iShares Diversified Monthly Income ETF (XTR) Review
On our journey to analyze some of the most popular exchange-traded funds (ETFs) in the investment world, we talked about BMO ETFs and Vanguard ETFs so far. However, this effort will not be complete without BlackRock iShares ETFs, which is the leading ETF manager in the world. To add some context to this claim, BlackRock boasts 389 different ETFs in the US market and 157 ETFs in Canada. These are more than its rival BMO and Vanguard ETF counts put together. In this article, we will be exploring the infamous iShares Diversified Monthly Income ETF, ticker symbol; XTR, listed in the Toronto Stock Exchange (TSX).
With over $2 trillion in assets under management and over 900 investment products, BlackRock is one of the leading players in the fund management game. This gives them the luxury of dropping their management fees and further attracting investors. In 2019, BlackRock entered into a strategic alliance with Canada’s RBC Global Asset Management to introduce the iShares brand for ETFs.
iShares Diversified Monthly Income ETF (XTR) is a fund that seeks to satisfy an investor’s income goals. This ETF is primarily made up of income-generating assets such as equities, fixed income securities, and real estate investment trusts. We will break down these later in the article so you can understand what they invest in to generate income.
XTR ETF promises a monthly distribution to its investors so they can replace their monthly salaries from 9-5 jobs. Monthly dividends also give the fastest compounding possibility if you don’t need to withdraw the income just yet.
However, focusing on monthly dividends means foregoing capital appreciation. An investor cannot have high yields on both. So, depending on your investment objective, you might want to decide if you want monthly incomes or capital appreciation.
| Quick Facts | XTR.TO |
|---|---|
| Fund inception date | Dec 19, 2005 |
| Net Assets (Dec 24, 2021) | $580 million |
| Exchange | Toronto Stock Exchange |
| Annualized distributions yield | 4.22% |
| Distribution frequency | Monthly |
| Management expense ratio | 0.61% |
| Account eligibility | TSFA/RRSP/RESP/RRIF/DPSP |
A 4.22% yield might not seem like much, but it could be all you need to retire comfortably. This is definitely not a low yield and also not an overly aggressive yield either. Safe and consistent is the name of the game with XTR ETF.
BlackRock rates XTR ETF at the low-medium risk category, which is saying a lot for a purely income-focused fund. This rating is likely due to the fact that XTR’s investments are spread across high-quality dividend stocks across both Canada and the US regions. The fund also invests in corporate bonds which are considered very less risky.
iShares Diversified Monthly Income ETF (XTR) Holdings
The XTR ETF invests in other ETFs and indexes thus reducing the workload on the managers. There are only 10 holdings in the ETF, out of 9 are other ETFs held by iShares itself. Within these 9 ETFs, there are approximately 3,300 individual company shares held. They also hold some cash for liquidity reasons. Below are the holdings of the fund as of December 27, 2021.
| Holding Name | Weightage |
|---|---|
| iShs CAD Hybrd Cp Bd Idx ETF (CAD) | 29.76% |
| ISHARES US HIGH DIVIDEND EQUITY INDEX ETF | 19.0% |
| iShares Core CAD ST Cor Bd Index ETF | 14.09% |
| iShares Canadian Select Dividend Index ETF | 12.13% |
| iShares U.S. High Yield Bond Index ETF | 7.97% |
| iShares S&P/TSX Canadian Preferred Share Index ETF | 5.99% |
| iShares S&P/TSX Small Cap Index ETF | 5.18% |
| ISHARES S&P/TSX EQUITY INCOME INDEX ETF | 3.04% |
| iShares J.P. Morgan USD Emerging Markets Bond UCITS ETF | 2.77% |
| Cash | 0.07% |
Around 66% of the above assets are allocated in Canada and another 29% is invested in the United States. About 55% of the assets are allocated on fixed income securities while 45% are allocated towards equity investments.
XTR ETF also mentions real estate investment trusts (REITs) as one of their core security classes. REITs are a special type of securities that adhere to a very specific set of rules. TL;Dr – these companies that own, operate, or finance income-generating real estate properties. These companies are legally bound to pay out 90% of their profits in the form of dividends every month. So, REITs are cash cows in the investment world.
iShares Diversified Monthly Income ETF (XTR) Performance
XTR ETF has been active for a little over 15 years by 2021. This gives us a good timeframe to evaluate its performance.
An investment of $10,000 in XTR ETF in 2005 would have earned you an approximate $21,703 by 2021. This represents a growth of 117% on the initial investment. While this is not something stellar, it has served its purpose of consistent dividend payments.
The above graph clearly shows how the 2008 financial crisis and the 2020 COVID-19 pandemic impacted the performance of this ETF (much like every other ETF out there).
Is XTR ETF for You?
As evident throughout this article, XTR ETF is one that generates a steady stream of income every month. If you are looking for long-term capital appreciation, you might want to look elsewhere. However, when you do decide to retire, a monthly yield investment such as XTR could come in handy. If you are not at the retirement age yet, XTR still can be a great investment because of those excellent dividends with the possibility of compounding your investment monthly.
Check out the latest information about the fund on iShares.
Disclosure: Any information given in this article is not to be construed as investment advice. You must do your own research before investing any money in the stock market. All investments carry inherent risks even with the possibility of losing all your money.
