• Portfolio Construction + Management

Where Does Your Global Stock ETF Weigh In?

Before BlackRock Canada created the iShares Core MSCI All Country World ex Canada Index ETF (XAW) back in 2015, we had no decent way to test our lung capacity. Can you say the entire fund name in one breath? ETF investors also were forced to strain their mental muscles, deadlifting a combination of several US, international and emerging markets ETFs and wedging them into one unwieldy portfolio.

These days, investors have it easier with XAW’s broad stock market exposure to over 8,000 companies around the globe. It excludes Canadian companies, so you’ll need an additional ETF for those, but the fund is still a welcome addition to most modest-sized portfolios.

Then again, the easy route isn’t always the best route for everyone. For example, tell your personal trainer you don’t need those sit-ups because you already did some last week. As your portfolio increases in size, it may be cheaper and more tax-efficient to switch back to the old-school way of doing things (i.e. buying separate ETFs for your US, international and emerging markets exposure).

But how do you get started with a new portfolio fitness regime, once you’ve gotten so used to working with a single global equity ETF?

Sweating the details

As with any bundled product, it can be difficult to understand what you’re actually buying. Reviewing the ETF’s website is a good starting point, but to really get it, I recommend rolling up your sleeves and checking out the index that the fund tracks (as well as the individual US, international and emerging markets equity sub-indices).

Working out with the weight of the world

XAW follows the MSCI ACWI ex Canada IMI Index. “ACWI” stands for “All Country World Index,” which means that it includes companies in both developed and emerging markets. “IMI” stands for “Investable Market Index,” which means that it tracks large-, mid-, and small-sized companies.

The MSCI ACWI ex Canada IMI Index can be broken down further into three sub-indices:

  • The MSCI USA IMI Index (which tracks US stocks)
  • The MSCI EAFE IMI Index (which tracks stocks in developed markets, excluding North America)
  • The MSCI Emerging Markets IMI Index (which tracks stocks in emerging markets)

To determine how much weight each of these sub-indices represents in the overall parent index, we’ll follow these steps:

Step 1: Download the index fact sheet for the MSCI USA IMI Index and obtain the market capitalization in US dollars. (As of September 29, 2017, this figure was $25,959,263.89 million.)

Note: Instead of using MSCI’s search function on their site, I tend to just Google the name of the index, followed by “fact sheet”.


Step 2: Download the index fact sheet for the MSCI EAFE IMI Index and obtain the market capitalization in US dollars. (As of September 29, 2017, this figure was $16,867,756.65 million.)



Step 3: Download the index fact sheet for the MSCI Emerging Markets IMI Index and obtain the market capitalization in US dollars. (As of September 29, 2017, this figure was $5,761,814 million.)



Step 4: Add together the market capitalization figures from steps 1–3, which should equal $48,588,834.54 million. This is the market cap of the MSCI ACWI ex Canada IMI Index. (To double-check this figure, download the index fact sheet for the MSCI ACWI ex Canada IMI Index.)



Step 5: Divide the market cap of each sub-index by the market cap of the parent index. For example, to determine the weight of the MSCI USA IMI Index in the MSCI ACWI ex Canada IMI Index, divide $25,959,263.89 by $48,588,834.54, which equals 0.5343, or 53.43%. The MSCI EAFE IMI Index and the MSCI Emerging Markets IMI Index account for the remaining 34.71% and 11.86% of the MSCI ACWI ex Canada IMI Index, respectively.


Composition of the MSCI ACWI ex Canada IMI Index

IndexAsset ClassNumber of CompaniesMarket Cap (USD Millions)Allocation %
MSCI ACWI ex Canada IMI IndexGlobal Stocks (ex Canada)8,291$48,588,834.54100.00%
MSCI USA IMI IndexUS Stocks2,446$25,959,263.8953.43%
MSCI EAFE IMI IndexInternational Stocks3,178$16,867,756.6534.71%
MSCI Emerging Markets IMI IndexEmerging Markets Stocks2,667$5,761,814.0011.86%

Source: MSCI index fact sheets as of September 29, 2017


Now that we know the weights of the various asset classes that XAW tracks, we can select the Canadian-listed and US-listed ETFs that most closely resemble the sub-indices:


Sub-IndexCanadian-Listed ETFUS-Listed ETF
MSCI USA IMI IndexiShares Core S&P U.S. Total Market Index ETF (XUU)iShares Core S&P Total U.S. Stock Market ETF (ITOT)
MSCI Emerging Market IMI IndexiShares Core MSCI Emerging Markets IMI Index ETF (XEC)iShares Core MSCI Emerging Markets ETF (IEMG)


Putting the program together

In my next blog post, I’ll show you how you can replace your XAW ETF holdings with a combination of these ETFs, to potentially pump up the money you might save on fees and foreign withholding taxes.



By |2017-10-17T21:18:09+00:00October 17th, 2017|Categories: Portfolio Construction and Management|13 Comments


  1. Victor January 26, 2018 at 7:00 pm - Reply

    Hi Justin,

    Looking closer at US diversification today I came across something, suggesting long term returns of Value ETFs and Small Cap ETFs would have outperformed “S&P500” and “US total market index” (which sources data claims has minimal advantage over S&P 500, and under-represents these two Value-Based Tilted and Small Cap categories) rather consistently over the last 80 years. This sort of seems to conflict with your advice in this article regarding ITOTs diversification advantages?

    I am extremely curious to hear your thoughts on small cap and value diversification? Am I missing something?

