.6% US, 32.4% Intl, 12.0% EM).


  2. Dheepak Jeevaraj January 14, 2019 at 7:46 pm - Reply

    Thanks Justin – that makes perfect sense! I’m not going to retire any time soon and my tax bracket can only stay the same or go up – Tax loss harvesting is not something I should be troubling myself. Instead enjoy the convenience offered by these Asset Allocation ETFs.

  3. Dheepak Jeevaraj January 12, 2019 at 1:07 am - Reply

    Thanks for the comparison of returns of XGRO and VGRO.
    I used this to compare with the Model-ETF portfolio returns, which is made tax-efficient for the type of account. But I don’t see much of a difference in returns.
    Is it fair to assume that these XGRO and VGRO are tax-efficient?
    Also, with an Asset allocation ETF, we cannot practice tax-loss harvesting. Do you think this would make a huge difference between this 1 ETF portfolio instead and a 3-ETF/5-ETF folios?

    • Justin January 14, 2019 at 6:11 pm - Reply

      Dheepak Jeevaraj: XGRO and VGRO are tax-efficient enough for most investors. Breaking the ETFs up and holding US-listed foreign equity ETFs in RRSPs can make a portfolio slightly more tax-efficient though.

      Less tax-loss opportunities are expected to arise with XGRO and VGRO in taxable accounts (relative to holding the individual ETFs separately), but there is no guarantee that any tax loss selling opportunities will even arise for an individual investor.

      • Dheepak Jeevaraj January 14, 2019 at 7:47 pm - Reply

        Thanks Justin – that makes perfect sense! I’m not going to retire any time soon and my tax bracket can only stay the same or go up – Tax loss harvesting is not something I should be troubling myself. Instead enjoy the convenience offered by these Asset Allocation ETFs.

  4. Mark January 11, 2019 at 10:27 pm - Reply

    Hi Justin,

    Just wondering why the new/refreshed Model Portfolios don’t show the estimated tax drag for various accounts, as the previous ones used to. Can we expect to see this in the future? May be useful in comparing returns of a 3 ETF or 5 ETF portfolio to an All-in-one portfolio. Perhaps we can expect to see a blog post on this topic in the future?

    • Justin January 14, 2019 at 6:06 pm - Reply

      @Mark: I’m planning to release a foreign withholding tax calculator at the beginning of 2019 (so investors will be able to determine the estimated tax drag for themselves).

  5. Doug Mehus January 10, 2019 at 12:37 am - Reply

    Great analysis, as always, Justin. I know you’ve highlighted them in the past, or at least I think you have, but it bears repeating here, I think.

    Horizons’ own synthetic asset allocation ETFs, in which its Schedule I chartered bank in National Bank of Canada serves as the counterparty to the ETFs in a contractual arrangement with the funds to deliver the investment return of the underlying ETFs net of fees (as I understand it), deserve strong mention here again. They’re particularly attractive for non-registered accounts, or just accounts where investors would prefer to have all-in growth + dividend accrue to the NAV (an old, but novel, concept!). 🙂


  6. Pete C January 6, 2019 at 3:14 am - Reply

    Justin, thanks! Is it fair to say an Asset Allocation ETF is as good an option as your 3 ETF model portfolio in an RESP? from your model portfolio data, seems to me they would be expected to produce similar returns, and the Asset Allocation route has the advantage of being an ‘easy day’ with respect to no rebalancing. simple is good. other considerations would be ETF purchase costs depending on one’s online brokerage, and a small MER difference b/w AA/3 ETF.

    do you think there is a clear winner b/w Vanguard vs iShares AA options? they seem so close that it may just boil down to personal preference. …i’ll stop overthinking them soon…

    Cheers, Pete C.

    • Justin January 14, 2019 at 6:03 pm - Reply

      @Pete C: I think that the asset allocation ETFs may be better options for RESP accounts (than the 3-ETF option). I’ve started including them in my clients’ RESPs (as it’s cheaper and easier to invest smaller amounts of cash).

      I prefer the Vanguard AA ETFs, as I find them to be less active in their methodology (i.e. the global equity weights are based on plain-vanilla market capitalization, not arbitrary weights).

  7. Pete C January 5, 2019 at 2:39 am - Reply

    Happy New Year Justin, appreciate all this great info. i have a question please — do your Model ETF portfolio performance returns for the Vanguard and iShares Asset Allocation ETFs (at https://cdn.canadianportfoliomanagerblog.com/wp-content/uploads/2018/12/CPM-AA-ETF-Model-Portfolios-2018-11-30.pdf) account for all foreign withholding taxes, or do the model numbers represent pre-tax returns? I’m considering an asset allocation ETF versus holding 3-4 individual ETFs in an RESP, but have been hesitating b/c i’m not sure i understand Asset Allocation ETF withholding taxes enough yet. Thks, Pete.

