In This Article
- Why International Diversification Matters
- Best Developed Market International ETFs
- Best Emerging Market ETFs
- Do You Need International ETFs if You Hold XEQT or VEQT?
- Frequently Asked Questions
- What is the best international ETF for Canadians?
- Should I currency hedge my international ETFs?
- How much of my portfolio should be international?
- Are international ETFs tax-efficient in a TFSA?
Canadian investors have a well-known home-country bias — and it is costing them returns. The TSX represents less than 3% of global stock market value, yet many Canadians hold 50–80% of their portfolio in Canadian stocks. Adding international ETFs provides diversification across Europe, Asia, and emerging markets that Canadian and US stocks simply cannot offer.
Why International Diversification Matters
The Canadian market is heavily concentrated in three sectors: financials (35%), energy (17%), and materials (11%). That means over 60% of the TSX is tied to bank profits, oil prices, and commodity cycles. International ETFs give you exposure to global technology, healthcare, consumer goods, and industrial companies that barely exist on the TSX.
Best Developed Market International ETFs
XEF (iShares Core MSCI EAFE IMI Index ETF) — 0.22% MER, covers Europe, Australasia, and the Far East. Holds approximately 3,000 stocks across Japan, UK, France, Germany, Australia, and more. This is the most popular international ETF among Canadian investors.
VIU (Vanguard FTSE Developed All Cap ex North America) — 0.23% MER, similar coverage to XEF but from Vanguard. Slightly different index methodology but nearly identical performance.
Best Emerging Market ETFs
XEC (iShares Core MSCI Emerging Markets IMI) — 0.27% MER, holds approximately 2,800 stocks across China, India, Taiwan, South Korea, Brazil, and other developing economies.
VEE (Vanguard FTSE Emerging Markets All Cap) — 0.24% MER, similar emerging market coverage. Slightly lower fee than XEC.
Do You Need International ETFs if You Hold XEQT or VEQT?
No. All-in-one ETFs like XEQT and VEQT already include international developed and emerging market allocations. If you hold one of these, you already have full global diversification. Individual international ETFs (XEF, XEC) are for investors who want to build their own custom allocation.
Frequently Asked Questions
What is the best international ETF for Canadians?
XEF (iShares Core MSCI EAFE) is the most popular choice for developed international markets. For emerging markets, VEE (Vanguard) offers the lowest MER at 0.24%.
Should I currency hedge my international ETFs?
For long-term investors (10+ years), currency hedging is generally unnecessary and adds cost. Currency fluctuations tend to average out over long periods. If your time horizon is under 5 years, a hedged version may reduce short-term volatility.
How much of my portfolio should be international?
A common allocation is 20–30% international developed and 5–10% emerging markets. XEQT allocates about 24% to international markets total, which is a reasonable benchmark.
Are international ETFs tax-efficient in a TFSA?
International dividends face foreign withholding taxes (typically 15%) that cannot be recovered in a TFSA. However, the growth component is still tax-free. For most investors, the tax drag is small enough that holding international ETFs in a TFSA is perfectly fine.