Your Complete Guide to Index Investing with Dan Bortolotti

Under the Hood: Vanguard FTSE All-World ex Canada (VXC)

2017-12-02T23:17:16+00:00July 10th, 2014|Categories: ETFs, New products, Under the Hood|Tags: |88 Comments

This post is part of a series that takes a detailed look at specific Canadian ETFs or index funds.

The fund: Vanguard FTSE All-World ex Canada Index ETF (VXC)

The index: The fund tracks the FTSE All-World ex Canada Index, which includes “primarily large- and mid-capitalization stocks of companies located in developed and emerging markets, excluding Canada.” The index includes approximately 2,900 stocks in 46 countries.

The cost: The management fee is 0.25%. Since the fund is brand new we don’t know the full MER, but it should be less than 0.30% after adding taxes and incidentals.

The details: VXC started trading on July 7 and was one of five new Vanguard ETFs launched that day. The fund is a one-stop solution for those looking to diversify outside of Canada. Not so long ago, investors needed two or three ETFs to get exposure to the US, international developed markets and emerging countries (unless they were willing to buy US-listed ETFs). Now they can get it with a single fund.

VXC weights each country according to the size of its capital markets, which means the US currently makes up half the fund. The bulk of the rest is developed countries in Europe (25%) and Asia (15%). The largest international holdings are Japan and the UK at about 8% each, followed by France, Germany, Switzerland and Australia (3% to 4% each). The remaining 10% or so is emerging markets such as China, Taiwan, Brazil, India and South Africa.

The ETF gets its exposure to these markets by holding four US-listed ETFs: Vanguard Large Cap (VV), Vanguard FTSE Europe (VGK), Vanguard FTSE Pacific (VPL) and Vanguard FTSE Emerging Markets (VWO). This allows the fund to benefit from economies of scale, which help to keep the management fee low. However, if you hold the fund in an RRSP or a TFSA you will pay two levels of foreign withholding taxes on the international dividends. Based on the calculations we made in our recent white paper, I’d estimate foreign withholding taxes would add approximately 0.45% to the cost of the fund if it’s held in a registered account.

The fund does not use currency hedging, so investors will have exposure to the US dollar, the yen, the euro and the pound, as well as several other currencies.

The alternatives: There are no other Canadian ETFs or index funds that give you exposure to all countries outside Canada. The closest competitor is the iShares MSCI World (XWD), which holds US and developed international stocks: however, it also has a small holding in Canada and does not include emerging markets.

The only other comparable funds are US-listed ETFs such as the Vanguard Total World Stock (VT) and the iShares MSCI ACWI ETF (ACWI). Both of these ETFs include an allocation of just under 4% to Canada.

The bottom line: VXC is a useful ETF for anyone looking to wipe out home-country bias with a single holding. An investor building a small Global Couch Potato portfolio could use VXC in place of separate US and international holdings: that would reduce trading costs and complexity, as well as adding a bit more diversification with a slice of emerging markets.

For larger portfolios—especially RRSPs—using US-listed ETFs will be more tax-efficient, since the foreign withholding taxes would be much lower (the US portion is exempt and the international dividends are subject to one level of withholding taxes rather than two). But as always, that assumes you’re not getting gouged on currency conversion when you trade in US dollars. For many investors, the simplicity and convenience of VXC is likely to be a good choice even in an RRSP.

Some investors will argue there is a benefit to splitting your foreign equities into separate holdings for US and international stocks and rebalancing when outperforms the other. That’s possible, though the benefit isn’t likely to be large. There are always trade-offs when you opt for simpler solutions, but they’re usually good ones to make.

Disclosure: I own VXC in my own portfolio.



  1. Jedidja August 16, 2014 at 8:44 am

    Haven’t been to the site in a while (usually read it through Feedly) – the new design / logo are great!! :)

    Do you plan on updating the model portfolio page to show the use of VXC in the Global Couch Potato?

  2. Canadian Couch Potato August 16, 2014 at 10:03 am

    @Jedidja: Welcome back! I revisit the model portfolios each year and I expect VXC will be in Global Couch Potato next year.

  3. horsesalami September 3, 2014 at 11:56 am

    Hello CC,

    I’ve studied your posts regarding foreign withholding tax and the one point you bring up is that its important to keep simplicity and efficiency in mind when hunting for the most tax efficient solution. As in, it may be more prudent to pay an extra 20-30 basis points but have less paperwork or hassle to deal with.