    • Justin January 5, 2019 at 9:43 pm - Reply

      @Pete C: Happy New Year! The hypothetical past returns of the asset allocation ETFs attempt to adjust for a portion of the foreign withholding taxes (by using net dividend indices), but it’s not perfect.

      There’s no way to cost-effectively get around foreign withholding taxes in an RESP (even if you invest in US-listed foreign equity ETFs), so this should not be a concern for you.

      For what it’s worth, VBAL and VGRO would respectfully have about 0.15% and 0.18% tax drag from non-recoverable foreign withholding taxes in an RESP.

  8. Brad December 28, 2018 at 6:40 am - Reply


    Thanks for pointing that out. I see now, XGRO dec 24 17.81, dec 27 18.21

    why is google, and yahoo displaying it as “18.21+1.36 (+8.05%)” ?


  9. Brad December 27, 2018 at 11:19 pm - Reply

    Hey Justin

    Why such the difference in gain today for VGRO and XGRO (dec27)

    VGRO 23.11 CAD +0.63 (2.80%)
    XGRO 18.21 CAD +1.36 (8.05%)

    being very similar etfs, why such the difference?


    • Justin December 27, 2018 at 11:37 pm - Reply

      @Brad: The last price for VGRO today was $23.11, which was up $0.63 from its previous day’s close of $22.48 (so as you said, a percentage gain 2.80%).

      The last price for XGRO today was $18.21, which was up $0.40 from its previous day’s close of $17.81 (so the percentage gain was 2.25%, not 8.05%).

  10. Sd December 27, 2018 at 2:48 am - Reply

    Hey Justin, I read somewhere on your blog that ZDB and BXF are not directly comparable because the former is a long term bond and the latter is short term. How do you decide which bond ETF to choose? Should the investor who may need the money in a few years choose BXF, while the investor who does not have plans of withdrawing the money choose ZDB?

    • Justin December 27, 2018 at 2:22 pm - Reply

      @Sd: If you require the money in a few years, BXF would generally be a better choice than ZDB (as it has a lower duration). An investment savings account or a 3-year GIC (as long as you definitely do not require the funds before this time) would also be suitable options (as long as you stay within the CDIC limit of $100,000 per issuer/account type).

  11. Silva December 26, 2018 at 5:22 pm - Reply

    I would like to know what would be the best account (TFSA, RRSP or taxable accounts) in terms of taxation to hold one of these ETFs (VGRO / XGRO).

    • Justin December 27, 2018 at 2:19 pm - Reply

      @Silva: The best account to hold almost any investment is a tax-deferred or tax-free account (i.e. TFSA, RDSP, RESP RRSP, LIRA, RRIF, LIF, etc.). Even though there is a small amount of unrecoverable foreign withholding taxes applicable in these account types, the amount is nothing compared to the income taxes that investors would pay on the investment income each year if the ETFs were held in a taxable account.

      Once you run out of TFSA or RRSP contribution room, you can then consider holding VGRO or XGRO in a taxable account.

  12. Dale Roberts December 25, 2018 at 12:00 pm - Reply

    Great post, thanks. Glad to see iShares revamp these products and undercut Vanguard slightly on fees. With slightly lower fees and greater US allocation these might deliver slightly greater returns over time. CCP stated that you had the historical returns comparison for AA Vanguard and iShares models, somewhere on your site? Apologies if I’ve missed that in plain site.


  13. Jim S December 21, 2018 at 9:55 pm - Reply

    Sorry that my question was not clear.

    My question is whether Vanguard and/or Blackrock will automaticallybreinvest the distributions from the underlying ETFs to buy more units of the asset allocation ETF for the client.

    • Justin December 22, 2018 at 8:07 pm - Reply

      @Jim S: You can generally set-up dividend reinvestment plans (DRIPs) on these funds, so that the majority of the distributions are reinvested in new units (you would just need to contact your specific brokerage to find out how to set this up).

      Vanguard and BlackRock are not expected to do this automatically for you.

