The Top International ETFs in Canada for December 2024

ByDan Kent Published On:

As Canadians, we love to keep our investments inside Canada. Buying Canadian equities or Canadian ETFs allows us to do a few things. For one, we can keep our currency in Canadian dollars. And secondly, we can own businesses we are more familiar with, which makes us more comfortable regarding our investments.

However, being overexposed to Canada can be detrimental for investors, as the Canadian markets are heavily exposed to the financial, oil and gas, and material sectors. There are several ETFs that cater to these types of markets, gold ETFs, or Canadian bank ETFs. However, these sectors are cyclical and struggle to put up long-term outperformance.

As a result, we should be looking to add international equities for diversification. This doesn’t necessarily mean targeting an emerging market like China or India. It could simply mean adding US stocks or a US Index ETF to our portfolios.

Are international ETFs a good investment?

International ETFs are a strong investment for those seeking exposure outside of Canada. Yes, you will pay a management fee to own these ETFs. However, gaining exposure to particular markets, such as S&P 500 ETFs, or even the global market in a single click via an ETF is often viewed as a large benefit of international ETFs.

Many of these funds are not the highest yielding. However, they have the chance for capital gains and an increase in unit value.

In this article, I’ll review some of the best international ETFs you can watch for exposure to the United States and globally. They’re strong options for a well-balanced ETF portfolio.

What are the best international equity ETFs in Canada?

  • iShares Core MSCI All Country World ex Canada Index (TSE:XAW)
  • Vanguard FTSE Global All Cap ex Canada Index ETF (TSE:VXC)
  • iShares Core MSCI EAFE IMI Index ETF (TSE:XEF and TSE:XEF.U)
  • TD International Equity Index ETF (TSE:TPE)
  • BMO International Dividend ETF (TSE:ZDI)

iShares Core MSCI All Country World ex Canada Index (TSE:XAW)

The iShares Core MSCI All Country World ETF (TSE:XAW) is an outstanding option for Canadians who own Canadian equities or ETFs but want exposure to other countries. Why Canadian equities or ETFs? This fund is an “ex-Canada” fund, meaning it does not contain Canadian stocks or ETFs.

The fund has a total of 9,133 individual holdings. Yes, you read that right, over 9,000 holdings. It does this by owning a multitude of ETFs that get the fund exposure to the global markets. It’s important to keep in mind, however, that this fund still has a high exposure to the United States, with around 61% of its holdings coming from that country.

However, you also get mid-single-digit exposure to Japan and the United Kingdom and low single-digit exposure to countries like France, China, Switzerland, and Germany. It currently has assets under management of nearly $1.9B, making it one of the biggest international ETFs in Canada.

Its top holdings include Apple, Microsoft, Amazon, Nvidia, and Alphabet (Google). But in reality, the fund contains only a few ETFs containing these individual stocks. Think of it like a basket of ETFs that gets you exposure to over 9000 companies.

The fund is relatively low fee, especially considering how many holdings you get exposure to. It has a management expense ratio of around 0.2%, meaning you’ll pay $2 per $1000 to invest in this fund.

It has a distribution that typically hovers in the mid-1% range and pays it out semi-annually. It has a relatively short history, debuting in mid-2015. But over that timeframe, it’s put up good returns, especially given that it is exposed to international countries that have struggled in the 2022/2023 bear market. If you bought this fund in 2015 and reinvested the dividends, you’d be sitting on total returns of around 90%, or 8.13% annualized.

Overall, this fund is a strong option for those who already own a portfolio of Canadian stocks or ETFs and are looking for options outside the country.

Vanguard FTSE Global All Cap ex Canada Index ETF (TSE:VXC)

Next on the list is Vanguard’s ex-Canada ETF (TSE:VXC). This is a competitor to XAW and has put up similar returns.

Debuting in 2015, VXC has assets under management of $1.4B and is structured similarly to XAW. It has around 61% exposure to the United States. It is followed by mid-single-digit exposure to Japan and the United Kingdom. At the same time, countries like China, France, and Switzerland make up low single-digit exposure in terms of total allocations.

The fund contains only around 10% exposure to emerging markets. So, the bulk of this fund is inside safe countries that have proven to put up long-standing returns. Additionally, nearly 70% of the fund is large-cap equities.

It has a total of 11,508 holdings, so it has a bit more diverse portfolio than XAW. But don’t get me wrong, they’re still both diverse. It also pays a distribution of 1.86% annually and pays the distribution every six months.

In terms of top holdings, it is relatively the same as well. Apple, Microsoft, Amazon, Nvidia, Alphabet, and Berkshire Hathaway. When we look to the first holding outside of the United States, we would have to go down to the 15th largest holding on the list in Taiwan Semiconductor Manufacturing, which holds a 0.6% weight in the fund.

This fund also has nearly the same management fee, coming in at 0.21%, meaning you’ll pay $2.10 per $1000 invested annually to own this.