    In that regard, what kind of account would one hold this fund in? From your past articles, you’ve said to avoid putting a canadian etf with US-listed international stock into both RRSP or a non-registered account. Is it the 50% of US stock that will not be subject to the withholding tax, and that the fund is the one-stop solution that makes it an attractive choice for an rrsp?

    Thank you.

  4. Canadian Couch Potato September 3, 2014 at 2:40 pm

    @horsesalami: In an RRSP, it would be more tax-efficient to use US-listed ETFs for US and international equities (such as VTI and VXUS). Using a fund like VXC means you’ll pay an additional 20 to 30 bps. However, you will also be able to trade in Canadian dollars, which may save you much more. You also have the convenience of a single fund for all of your foreign equity.

    In a non-registered account, there is no withholding tax benefit with US-listed ETFs because the tax should be recoverable when you file your return. In that situation the Canadian-listed ETFs look much more attractive.

  5. Andrew February 8, 2015 at 6:32 pm


    If you held separate funds for different international markets ex. VFV: US / VDU: International/ VEE: Emerging

    would they have the same 2 levels of foreign with holding tax as VXC if held in an RRSP/TFSA?

  6. Canadian Couch Potato February 8, 2015 at 7:24 pm

    @Andrew: They should, yes, assuming you held the three funds in the same proportion as the holdings of VXC.

  7. Andrew February 9, 2015 at 10:20 pm


    Thanks for the reply.
    Just wondering…in your Vanguard model portfolio, why do you choose not to have any REITs?

  8. oldie February 10, 2015 at 1:24 am


    Actually, CCP gave an explanation for the merits of simplifying the recommended portfolios in the January 15 post that introduced the new 2015 simplified portfolios.

  9. Adam March 3, 2015 at 7:21 pm

    Investing inside an RRSP. Wondering whether it makes sense to substitute VXC from the model portfolio with the following:

    50% VTI – Total Stock Market
    25% VEA – FTSE Developed Markets
    25% VWO – FTSE Emerging Markets

    Logic would be the following:
    1) Lower fees (0.085% combined vs. 0.25%)
    2) Eliminate (one layer of?) withholding tax

    Downsides would be:
    1) US listed (need to do Norbert’s to exchange to USD).
    2) (Somewhat) more complicated balancing, requiring a few extra trades.

  10. Will March 12, 2015 at 4:38 pm

    Where do you get an extra .45% from, when your considering the extra level of withholding tax? I don’t think you considered only half the fund is taxed the extra 15% tax, if you basing your numbers on a 3% dividend.

  11. Canadian Couch Potato March 12, 2015 at 5:06 pm

    @Will: The Level 2 withholding tax (explained in our white paper) applies to all distributions paid by US-listed ETFs, so in this case it applies to both the US and international dividends.

  12. Chad March 18, 2015 at 11:34 pm

    Hello and thank you for all of your great work again!

    I don’t think I make enough money right now to open an RRSP (I made $30 000 this year) but I have topped up my TFSA. I am investing in 40% VXC, 20% VCN, 30% VAB and 10% XRB
    I’ll put VAB and XRB in my TFSA first, but would you recommend prioritizing VXC or VCN in the TFSA first (with the left overs going into a non-registered account)?

    Many thanks

  13. Canadian Couch Potato March 19, 2015 at 8:49 am

    @Chad: As a general rule, Canadian equities should go in the non-registered account first.

  14. Jerry March 22, 2015 at 7:02 am

    The new (since Feb 2015) iShares XAW is the new alternative, not sure if there’s material difference between the 2 though

    iShares Core MSCI All Country World ex Canada Index ETF | XAW

  15. Canadian Couch Potato March 22, 2015 at 9:06 am
  16. Chris June 2, 2015 at 4:12 am

    — Gross income 47,000
    — Tfsa and rrsp both have plenty of room.
    — Investing 30k
    — 20% VCN, 40% VXC, 40% VAB or VSB (undecided)
    — looking at a 20-25 year window

    Would you recommend putting everything in my tfsa or buying VXC in an rrsp solely to defer the foreign withholding tax. (I realize I will have to pay it upon withdrawal).

    Will the compounding benefits make it a smart move in the long run, or is my question rather trivial?

    Any input is much appreciated.

    And thanks for providing such a wealth of information!

  17. Ron June 16, 2015 at 4:13 pm

    There is a tax advantage to VXC that you didn’t mention: Unlike the US based ETFs, VXC won’t subject you to US estate taxes. If you have over $100,000 in US stocks, you’ll HAVE to file a US return when you die, and that filing cost alone may eat up any small withholding taxes you save by using a US$ ETF.

