The Case Against XEQT (And Why Most of It Is Wrong)
Every serious criticism of XEQT, examined honestly. Some hold up. Most do not survive contact with the data.
Why steelman the critics
This site exists because XEQT is an outstanding investment vehicle for most Canadian investors. But outstanding does not mean perfect, and intellectual honesty requires engaging seriously with the best arguments against it rather than dismissing them.
Some of what follows will make XEQT look worse. That is the point. If your investment strategy cannot survive examination of the strongest counter-arguments, it was never as strong as you thought. XEQT passes that test, but not without acknowledging real limitations.
Criticism 1: No bonds is reckless : Partially valid
The argument: A 100% equity portfolio is inappropriate for anyone within ten years of needing the money. Bonds provide stability, income, and a rebalancing mechanism that pure equity funds lack. XEQT's zero bond allocation is not a feature for investors approaching retirement. It is a risk that can devastate a portfolio at the worst moment.
The honest assessment: This is partially valid and entirely about time horizon. For a 30-year-old with a 30-year runway, 100% equities is defensible and historically optimal. For a 62-year-old who will need this money in five years, 100% equities is genuinely dangerous. XEQT is not designed to be a one-size-fits-all lifetime portfolio. It is designed for the accumulation phase. The critics making this argument are often pointing at the right problem while targeting the wrong investor. The XEQT vs XGRO comparison and the guide for investors at 50 address exactly when and how to begin the transition.
XEQT is part of a lifecycle investing strategy. As retirement approaches, transition to XGRO, then XBAL. XEQT's job is to build wealth during the accumulation phase, not to carry you through retirement drawdown. If someone is selling 100% equity funds to 65-year-old retirees as a complete portfolio solution, the criticism is valid. If they are recommending XEQT to 30-year-old accumulating investors, the criticism largely does not apply.
Criticism 2: Too much Canada : Partially valid
The argument: Canada represents roughly 3% of global market capitalization. XEQT allocates approximately 25% to Canada. That is an 8x overweight in a country with a resource-dependent, financially concentrated, and relatively small equity market. Why take on that concentration?
The honest assessment: The home-country bias has legitimate justifications: CAD income and expenses, Canadian dividend tax treatment, natural currency hedging. But the critics are correct that a naive pure market-cap weighted fund would allocate far less to Canada. The 25% allocation is a deliberate construction choice that benefits Canadian investors in some scenarios (CAD depreciation) and hurts them in others (prolonged TSX underperformance relative to global markets). This is a real tradeoff, not a free lunch. It is reasonable to disagree with BlackRock's allocation philosophy here.
Criticism 3: Too much US concentration : Mostly wrong
The argument: 45% in US stocks is too much concentration in a single country with elevated valuations.
The honest assessment: As covered in the companion article on XEQT's US weighting, XEQT is actually underweight the US relative to global market cap by nearly 20 percentage points. The critics are comparing XEQT to zero US exposure rather than to the natural market weight, which makes the concern look larger than it is. The legitimate concern is US valuation risk, not US over-concentration. XEQT's diversification is a hedge against precisely that risk.
Criticism 4: XEQT's good returns may not continue : Obviously true
The argument: XEQT's returns since 2019 look great. But it launched into a prolonged bull market. We do not know how it performs through a truly extended bear market or a lost decade of equity underperformance.
The honest assessment: Correct. XEQT has only existed since August 2019. Its track record includes a global pandemic crash (which it recovered from in six months), a rate-driven bear market in 2022, and then a powerful recovery. It has not been tested through a multi-year period of sustained underperformance like 2000 to 2003 or 2007 to 2009. However, this criticism applies equally to every investment vehicle. The underlying indices XEQT tracks have decades of history. The fund is new. The strategy is not.
Criticism 5: Not tax-efficient in non-registered accounts : Valid in context
The argument: XEQT's distributions include foreign income subject to 15% US withholding tax that cannot be recovered in a TFSA, and foreign income taxed at marginal rates in non-registered accounts. More tax-optimized ETF structures exist.
The honest assessment: This is true and relevant for sophisticated investors with large non-registered portfolios who want to optimize asset location (holding different ETFs in different account types to minimize tax drag). For most investors with registered account room still available, the tax inefficiency argument does not apply because the relevant question is TFSA performance, not non-registered performance. The criticism is valid for a narrow audience and not relevant for the majority of XEQT investors.
Criticism 6: Better options exist : Mostly wrong
The argument: VEQT, ZEQT, and even a custom three-ETF portfolio of XIC + XEF + ITOT can beat XEQT on various dimensions: lower MER, more holdings, better tax treatment, more control over allocation.
The honest assessment: VEQT and XEQT are functionally equivalent for most investors. The advantage of a custom multi-ETF portfolio exists on paper but evaporates in practice because it requires ongoing rebalancing decisions that most investors either make poorly or skip entirely. XEQT's single-fund simplicity eliminates a class of behavioural errors that cost investors real money. The "better option" that requires annual rebalancing and tax management decisions is not better for most people who will not execute it consistently. A slightly suboptimal portfolio you maintain is worth more than an optimal portfolio you abandon during the first bear market.
Criticism 7: XEQT is boring : Correct, and that is the point
The argument: Buying one ETF and doing nothing for thirty years is not investing. Real investors research companies, identify opportunities, and build differentiated portfolios.
The honest assessment: After costs and taxes, approximately 85 to 90% of active managers underperform a simple index fund over ten years or more. The research on individual investor returns is even more damning: the average retail investor significantly underperforms the funds they own because of poor timing decisions. XEQT's boringness is not a limitation. It is the mechanism by which it protects investors from themselves. Active engagement with markets is mostly a cost centre for retail investors, not a return enhancer.
The stock market is a device for transferring money from the impatient to the patient. XEQT is a vehicle for practicing patience at scale.
When XEQT genuinely is the wrong choice
Having examined the weak arguments, here are the situations where choosing something other than XEQT is genuinely correct.
The verdict
The strongest case against XEQT is the time horizon argument: 100% equity is genuinely wrong for investors near or in retirement. That criticism is valid and important. Every other major criticism examined above either does not survive contact with the data, applies equally to all alternatives, or describes a problem that is smaller in practice than it appears in theory.
The reason XEQT dominates conversation in Canadian personal finance forums is not marketing. It is because for the specific use case it is designed for (a long-term accumulating Canadian investor who wants simplicity, low cost, and global diversification), the alternatives do not offer meaningful improvements that survive the test of actual investor behaviour over time.
Examined the critics. Still convinced?
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