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XUS vs IVV- help me understand the difference in return

  • Last Updated:
  • Jan 9th, 2020 5:51 pm
[OP]
Jr. Member
User avatar
Dec 31, 2018
197 posts
259 upvotes

XUS vs IVV- help me understand the difference in return

To keep it simple, let's compare two S&P 500 funds- XUS (CAD- unhedged) and IVV (USD).

According to their respective webpages, as of Dec 30th, the total return for XUS was 24.67% and for IVV 31.05%. This is a difference of 6.38%.
https://www.blackrock.com/ca/individual ... -index-etf
https://www.ishares.com/us/products/239 ... sp-500-etf

According to the Bank of Canada currency conversion page, the CAD/USD rate on Jan 2nd, 2019 was 0.7353, and on Dec 31st, 2019 (today) was 0.7699. That's a (0.7699-0.7353)/0.7353*100=4.7%.

So, where does the other 6.38-4.7=1.7% of difference come from?

I know that total returns also includes dividends and XUS would apply a tax of 15% on foreign dividends, which would explain some of the difference. However, this wouldn't explain this difference of 1.7%.

Please help me understand.
6 replies
Member
May 2, 2019
477 posts
547 upvotes
Vancouver
Good question. Let's redo the math. If you have an asset that would appreciate 31.05% but also lose 4.7% due to currency depreciation, I'd expect the total return 1.3105 / 1.047 = 1.25167, or 25.17%. That's 0.5% difference from XUS return, not really 1.7%.

A part of the difference can be attributed to MER, which is 0.1% for XUS and 0.04% for IVV.

Then you need to use the accurate foreign exchange rates. Combining Dec 30th returns with Dec 31th exchange rate is not accurate, the currency moved a lot in that day. And time/source of the exchange rate matter as well. Overall, no surprise numbers don't match if the data is not precise.
Last edited by yvrbanker on Jan 1st, 2020 3:39 pm, edited 1 time in total.
Sr. Member
Oct 21, 2016
910 posts
669 upvotes
TrickleDownEconomics wrote: To keep it simple, let's compare two S&P 500 funds- XUS (CAD- unhedged) and IVV (USD).

According to their respective webpages, as of Dec 30th, the total return for XUS was 24.67% and for IVV 31.05%. This is a difference of 6.38%.
https://www.blackrock.com/ca/individual ... -index-etf
https://www.ishares.com/us/products/239 ... sp-500-etf

According to the Bank of Canada currency conversion page, the CAD/USD rate on Jan 2nd, 2019 was 0.7353, and on Dec 31st, 2019 (today) was 0.7699. That's a (0.7699-0.7353)/0.7353*100=4.7%.

So, where does the other 6.38-4.7=1.7% of difference come from?

I know that total returns also includes dividends and XUS would apply a tax of 15% on foreign dividends, which would explain some of the difference. However, this wouldn't explain this difference of 1.7%.

Please help me understand.
Benefit would be in your rrsp no dividend witholding tax and lower mer . Also if you plan to live in the US or partially live in the US when you retire due to weather it is beneficial to own ivv
Deal Addict
User avatar
Oct 14, 2015
1316 posts
1131 upvotes
I see that XUS has 1.17% weighting in cash
whereas IVV has practically none.

This will cause drag in a strong equity market, and a boost in down markets.

Not much I know, but as Myrtle likes to say when she pees in the ocean,
"Every little bit helps".
Newbie
Oct 18, 2019
54 posts
52 upvotes
I think the key issue that makes this comparison difficult is that XUS holds a huge chunk of IVV but does NOT invest only in IVV, unlike some of the other Canadian-domiciled ETFs providing foreign exposure via the US market in a pure "wrap" structure.

Take a look at the "All Holdings" tab for XUS and you'll see that IVV makes up 78.71% and then there are a bunch of direct holdings (500+). You're going to have a very hard time doing an apples-to-apples comparison without transaction and distribution information throughout the year and even then, XUS may not transact on direct holdings exactly the same as IVV. And then add variance from foreign exhange, withholding taxes, and so on.
Jr. Member
Jun 17, 2018
122 posts
96 upvotes
Hamilton, Bermuda
TrickleDownEconomics wrote: According to the Bank of Canada currency conversion page, the CAD/USD rate on Jan 2nd, 2019 was 0.7353, and on Dec 31st, 2019 (today) was 0.7699. That's a (0.7699-0.7353)/0.7353*100=4.7%.

So, where does the other 6.38-4.7=1.7% of difference come from?
These returns are multiplicative and not additive.
(1+Local currency return)=(1+Foreign currency return)*(1+Asset return in foreign currency)
Expected CAD return = (1-4.7%) * (1+31.05%) - 1 = 24.9%
Your difference is now only 0.23%, which indeed could be explained by higher fees for XUS as opposed to IVV, as well as 15% withholding taxes for XUS.

Returns are multiplicative in the sense that, imagine you buy USD using your Canadian dollars, and then use this USD to buy a biotech stock. In the case that both the stock doubles in USD, and the USD doubles value against the CAD, your holding in CAD will show a 300% gain (as opposed to a 200% gain if returns were additive).
(1+local CAD return) = (1 + 100%) * (1 + 100%)
CAD return = 2 * 2 - 1 = 3 or 300%
[OP]
Jr. Member
User avatar
Dec 31, 2018
197 posts
259 upvotes
gparadis01 wrote: These returns are multiplicative and not additive.
(1+Local currency return)=(1+Foreign currency return)*(1+Asset return in foreign currency)
Expected CAD return = (1-4.7%) * (1+31.05%) - 1 = 24.9%
Your difference is now only 0.23%, which indeed could be explained by higher fees for XUS as opposed to IVV, as well as 15% withholding taxes for XUS.

Returns are multiplicative in the sense that, imagine you buy USD using your Canadian dollars, and then use this USD to buy a biotech stock. In the case that both the stock doubles in USD, and the USD doubles value against the CAD, your holding in CAD will show a 300% gain (as opposed to a 200% gain if returns were additive).
(1+local CAD return) = (1 + 100%) * (1 + 100%)
CAD return = 2 * 2 - 1 = 3 or 300%
Thank you for this clear answer. This is exactly what I was looking for!

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