    That doesn’t even factor the actual US estate taxes you may be liable for (Remember that the US estate tax applied to relatively small estates as recently as a few years go)

  18. Canadian Couch Potato June 16, 2015 at 4:29 pm

    @William: I don’t know why Vanguard chose to use VV rather than VTI. I assume it was because their international and emerging markets ETFs were large and mid-cap only until this recent announcement, so perhaps they were just being consistent.

    @Ron: I didn’t mention this because it’s not an issue specific to VXC. But you are correct that Canadian-listed ETFs do enable you to avoid this requirement. For the record, the requirement to file a US tax return exists for US situs assets over $60,000, not $100,000.

  19. P July 9, 2015 at 1:58 am

    Hello ,
    I am considering VXC for RESP account.
    Will its ” two levels of foreign withholding taxes ” disadvantage also affect RESP account. Since no one mentioned RESP, just to confirm.

    And I guess other Canada listed foreign sector ETFs (e.g. VDU, VEE, VUN) in registered account have the same issue,

    To avoid this issue, I should buy US listed counterpart ETFs , right?

  20. Raz October 8, 2015 at 4:39 pm

    Hello Dan. First of all, thanks for the excellent treasure trove of index investing advice you’ve accumulated here over the years. I stumbled across this website last year, after wandering in the wilderness by myself trying to apply things I learned from more US-oriented sources (books by Bogle etc.).

    When I initially started index investing in mid 2009, after much research I ended up settling on an equity portfolio comprised of XIC, VTI, VWO, VGK, and VPL. A year or two later I stumbled across VT and decided it would be easier to purchase that than the separate Vanguard ETF’s. Over the past year I cleaned up my RRSP and TFSA accounts to simplify them, using only XIC/VXC/VAB. However I’ve left the jumble of US denominated Vanguard ETF’s in my non-registered account alone, due to the very large capital gains that would be incurred if I were to try to clean that up. In any case I’ve got a fancy spreadsheet that does a good job of tracking everything and letting me know what needs to be rebalanced.

    So at this point, after spending the last year reading through all of your blog posts, really the only thing left for me is tax optimization. When I cleaned up my RRSP, I ended up moving in to VXC. However I’ve now realized that was perhaps a mistake, tax efficiency wise, with the double withholding tax issue. I’m with Scotia iTrade, so I could activate the US-Friendly program to avoid ugly FX spreads on trades when needed. Would I be better off holding VT, or even a combination of VTI/VGK/VPL/VWO in my RRSP? One caveat I noticed is that the US-Friendly program would not appear to cover dividends paid by these ETF’s, so I’d still be getting dinged there.

    Any insight you could offer would be sincerely appreciated. Thank you!

  21. Canadian Couch Potato October 10, 2015 at 9:06 am

    @Raz: Thanks for the comment. Whether to use US-listed ETFs in your RRSP really depends on the size of the holding. The idea is to weight the cost (mainly currency conversion) against the benefits (lower withholding taxes, slightly lower MERs). With larger holdings it is usually worth, especially if you are going to use VT and make only one trade at a time. One trick with iTRADE is that you can sign up for the US-Friendly service, make your trades, and then cancel it so you only pay the $30 fee for one quarter.

  22. Tristan April 19, 2016 at 9:10 pm

    @CCP: Being a great fan of simplicity, I agree that for for smaller portfolios VXC is an excellent choice, but for larger portfolios, say high 6 figure/low 7 figure for the US/international equity portion, would you say it’s worthwhile at that point to keep US and international in separate funds for rebalancing purposes? Or just stick with VXC? Thanks.

  23. Canadian Couch Potato April 20, 2016 at 4:38 pm

    @Tristan: Splitting the US, international and emerging markets holdings is likely to be a good idea for larger portfolios, especially if you have multiple accounts and want to hold each asset class in a different one (e.g. US equities in the non-registered and international or emerging in an RRSP). As long as you rebalance with discipline!

  24. JSC July 23, 2016 at 10:19 am

    Just to clarify—is there any advantage in putting VXC (Canadian-listed) into an RRSP rather than a TFSA?

    In your Vanguard Model Portfolio (VAB / VCN / VXC), what is the ideal asset location (TFSA vs. RRSP) for each asset?

