Skip to main content

ETF-Ception: ETFs of ETFs

Exchange-Traded Funds (ETFs) are exploding in popularity. Driven by the rise of passive investing, the industry is not only getting bigger but more innovative. ETFs used to simply hold a basket of stocks, now we have ETFs that hold other ETFs!

How Do They Work?

Classic ETFs hold securities to replicate an index. ETFs of ETFs takes it up a notch. Instead of holding stocks or bonds directly, they hold other ETFs. A fund of funds.

Take for example XEQT, iShares' Core Equity ETF. It doesn't own any stocks directly. Instead it holds 4 ETFs that between them own thousands of stocks.

What's The Point?

Diversification and convenience.

XEQT allows you to own a global portfolio within a single fund. It holds a Canadian (XIC), US (ITOT), International (XEF) and Emerging Markets (IEMG) ETF, all wrapped up in a neat package.

Previously to get this level of exposure, you would have to combine and juggle multiple ETFs yourself.

What you gain in connivence, you pay for in a slightly higher fee. Directly buying the underlying ETFs is cheaper. Less layers, less fees.

Also you give up flexibility. For keen DIYers, individual ETFs allow you to better tweak and optimize your portfolio.

Wouldn't I be Paying Fees Twice? 

XEQT has a fee. The underlying ETFs also have fees. So am I being charged twice?
Simple answer is no. ETF providers are not allowed to double dip. You only pay a single fee.

Again, the fee will be slightly larger than if you bought the underlying ETFs directly, so in a way you're paying for it.


ETFs of ETFs can seem complex at first but they actually makes things simpler. The structure paved the way for all-in-on funds like XEQT. Making investing in a diversified portfolio as convenient as mutual funds with the low fees of ETFs. The best of both worlds.


Popular posts from this blog

The Art of Giving Feedback

Constructive feedback is an awkward affair. You don't want hurt feelings, but recognize the importance of honesty. You've tried the classic "hoping things will get better on its own" and unfortunately it hasn't played out. When giving feedback, here are a few things that I try to keep it mind. Start with empathy. Step into their shoes and understand their story. If you don't know, ask. Be genuinely curious. Feedback is a dynamic affair. Shared communication with a shared goal towards progress. Take the emotion out of it. Focus on the situation, not the person. Focusing on the person adds unnecessary weight to an already emotionally-bloated event.  Be specific. Give clear examples. Vague feedback equals dismissed feedback.  Doing above won't de-awkward things fully, but it will dampen it and increase the chance of better outcomes. 

Bias For Clarity

Bias for action. Gets things done. Go-getter. Traits companies big and small look for. And for good reason, you're being hired to do things! However, action is a secondary step that often overshadows the primary step, direction.   Clear direction is the foundation that enables our actions to takeoff. Without it, we're stuck in the mud.  Striving for clarity is an underrated skill. Having the courage to ask ( seemingly ) obvious questions, and to check in, making sure we're all on the same page. "O bvious " questions are a low risk, high reward way to add value. At worst, you'll add confidence to our actions. At best, you discover a misalignment that saves us from a dead-end.  The more people, the more clear we need to be. The bigger the initiative, the bigger the risk of reaching the finish line, only to realize expectations were off.  Success is always uncertain. But we can be certain about what we want and what everyone's job is. Things that can be clea

Negative Feedback, Positive Lessons

In the battle against plastic bags, a five-cent tax was shown to be much more successful at deterring usage than a five-cent credit for bringing your own bags. Carrots satisfy but sticks sting, and they sting hard. So we default to the less painful choice of avoiding loss. Loss aversion impacts the way we process information. A 2019 study  invited participants to learn through a series of multiple choice questions. Each question only had two options to choose from. Whether guessing correctly or not, they would still learn the right answer.  Despite the identical learning opportunity, participants were much more successful at recalling the answers they guessed correctly than those they got wrong.  "You're right!" feels good. We savour the moment, analyzing every detail.  "You're wrong!" stings. We want to quickly forget, dismiss, and move on.  When we succumb to loss aversion, we miss opportunities to learn. Failure is part of the process. We'll experie