  14. Jim S December 21, 2018 at 2:01 pm - Reply

    Justin, a very informative post. Are the distributions from the underlying ETFs automatically reinvested or are they left as cash? Is the answer the same for all

    • Justin December 21, 2018 at 2:26 pm - Reply

      @Jim S: I would assume that the majority of underlying fund distributions would be paid in cash (this has been the case for VBAL and VGRO this year). The exception to this would be reinvested capital gains distributions (i.e. “phantom distributions”) – these are generally not paid out in cash, but are still taxable (they show up on your T3 but not your account statement) and increase the cost base of your ETF.

  15. Brian December 20, 2018 at 7:49 pm - Reply

    I’ve learned a great deal by reading your blog, so thanks for all of the information you share on here Justin! Do you have the calendar year returns for your model portfolio’s available somewhere instead of just the trailing returns?

    • Justin December 20, 2018 at 8:10 pm - Reply

      @Brian: I’m glad you’ve been learning a lot by reading the blog. I don’t post calendar year returns for the model portfolios on the blog – is there a certain year that you were looking for (or a reason for requiring calendar year returns)?

  16. DRS December 17, 2018 at 8:02 am - Reply

    It seems that the mer for xgro and xbal would be 18% compared to 25% of vgro and vbal.
    Does it look more lucrative and beneficial to buy ishare etf compared to vanguard etfs?

    How does the difference in allocation make the vanguard etf better comparing the mer rates.

    Following Is the statement from ishare regarding the details and met rates.



    • Justin December 17, 2018 at 2:29 pm - Reply

      @DRS: The MER for XGRO and XBAL is expected to be 0.21% (0.18% is the management fee, not the management expense ratio).

      I prefer a more plain-vanilla index approach (such as the Vanguard AA ETFs, which weight their foreign equities according to their market capitalization). Vanguard also weights their foreign bonds according to their market capitalization.

  17. Justin December 16, 2018 at 5:09 pm - Reply

    Is anyone concerned that they these funds do not hedge the foreign equities? With the dollar at $.75 US, appreciation of our dollar is going to hurt these funds. If our dollar goes to $.85 US these funds will lose ~13% on the foreign equities due to currency. Hopefully once the net assets of these funds increase a hedged version will be released.

    • Miwo December 17, 2018 at 5:34 pm - Reply

      I own VGRO. Is this also a concern for the Vanguard Asset Allocation funds?

      If so, what are the alternatives at this time?

      • Justin December 17, 2018 at 11:29 pm - Reply

        Yes, both these Vanguard and iShares funds are unhedged on the foreign equities. They will both suffer losses if the Canadian dollar gets stronger.

  18. Hans December 15, 2018 at 8:37 pm - Reply

    Justin, your Comparison PDF (Nov, 30/18) is great – good job. Any chance you can add the Horisons Portfolios to it for a more comprehensive overview ?


    • Justin December 15, 2018 at 8:48 pm - Reply

      @Hans: I would only include the Horizons Portfolios if I was comfortable with their investment strategy.

  19. Hans December 15, 2018 at 5:27 pm - Reply

    Why arent Horizons all in ones part of the comparison ?

    • Justin December 15, 2018 at 8:11 pm - Reply

      @Hans: I generally prefer broad-market ETF strategies. The Horizons AA ETFs have included other less diversified holdings, such as a NASDAQ-100 ETF and a EURO STOXX 50 ETF.

      In my opinion, Horizons should have launched simple tax-efficient AA ETFs, comprised of just HBB, HXT, HXS and HXDM.

  20. M December 14, 2018 at 7:37 pm - Reply

    Would these ETF’s make more sense for a non-registered account compared to VBAL/VGRO because of the lack of international bonds?

    • Justin December 14, 2018 at 7:43 pm - Reply

      @M: Why would the exclusion of global (non-US) bonds in XBAL/XGRO be more beneficial in a non-registered account (relative to holding VBAL/VGRO)?

  21. Prasanta December 13, 2018 at 11:00 pm - Reply

    Thank you very much for the insight, Justin.

    • Justin December 14, 2018 at 2:57 pm - Reply

      @Prasanta: You’re very welcome – thanks for reading 🙂

  22. Miwo December 13, 2018 at 10:19 pm - Reply

    I refreshed my browser and more comments appeared which answered my question.

    Thank you Justin for reviewing these!!

    • Justin December 14, 2018 at 2:57 pm - Reply

      @Miwo: You’re very welcome!

  23. Miwo December 13, 2018 at 10:16 pm - Reply

    Hi Justin,

    I wonder if we have to think about tax loss selling between these funds?

    I am planning to star to use VGRO in my taxable accounts now.

