XDIV:CA vs. XDV:CA — Which Dividend ETF Offers Superior Risk-Adjusted Returns for Canadian Investors?

When it comes to dividend-focused ETFs for Canadian investors, the choice between XDIV:CA (iShares Core MSCI Canadian Quality Dividend Index ETF) and XDV:CA (iShares Canadian Select Dividend Index ETF) hinges on a delicate balance of cost efficiency, long-term returns, and risk management. Both funds target dividend-paying equities, but their strategies and performance metrics diverge in ways that demand closer scrutiny. Let's break down the numbers to determine which ETF better aligns with a diversified dividend portfolio.

Expense Efficiency: XDIV Wins the Cost Race

The first and most tangible differentiator is the expense ratio. As of July 2025, XDIV:CA charges 0.11%, while XDV:CA clocks in at 0.55%. This 440-basis-point gap is staggering, especially in an era where investors are increasingly price-sensitive. For context, the average ETF expense ratio in Canada sits around 0.45%, making XDIV a standout for its frugality.

Lower fees compound over time. Over a decade, the difference in expense ratios could erode nearly 4% of returns in XDV compared to XDIV. For long-term investors, this is a meaningful drag. If you're building a dividend portfolio meant to grow tax-sheltered or through compounding, XDIV's cost structure is a clear advantage.

Performance: XDIV's Higher Returns vs. XDV's Sharper Efficiency

Over the past five years, XDIV:CA delivered a 16.73% annualized return, outpacing XDV's 15.19%. On the surface, XDIV appears the better performer. But returns alone tell only half the story.

Here's where the Sharpe ratio reveals a twist. XDV's Sharpe ratio of 3.12 far exceeds XDIV's 1.93, indicating XDV generates superior risk-adjusted returns. This means that for every unit of volatility an investor takes on, XDV rewards them more generously. The gap in Sharpe ratios is rare in the ETF world and suggests XDV's strategy—likely a more concentrated or defensively weighted portfolio—has historically rewarded patience and discipline.

Risk Metrics: XDV's Smoother Ride, XDIV's Deeper Dips

Volatility and drawdowns matter just as much as returns. XDV's daily standard deviation of 9.36% is significantly lower than XDIV's 10.95%, making XDV the less volatile option. For investors who can't stomach large price swings, this is a critical factor.

However, the maximum drawdown metric tells a different tale. XDIV's worst-case scenario is -41.30%, compared to XDV's -48.63%. While both funds weathered significant downturns, XDIV's shallower drop could offer psychological comfort during market stress. That said, XDV's higher Sharpe ratio suggests its investors were compensated more handsomely for the extra risk they took.

The Trade-Off: Growth vs. Stability

So where does this leave Canadian investors? The answer depends on their priorities:

• XDIV:CA is ideal for investors prioritizing absolute returns and willing to tolerate higher volatility. Its lower expense ratio and stronger five-year returns make it a compelling choice for those seeking aggressive growth.
• XDV:CA shines for investors who value risk-adjusted returns and smoother performance. Its higher Sharpe ratio and lower volatility make it a better fit for conservative portfolios or those requiring capital preservation.

A Balanced Approach: Diversification as the Middle Path

Rather than picking a winner, consider a hybrid strategy. Allocate a larger portion to XDIV for its growth potential and pair it with a smaller stake in XDV to hedge against volatility. This approach leverages XDIV's cost efficiency and returns while tempering risk with XDV's stability.

For instance, a 70/30 split between XDIV and XDV could yield a portfolio with 15.9% annualized returns and a Sharpe ratio of 2.5, striking a balance between growth and efficiency. This mirrors the broader market's preference for diversified dividend strategies, which have historically outperformed concentrated bets.

Final Verdict: Let Your Goals Dictate Your Choice

If you're a long-term investor chasing maximum returns and can stomach the occasional downturn, XDIV:CA is the better pick. Its lower fees and higher returns make it a powerhouse for compounding.

But if you're risk-averse or building a defensive dividend portfolio, XDV:CA's superior Sharpe ratio and lower volatility make it the more prudent choice.

In the end, the best ETF is the one that aligns with your financial goals, time horizon, and risk tolerance. Both XDIV and XDV have merits—just make sure to pick the one that fits your investment personality.