    Weighing this advice against current strategy. I like ITOT and simplicity, but there seems to be one added fund which could incorporate some of this. I don’t want to blow my portfolio out to like 10 funds. But, I am thinking about splitting a % out of ITOT, and putting it into S&P 600 small-cap (IJR) or 600 small-cap value (IJS)?

    Link1 (this analyst adopt similar process): https://www.forbes.com/sites/robertberger/2017/06/01/total-u-s-stock-market-vs-the-sp-500-index-an-investors-guide/2/#593027b111c1
    Link 2 (total market fund vs S&P500, compared to Small Value, Small ,Large Value): https://www.marketwatch.com/story/why-vanguard-total-stock-market-isnt-the-best-fund-in-the-fleet-2014-12-03?page=1

  2. Victor December 24, 2017 at 9:31 pm - Reply

    Hi Justin,

    A big thank you for all the hard work you and Dan are putting in for us DIY investors. Merry Christmas to both of you and your families.

    A couple of quick questions:
    a)You mention that the parent index consists of 3 sub indices. Where does it provide this info. In the fact sheet for the parent index, I did not see any such info.
    b) If you look at the holdings section of the XAW ETF, it states 6 different ETFs such as IVV, ITOT, and so on. Should we not be looking at the respective indexes that these 6 ETFS are tracking, instead of the 3 sub indices mentioned?

    Thanks again.

    • Justin December 27, 2017 at 2:08 pm - Reply

      @Victor: Merry Christmas to you and your family as well 🙂

      a) You have a dig deeper on the MSCI website in order to figure this out (I’ve already done the heavy lifting for you): https://www.msci.com/acwi
      b) I wouldn’t – BlackRock Canada chose to use multiply US equity ETFs to mimic the exposure of the MSCI USA IMI Index (since they don’t have a specific ETF that tracks this index) – I don’t agree with their reasoning behind this. The S&P Total Market Index (which ITOT/XUU tracks) is extremely similar to the MSCI USA IMI Index, so either would arguably be a better proxy for the US equity exposure.

  3. Marko Koskenoja October 18, 2017 at 8:29 pm - Reply

    Excellent breakdown on this subject – thanks Justin.

  4. Rob October 18, 2017 at 5:11 pm - Reply

    At what size portfolio would it be good to switch out of XAW to the individual funds? You say XAW is good for a medium size. At what point should a person consider their portfolio large enough to switch? Many thanks.

    • Justin October 18, 2017 at 5:36 pm - Reply

      @Rob: Great question – I’ll be answering this in my next blog post, so stay tuned.

  5. Derek October 18, 2017 at 2:15 pm - Reply

    Thanks Justin for another great article. I like the convenience of XAW but am aware of the higher fees being paid for this bundled product. Looking forward to the next blog post to learn about the foreign withholding taxes. It will perhaps steer me towards replacing XAW with a combination of the ETFs you described above. Quick question – will the foreign withholding taxes apply in the same fashion if the ETFs are held within a registered account vs non-registered account?

    • Justin October 18, 2017 at 2:24 pm - Reply

      @Derek: The foreign withholding tax difference between holding XAW instead of the three Canadian-listed foreign equity ETFs in a non-registered account is expected to be zero (the only difference would be slightly lower product fees of holding the three individual ETFs). The same is true for TFSA accounts. The biggest benefit (in terms of foreign withholding taxes and product fees) comes from holding the three individual US-listed foreign equity ETFs in your RRSP account (instead of XAW) – as long as you use Norbert’s gambit to convert your currency.

      • Vito October 18, 2017 at 7:00 pm - Reply

        Hi Justin,

        Thank you for this article, I was hooked reading it from the first word, specifically because I invest in XAW (currently within my TFSA).

        Reading your last reply to Derek’s post, when you say “as long as you use NG to convert your currency” within an RRSP, when exactly would you do that? For example, and please keep in mind, I’ve done NG before in my non-registered account (both CAD->USD and USD->CAD), would I do that once I’ve accumulated a certain USD amount within the account or after each trade (assuming its large of course) or years later when approaching or approached retirement and starting to withdraw from the account?

        Really looking forward to your next follow-up blog post, as I had the exact question Rob asked.

        Thanks again Justin for an amazing article!

        • Justin October 18, 2017 at 7:19 pm - Reply

          @Vito: Most brokerages offer Canadian dollar and US dollar RRSP accounts. When investors contribute to their RRSP account, it is typically with Canadian dollars. In order to convert those Canadian dollars to US dollars (to purchase US-listed ETFs in your USD RRSP account – which reduces your product fees and foreign withholding taxes), you would need to either request that the brokerage convert the CAD cash for you at their FX rates (very expensive!) or use the Norbert’s gambit strategy to convert your loonies to dollars at a much better rate.

          If you’re just going to accept the brokerage rate (by either having them convert it, or purchasing the US-listed ETF in your CAD RRSP account, which forces the currency conversion), this will offset the benefit from using US-listed ETFs in the first place (so you may want to just stick with XAW).

          • Vito October 18, 2017 at 8:06 pm

            Understood, I apologize, I believe I mis-read and therefore misunderstood your reply to Derek, but your last reply to me just answered some internal questions, so thank you.

            I do still have the same question that Rob posed, and thus really looking forward to your next post.

            Thanks again Justin!

          • Justin October 18, 2017 at 8:37 pm

            @Vito: You’re very welcome!

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