  24. Ian December 13, 2018 at 6:24 pm - Reply

    I wonder if the ETFs described above could be considered suitable options for tax loss harvesting in non-registered accounts? (Ie VGRO vs XGRO, VBAL vs XBAL)

    • Justin December 13, 2018 at 6:35 pm - Reply

      @Ian: The monthly tracking error of the back-tested AA ETF returns (using index data minus fees) since January 1998 was very low for the pairs (0.21 for VBAL/XBAL and 0.274 for VGRO/XGRO).

      However, you’re not as likely to have as many tax-loss harvesting opportunities with these asset allocation ETFs (relative to holding individual equity ETFs that follow different regions, which can go down at different times).

      The bonds are expected to dampen the volatility within the AA ETFs, so this will also decrease the occurrence of any tax loss harvesting opportunities.

  25. PP Gal December 13, 2018 at 5:59 pm - Reply

    As a DIY investor I split my investment between TFSA and RRSP based on tax implication and return.

    With these all-in-on ETFs, what type of account would be best, registered or unregistered account?

  26. John December 13, 2018 at 5:54 pm - Reply

    Thanks for the information, Justin. I’m hoping t migrate to this model. [Is anyone else here going to do the same?]

    “That’s good for you too, no matter which model you may choose”.

    Indeed. And about time too.

    • Justin December 13, 2018 at 6:13 pm - Reply

      @John: I’ve already started using VBAL/VGRO in my personal accounts, and with clients in their RESP accounts.

    • MB December 13, 2018 at 10:58 pm - Reply

      My portfolio is as follows.

      – TFSA holds VGRO
      – Taxable account will also be VGRO. I hold 1 year expenses in Tangerine HISA.
      – My CCPC is Justin’s 3 fund portfolio until I get tired of tax loss selling and then will stick it into VGRO/ VBAL as well.

      Clearly I am a fan of Vanguard’s asset allocation models.

  27. Curt December 13, 2018 at 4:25 pm - Reply

    Not at all surprised by these iShares options. As suggested, great for competition. And great for investors.The projected MER for the iShares options can’t be a bad thing for us Canadians. Don’t have a big problem with rebalancing at iShares discretion. I would like to see the threshold at 5%. I like the percentage of Canadian equities versus the Vanguard version. Is a great economical way to purchase and rebalance this number of investments. I was restricting myself to 3 ETFs,, without fixed, to reduce unnecessary costs and complexity. Now have great packaged options. Well done Justin. Keep us posted.

    • Justin December 13, 2018 at 6:17 pm - Reply

      @Curt: I would assume that iShares and Vanguard will try to use new cash contributions and ETF distributions as much as possible to top-up any underweight asset classes (they would likely only be forced to rebalance the portfolio if there was a very quick stock market move, either up or down.

  28. Mark December 13, 2018 at 4:17 pm - Reply

    Thanks for the article Justin!

    I know you and Dan have extensively covered foreign withholding taxes for US and International Equities. But with products such as the Vanguard and now iShares all-in-one funds, what would be the expected impact of foreign withholding taxes on the US Bonds and International Bonds portions of these portfolios?

    You mentioned that you would be including both of these as model portfolios on your blog, I don’t think they are up yet, but perhaps we can expect to find that information there?

    • Justin December 13, 2018 at 6:02 pm - Reply

      @Mark: The foreign withholding taxes on the US bonds is expected to be nil, as the US generally does not withhold any taxes on interest income from US fixed income securities.

      I discussed the foreign withholding tax implications of the foreign (non-US) bonds in the Vanguard Asset Allocation ETFs here (approx. 0.32% per year):


      The Asset Allocation ETF model portfolios are available in the Model ETF Portfolios section of my blog (you may need to clear your browser’s cache to view the new button):


      • BartBandy December 13, 2018 at 9:19 pm - Reply

        Thanks very much for this analysis – I know you answered Mark’s question about fixed income, but what about the equity portions? The ITOT is US listed, correct? So does that mean its share of dividends are not subject to withholding taxes if held in an RRSP or is recoverable if in a taxable account? Is that the same for IEMG too? XEF holds securities directly, so there would only be one level of withholding taxes?

        If all of this is true, then iShares’ offerings sound more tax efficient than Vanguard’s. I’d love to hear from you your thoughts on this.