  25. Canadian Couch Potato July 23, 2016 at 10:35 pm

    @JSC: The foreign withholding tax implications for VXC are the same in a TFSA and RRSP. There is no ideal asset location for the model portfolio ETFs in terms of foreign withholding taxes. There might be for other reasons, but this is only an issue if both accounts are maxed out.

  26. Paul September 28, 2016 at 7:04 pm


    As this is a Canadian-listed ETF which pays a dividend, is this ETF eligible for a Dividend Tax Credit if it is held in a non-registered account?

    (Does the Dividend Tax Credit apply even if there are no Canadian holdings in the ETF?)

  27. Canadian Couch Potato September 28, 2016 at 10:59 pm

    @Paul: No, the dividend tax credit applies only to dividends paid by Canadian companies.

  28. Ethan October 7, 2016 at 4:17 pm

    I’m looking into using the 3 fund method so this would be one of my purchases. I’m a US citizen and would be holding this outside of my registered account, so PFIC rules apply.

    Vanguard offers the QEF election for this (hooray!). It holds multiple underlying ETFs, though they are US listed so should not be considered PFIC. Is this correct? An ETF that holds multiple Canadian listed ETFs requires multiple 8621s to be filed (one for the top-level ETF and one for each of the underlying ones). Obviously, I’d like to avoid this if possible.

  29. James October 13, 2016 at 6:05 am

    @Ethan As you’re a US citizen, you may want to think twice before going with any non-registered Canadian ETF. The PFIC rules are not pleasant to deal with and will add significant tax/record keeping burden to your life, which nullify any convenience advantage of the ETF. There are reports that even the IRS has trouble dealing with PFIC paperwork.

    I’m a US Person and my own accountant has advised me to only hold Canadian ETFs inside my RRSP. If you must do Canadian index investing non-registered, you might seriously consider using the US-listed EWC. Yes the MER is high, but it’s likely worth it to avoid the PFIC complications. The rest of your global exposure can easily be accomplished with American ETFs.

  30. Jo November 1, 2016 at 10:45 pm

    I’m moving companies and as such my pension (commuted value) has to be moved to my own self-directed brokerage account (LIRA). I’m thinking of investing in the 3 Vanguard ETFs as per your model portfolio. If the value I’m looking to invest is in the 150K range, would it be worth my while to invest in the VXC despite the withholding tax challenges? If so, how would you go about making the investment – would you do it in one shot and use the 150K and spread it amongst the 3 Vanguard ETFs as per the portfolio or would you stagger your purchase over time? I don’t anticipate doing any additional contributions to the LIRA account in the future as I manage my RRSP portfolio using the TD eSeries/


  31. Canadian Couch Potato November 2, 2016 at 7:56 am

    @Jo: If you’re concerned about the withholding tax issue, you might consider simply using XAW, which is a little better in this regard. Since you cannot contribute new cash to a LIRA, you will want to make rebalancing in this account as easy as possible, so it’s probably best to use a smaller number of funds. I might also suggest you enroll in the DRIP program through your brokerage so most of the distributions get reinvested and your cash balance will remain small.

    Regarding trying to stagger your purchase, this is not necessary. Remember that your pension assets were already invested in the markets, so you should not feel you are getting out of the market and back in.

  32. Jo November 10, 2016 at 1:46 am

    Thanks for the info. When looking at both XAW and VXC, is there one that you prefer over the other now that a bit of time has passed? Their makeup is very similar but in looking at performance, VXC has done slightly better than XAW. I’m not overly concerned about the withholding tax so putting that aside, what is your take on these 2 ETFs?

  33. Canadian Couch Potato November 10, 2016 at 10:57 am

    @Jo: They are really pretty interchangeable. Any difference in performance is likely to be a random result of the fact that their underlying indexes are slightly different.

  34. AJ December 11, 2016 at 6:57 pm

    Hi, when you said ‘@Chad: As a general rule, Canadian equities should go in the non-registered account first.’ did you mean only if your registered accounts could be maxed out with US and International equities?

  35. Canadian Couch Potato December 12, 2016 at 7:19 am

    @AJ: Yes. My assumption is that the registered accounts are full and the investor needs to hold some portion of the portfolio in a non-registered account.

  36. Mansoor January 6, 2017 at 1:19 pm

    How would I know what products/services are provided under VXC? Thanks

  37. Manny April 14, 2017 at 1:31 am


    I am new, have $80k in RSSP and just opened my itrade account and ready to do my own investing.

    I am planning to go with VXC, VCN, and VAB. Any recommended % for each based on what I have to invest and I am 48 years old?

    Thank you!

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