ETF of the Week: Did You Know? XFN Beat VOO Over the Last 5 Years

XFN
iShares S&P/TSX Capped Financials Index ETF

Every week, I’ll break down one ETF in plain English; what it is, why it matters, and how it might fit into your investment portfolio. Think of it like a quick cheat sheet… simple, clear, and made for investors.

First up: XFN, the ETF that lets you invest in Canada’s biggest banks and financial companies without picking stocks one by one.

What is XFN?

XFN is the ticker for iShares S&P/TSX Capped Financials Index ETF.

It’s a fund you can buy like a stock, and it holds many Canadian financial companies inside it.

• Goal: To grow your money over time by following how the Canadian financial sector performs.

• Biggest holdings: Companies like Royal Bank, TD, Brookfield, Manulife, Intact Financial, etc.

• Number of stocks: About 23-27 companies.

• Dividend: Pays dividends monthly. Yield is currently 2.86% ($0.17 per share).

• Growth: So far this year, XFN is up about 17.5%, and over the last 5 years it has grown by around 104% (that’s basically doubling your money). 
  For context, that’s more than popular ETFs like VOO have gained in the same period. But remember: past performance doesn’tguarantee future results.

• Risk/Volatility: Mid-to-high compared with more mixed or bond ETFs. Since financials tend to fluctuate with the economy.

• ETF Fees (MER): 0.6% per year

Why Investors Like XFN

Here are some reasons why XFN could be useful in a TFSA:

Targeted exposure to financials: If you think banks, insurers, or financial firms in Canada will do well, this gives you that exposure without picking single stocks. And historically, banks have been some of the best performers in the TSX, as banks essentially run the Canadian economy.

1. Diversification within the financial sector: Because you get many companies, you're less hurt if one bank has a bad year.

2. Dividend income: For investors who like earning passive income from their investments (via dividends), financials often have decent yields.

3. Simplicity: Instead of buying 5-10 different bank/insurance stocks, you buy one ETF.

What to Watch Out For 
(Risks / Downsides)

1. Sector risk: If something bad happens in the financial industry (e.g. high interest rate stress, loan defaults, regulation issues), XFN will likely suffer.

2. Economic cycles: Financial stocks often do better when the economy is good, but they can underperform when the economy slows or interest rates change dramatically.

3. Concentration: Even though it’s diversified within financials, the top few holdings (like big banks) make up a large share. If one of those flops, it has a big effect.

4. Fee drag: The 0.6% cost isn’t huge, but over many years, fees eat into returns. Always consider total cost.

Who Might XFN Be Good For?

• Investors who believe in Canada’s financial sector and want exposure without picking individual banks.

• Investors looking for a mix of growth and passive income(dividends) but are okay with some volatility.

• Someone who already has other sector ETFs or global funds, and wants more exposure in financials to balance things.

✅ In short:

XFN is a solid option if you're bullish on Canadian financials and want a relatively easy way to get exposure. It offers good potential upside and dividends, but comes with moderate risk.

Make sure it fits your overall plan: how much risk you can handle, how long you want to hold, and what mix of other investments you have.

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