        • Justin December 13, 2018 at 9:43 pm - Reply

          @BartBandy: Unfortunately, the fund-of-funds structure of XBAL and XGRO takes away any tax benefit in an RRSP from holding US-listed foreign equity ETFs as the underlying products (like ITOT and IEMG). ITOT would still have 15% unrecoverable withholding tax levied on its US dividend, and IEMG would have two layers of withholding taxes levied (the first of about 10% on dividends paid to the US, and a second layer of 15% on net dividends paid from the US to Canada). As you mentioned, XEF holds the underlying stocks directly, so only one layer of withholding taxes would be unrecoverable. Estimates of the unrecoverable foreign withholding taxes can be found in our white paper (you’ll have to use the column where ITOT and IEMG are held in a TFSA though):


          • BartBandy December 13, 2018 at 10:07 pm

            Awesome, thanks for the quick reply. I’ve learned lots from your posts and replies to questions like mine!

          • Na December 14, 2018 at 5:55 pm

            Great information!

            After reading that, I think I understand but would you mind confirming? There will be no differences in tax withholding for XBAL vs VBAL if held in a TFSA or RESP for all but 1 component. i.e. same withholding for:
            -all bond holdings (none)
            -canadian stocks (none)
            -us stocks (one layer unrecoverable 15%)
            -emerging markets (two layers unrecoverable ~10% from country of origin + 15% from usa)

            The witholding will be different for the developed market stocks between XBAL and VBAL, specifically VBAL will have two layers unrecoverable (from country or origin + 15% from USA) XBAL will only have one layer unrecoverable (from country of origin, since XEF holds (most) developed stocks directly).

            Therefore XBAL will be slightly more tax efficient than VBAL when held in a TFSA or RESP?

            Thanks for all your work.

          • Justin December 14, 2018 at 6:08 pm

            @Na: Your understanding is correct except for developed markets (ex North America) stocks. VBAL holds VIU (which holds the underlying stocks directly), so only 1 layer of foreign withholding taxes is lost. XBAL holds XEF (which also holds the underlying stocks directly), so again, only 1 layer of foreign withholding taxes is lost. So XBAL and VBAL are ~equivalent in terms of tax-efficient of their underlying foreign equity holdings.

            VBAL holds a US-listed global (ex US) bond ETF, which is not exempt from US foreign withholding tax. XBAL only holds US-listed US bond ETFs (which are generally exempt from US foreign withholding tax), so VBAL is slightly less tax-efficient in this regard (as discussed in one of my comments below).

          • Na December 15, 2018 at 3:55 pm

            My apologies for not looking properly at the Vanguard one before and seeing VIU there. I assumed it was like VXC (Vanguard FTSE Global All Cap ex Can ETF) which holds VGK and VPL and now I wonder why VXC isn’t holding VIU. Is there a way to find what other fund of funds holds VIU?

            Thanks for clarifying the bond difference (again) too. I’m glad I asked and thanks again for your help.

          • Justin December 15, 2018 at 8:02 pm

            @Na: No apologies necessary – it’s an easy thing to miss (I’m assuming Vanguard hasn’t switched VGK/VPL in VXC to VIU yet, as the fund would realize capital gains in the process). You can review a fund-of-fund’s annual reports to determine what individual ETFs they hold.

      • BartBandy December 13, 2018 at 9:59 pm - Reply

        Hi Justin,
        What about withholding taxes on ITOT and IEMG? Those are US listed, so would the dividends from those escape withholding taxes if these portfolios are held in an RRSP or recoverable if in a taxable account? Does this make these portfolios more tax efficient than Vanguard’s?

        • BartBandy December 13, 2018 at 10:05 pm - Reply

          sorry for the double post.

          • Justin December 14, 2018 at 2:59 pm

            @BartBandy: No worries at all – your second comment provided me with the opportunity to also discuss recoverable foreign withholding taxes in a taxable account 😉

        • Justin December 14, 2018 at 2:53 pm - Reply

          @BartBandy: The majority of the foreign withholding taxes on ITOT, XEF and IEMG would be recoverable in a taxable account – with the exception of the first layer of withholding tax on IEMG.

          So from an equity standpoint, the iShares AA ETFs would have similar tax-efficiency to the Vanguard AA ETFs (I guess you could argue that the iShares AA ETFs would be slightly less tax-efficient in an RRSP or TFSA, as they hold a higher portion of foreign equities than the Vanguard AA ETFs).

      • Mark December 17, 2018 at 4:38 pm - Reply

        Excellent analysis as always, Justin! Thanks!

        • Justin December 17, 2018 at 4:47 pm - Reply

          @Mark: You’re very welcome – thanks for reading! 🙂

  29. Terry O'Malley December 13, 2018 at 2:26 pm - Reply

    Justin thanks once again for a detailed, informative article

    • Justin December 13, 2018 at 2:30 pm - Reply

      @Terry O’Malley: You’re very welcome – please let me know if you have any additional questions 🙂

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