VCN vs XIC: Which Canadian Index ETF is Better?
The main difference between VCN and XIC is their index methodology. iShares XIC tracks the S&P/TSX Capped Composite Index, which includes ~240 holdings and caps any single stock at 10% to reduce concentration risk. Vanguard VCN tracks the FTSE Canada All Cap Index, which includes ~200 holdings and follows a pure market-capitalization weighting without individual stock caps. Despite these different rules, both ETFs maintain ultra-low fees (0.05% to 0.06%) and virtually identical long-term performance, making either an excellent choice for a core Canadian portfolio.
What are Index Funds?
Before diving in, let’s cover the basics of index funds.
An index fund is a type of mutual fund or ETF that aims to mirror a particular market. Index funds contain a tiny piece of all the companies included in a particular market index (e.g., S&P 500 or the Dow Jones Industrial Average).
Index funds offer a great vehicle to diversify your holdings, as it spreads out your money across many companies in an index. Instead of placing all your eggs in one basket (one security), you spread them out across multiple baskets.
Comparing VCN vs XIC by the Numbers
| VCN | XIC | |
| Management Expense Ratio (MER) | 0.05% | 0.06% |
| Dividend Yield | 2.23% | 2.23% |
| 10 Year Annualized Rate of Return | 12.05% | 11.99% |
Key Difference Between VCN and XIC
Outside of the numbers, which are largely similar, there are some minor underlying differences. Most notably, XIC is designed with a risk-management rule as it tracks the S&P/TSX Capped Composite Index, which limits the weight of any single stock to 10% of the total index value. This theoretical safeguard is a major selling point to some investors, as it prevents a disastrous scenario where a single company dominates the fund (like Nortel did historically). Therefore, investors who prefer the theoretical risk hedge of a Capped Index ETF may choose XIC.
Conversely, VCN is designed for pure market representation, so it tracks the FTSE Canada All Cap Domestic Index which imposes no limits on a single company’s weight, making it a true market-capitalization-weighted index. The key benefit of VCN is that it always reflects the market exactly as it is, such that if a stock like the Royal Bank of Canada represents 12% of the market, VCN holds 12%. Investors who value the market-cap purity of an All Cap ETF will opt for VCN.
Comparing the US Market to Canada
The Canadian TSX Composite Index (tracked by XIC and VCN) and the US S&P 500 Index (tracked by VFV and VOO) represent two vastly different markets. The S&P 500 covers the US market, which is roughly 10 times larger than the Canadian market by market capitalization. This massive size difference drives sector concentration.
The S&P 500 is heavily weighted towards Information Technology, which often makes up over 30% of the index, causing its performance to be largely driven by major US tech giants (Nvidia, Meta, Apple, etc.). In contrast, the Canadian TSX is heavily concentrated in Financials (approximately 33% of the index) and Energy (approximately 17% of the index). This makes the TSX primarily sensitive to domestic interest rates, the Canadian housing market and global commodity prices. While the S&P 500 has generally delivered higher annualized returns over the past decade due to its tech exposure, for some the TSX provides diversification away from US tech.
If you enjoyed this ETF comparison article written by the Modern Money research team, you should check out VFV vs VOO or VFV vs VSP!
