Q&A with Gordon Pape: Underperforming ETF
Results from this broad-based U.S. fund are disappointing and some days it doesn’t trade at all. What gives?
Q – I bought shares in the iShares Core S&P U.S. Market ETF (TSX: XUU) about a year ago. It represents the entire U.S. market. I am puzzled as to why there is virtually no daily volume, and some days zero! Why is it not performing better? – Leo S.
A – This ETF provides exposure to the entire American market at low cost. It comes in two versions, unhedged (TSX: XUU) and hedged (TSX: XUH). Neither has performed well; the hedged version had a one-year return to March 31 of -0.2 per cent while the unhedged version was up by 1.9 per cent. By comparison, the iShares Core S&P 500 ETF (TSX: XUS), an unhedged fund that tracks only the S&P 500, was ahead 3.4 per cent in the same period. The hedged version of that fund (TSX: XSP) was up 0.8 per cent.
The main reason why XUU/XUH has fared poorly is its exposure to U.S. small cap stocks. They have had a bad year, with the iShares fund that tracks them down over 10 per cent. The small caps will eventually recover and when they do the fund’s performance will improve.
As for the low trading volume, it comes down to the fact there aren’t that many units out there. XUU/XUH has only been in existence since February 2015 and has attracted just $50 million in assets to date. By comparison, XSP has $3.7 billion.
Do you have a money question you’d like to ask Gordon? Find out how to submit it here and then check out our Money section regularly to see if it was chosen for a response. Sorry, we cannot send personal answers.