In terms of total returns, the fund has returned around 8.05% annually since its inception. If the emerging or international market portion of this fund could recover in the future, I could easily see these returns going higher.

iShares Core MSCI EAFE IMI Index ETF (TSE:XEF and XEF.U)

The iShares MSCI EAFE (Europe, Australia, and Far East) IMI Index ETF (TSE:XEF)(TSE:XEF.U) is a strong fund for those who want complete exposure outside North America. This fund contains virtually zero exposure to Canada and the United States. It is mainly for those seeking exposure to developing markets in Europe and Japan.

The fund has 22% exposure to Japan, 11% to France, 10% to Switzerland, and 8% to Germany. Besides those major countries, it has smaller, mid-to-low single-digit exposure to many other countries. Of note, this fund has little exposure to China.

The top holdings in the fund include Nestle, Novo Nordisk, Moet Hennesey Louis Vuitton, ASM Holdings, AstraZenica, and Novartis. Overall, you won’t find a holding inside of this fund that has more than 2% exposure, and the fund has around 2600 holdings. So while it’s not as diverse as a fund like XAW or VXC, it also has fewer companies to choose from, with it having no exposure to North America.

Management fees come in the same as the other two funds above this one. You’ll pay around $2.10 per $1000 invested annually to own this fund. Considering it gets you exposure outside of North America, typically markets that would not be easily accessible via your brokerage, this is a cheap fee.

The fund pays a higher distribution, in the high 2% range, and it has put up annualized returns of 7.5% since its 2013 inception. This is lower than the funds listed above, primarily because international and emerging markets have not performed as well as North American markets over the last decade.

Of note, you can buy the CAD-hedged version, which trades under the ticker XFH.

TD International Equity Index ETF (TSE:TPE)

Canadian investors may not think of TD Bank when considering low-fee ETFs. However, they have quite a few solid ones, and TD International Equity Index ETF (TSE:TPE) is one of them.

This is also an ex-North American ETF, meaning you do not get any exposure to Canada, Mexico, and the United States. Instead, most of your exposure will come from Japan and developed European markets. This fund also has practically no exposure to China, which is a caveat for many when investing in these funds.

Its top holdings include Nestle, Roche Holding, ASML Holding, Novartis, Shell, and AstraZeneca. It has the lowest number of holdings on this list, at just below 1000. So, if you’re looking for more diversity from an international index fund, you may want to look elsewhere.

It has management fees of 0.19%, making this the cheapest fund on this list. Owning this fund will only cost you a paltry $1.90 annually per $1000 invested. It is also one of the more popular funds in the last few years, likely because of its lower fee.

The fund is newer, having been started in early 2017. As a result, performance cannot be measured with much accuracy, especially compared to the funds that have been around for a while. However, it’s still put up annualized returns of 6.5% if you include the dividends.

Although TD is a smaller player in the ETF space, this fund is still sizable, with assets under management of $1.15B.

BMO International Dividend ETF (TSE:ZDI)

This unique fund from BMO has a bit higher fee, but also provides a higher yield for those who want exposure to international markets while collecting income. Remember that this fund’s fees are higher because it is an actively managed fund, while the others are typically index funds. The fund aims to target a yield-weighted portfolio of international equities, primarily in developed European markets.

BMO International Dividend ETF (TSE:ZDI) has around $500M in assets under management and a management expense ratio of 0.44%, meaning you’ll pay $4.40 per $1000 invested annually to own this fund. However, investors also gain access to a 4% dividend yield, much higher than any other fund on this list.

Novartis, Louis Vuitton, BHP Group, Rio Tinto, and Nestle make up the top 5 holdings in the fund. However, companies like Volkswagon, Toyota Motors, and Allianz are notable in the top 10. There are a total of 115 holdings inside of the fund, much smaller than any other fund on this list.

The fund has struggled since its inception, posting annualized returns of just 6% since 2015 inception. However, it has performed exceptionally well over the last 1-year timeframe, and investors may want to add this international ETF to your watchlist to see if management can put up outsized returns moving forward.

What is the difference between global ETF and US ETF?

Global exchange-traded funds that are ex-US or even ex-North America means that they will contain stocks that are located outside of the United States or North America. In contrast, a US ETF will be an international ETF that includes stocks located in the United States and worldwide, or possibly even only stocks located in the United States.

Is it a good idea to invest overseas?

This is all a matter of personal preference. Some choose to invest overseas and expand their portfolios in terms of geographical diversification. And on the other hand, some people choose to invest solely in North American stocks due to the better stability when it comes to North American markets.

So, the decision to invest overseas is all dependent on the individual and their risk tolerance.

What are the risks associated with international equity investments?

International equity investments typically contain more risk and uncertainty than those from North American markets. This is because investing in emerging market ETFs, European markets, or international markets exposes investors to geopolitical risks, currency risks, and many other risk elements.

If you invest in international equities, be sure you are doing so with a portfolio allocation you are comfortable with.