iShares Core MSCI All Country World ex Canada ETF (XAW)

Fund Objective and Investment Strategy

The iShares Core MSCI All Country World ex Canada ETF has a clear and straightforward investment objective. It aims to achieve long-term capital growth by replicating the performance of the MSCI ACWI ex Canada IMI Index, net of expenses. The fund employs a passive, or indexing, investment strategy which means it does not try to outperform the market through active stock selection but instead seeks to match the returns of its underlying benchmark. The fund is structured as a fund-of-funds, meaning it primarily holds other iShares ETFs to achieve its exposure, which helps keep costs low and simplifies the replication process for the management team at BlackRock Asset Management Canada Limited who are responsible for overseeing the fund's operations and ensuring it tracks its index accurately.

Underlying Index: The MSCI ACWI ex Canada IMI Index

The performance of the XAW ETF is tied directly to the MSCI ACWI ex Canada IMI Index, a comprehensive benchmark designed to represent the global equity market excluding Canadian companies. The ACWI portion stands for All Country World Index, which includes both developed and emerging markets, and the IMI suffix indicates that the index includes Investable Market Index coverage of large, mid, and small-capitalization stocks. By excluding Canada, the index provides a pure play on international markets for investors who wish to separate their domestic exposure. The MSCI World ex Canada Index component captures large and mid-cap representation across 22 of 23 developed markets countries, excluding Canada, and the full ACWI ex Canada IMI Index expands this to include emerging markets and smaller companies, offering a very broad representation of global equities outside the Canadian border.

Portfolio Composition and Geographic Exposure

The XAW ETF provides exposure to nearly the entire global equity market outside Canada through a portfolio constructed by holding other iShares ETFs that track specific regional or country indices. This fund-of-funds approach grants investors instant diversification across thousands of individual securities with geographic exposure heavily weighted towards the United States given its large share of the global market capitalization. The fund also includes significant allocations to developed markets in Europe and Asia Pacific, such as Japan, the United Kingdom, France, and Germany, and it provides exposure to emerging markets including countries like China, India, Brazil, and Taiwan. This blend allows Canadian investors to capture growth from both established and developing economies around the world without having to select individual countries or stocks, making it a efficient core holding.

Trading, Dividends, and Tax Considerations for Canadians

The ETF trades on the Toronto Stock Exchange under the ticker symbol XAW.TO and is denominated in Canadian dollars, which eliminates currency conversion costs for Canadian investors at the point of purchase and sale. The fund makes distributions to unitholders, which are characterized into income types such as eligible dividends, other income, or capital gains at the end of each calendar year, with a distribution yield recently reported as 1.19 percent. Investors receive an official tax statement from their broker after the fund's tax year-end detailing the type of income to report, and distributions that are not paid in cash but result in additional units, known as reinvested distributions, must be added to the investor's adjusted cost base for tax purposes. Canadians can hold XAW in registered accounts like a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP), where growth and income can accumulate tax-sheltered over the long term.

Distributions are characterized into an income type at year end. The total includes all distributions declared year to date. Investors receive an official tax statement from their broker detailing the type of income to report. Distributions not paid in cash result in additional units and must be added to the adjusted cost base for tax purposes.

• Distributions are characterized into an income type at year-end.
• The total distribution figure includes all distributions declared year-to-date.
• Reinvested distributions that result in additional units must be added to the adjusted cost base of the units held.
• The exact tax treatment for a calendar year is calculated after the fund's tax year-end.
• Investors receive an official tax statement from their broker detailing the income type to report for the entire year.

The exact tax treatment of distributions for a calendar year is calculated after the fund's tax year end. The fund provides a tax statement with details for the entire year. This process ensures income is properly accounted for. Investors should consult their own tax advisors for personal guidance based on their specific situation.

Key Features and Benefits for Investors

The XAW ETF is a passive fund of funds managed by BlackRock Asset Management Canada Limited. It seeks long term capital growth by replicating the performance of the MSCI ACWI ex Canada IMI Index. This provides a low cost and simple way to own global equities outside Canada. The fund covers nearly the entire global equity market outside Canada at a fair price. By excluding Canada, it allows investors to separately control their exposure to the domestic market.

The fund's overall rating is based on a fundamental assessment of several pillars. The Process Pillar assesses the sensibility and repeatability of its performance objective and investment process. The People Pillar evaluates the management team's experience and ability. The Parent Pillar rates the parent organization's priorities and alignment with investor interests.

• The Process Pillar assesses how sensible, clearly defined, and repeatable the fund's performance objective and investment process is.
• The People Pillar evaluates the experience and ability of the XAW management team.
• The Parent Pillar rates whether the priorities of BlackRock, the parent organization, are in line with investors' interests.

These assessments aim to gauge the fund's overall quality and reliability. They evaluate how sensible and repeatable the investment process is. They assess the management team's ability to deliver performance. The goal is to provide an evaluation for investors seeking broad international exposure.

Risks and Important Considerations

Investing in the XAW ETF involves several risks common to equity investments and specific to its structure, with market risk being primary as the value of the fund will fluctuate with global stock markets. Currency risk is present because the underlying assets are denominated in various foreign currencies, though the ETF itself trades in Canadian dollars, and the fund's concentrated exposure to the United States means it is significantly affected by the economic and market conditions there. Emerging markets exposure introduces additional risks, including political instability, liquidity constraints, and higher volatility, while the fund-of-funds structure introduces a layer of fees from the underlying ETFs, though the total cost remains low compared to active strategies. There is also tracking error risk, where the fund's performance may not perfectly match its index due to fees, sampling, or operational factors, and for securities where trading has been suspended, such as in the case of past holdings in Russian equities, the fund's valuation price may differ from third-party vendor prices used for public calculations.

Portfolio weight calculations are based on a price from a third party pricing vendor. This vendor price is not necessarily the price used to determine the fund's net asset value. The calculated value may differ if the valuation price were used. This is an important technical detail for investors to understand.

• Percentage weights for assets are based on a price from a third-party pricing vendor, not necessarily the fund's own valuation price.
• The vendor price is as of the most recent date available and may not be as of the date shown in reports.
• The calculated value of a holding could be different if the fund's official valuation price were used.
• For suspended securities like certain Russian equities, the calculated values are based on the fund's own valuation price.

The publicly displayed portfolio composition may not reflect the exact net asset value valuation. The vendor price may not be the valuation price used by the fund. This discrepancy is a consideration for detailed portfolio analysis. The vendor price is as of the most recent date available and may not be as of the date shown.

Frequently asked questions

Sources and further reading

1. iShares Core MSCI All Country World ex Canada Index ETF rbcgam.com
2. XAW, iShares Core MSCI ACty Wld exCan ETF morningstar.com

This article explains how things work and is not financial, tax or legal advice. Rules, limits and rates change, so check the current figures with the Canada Revenue Agency, your province or your financial institution before you act.