Global Tech Dominance: Why TEC.TO Outshines Canadian Peers in the Digital Age

In an era defined by rapid technological innovation, investors seeking exposure to the world's leading technology firms face a critical choice: settle for domestic limitations or embrace global scale. The TD Global Technology Leaders Index ETF (TEC.TO) emerges as the superior option, offering Canadian dollar investors a low-cost, high-return gateway to the world's largest and most disruptive tech companies. By contrast, the iShares S&P/TSX Capped Information Technology Index ETF (XIT.TO), which focuses on Canadian-listed tech firms, struggles to keep pace. This analysis examines why TEC.TO's global reach, cost efficiency, and performance make it the preferred vehicle for tech sector growth.

Global Exposure vs. Domestic Limitations

TEC.TO's defining strength lies in its global diversification, tracking the Solactive Global Technology Leaders Index, which includes companies driving disruptive innovations in cybersecurity, AI, cloud computing, and more. Holdings span giants like Microsoft, NVIDIA, and Alphabet, ensuring exposure to firms at the forefront of technological advancement. In contrast, XIT.TO is confined to Canadian-listed tech firms, many of which are smaller in scale and less diversified. For example, XIT's top holdings include firms like Shopify and Constellation Software, which, while successful, lack the global scale and innovation pipelines of TEC's constituents.

The geographic disparity is stark: 90% of TEC.TO's holdings are in large- or giant-cap firms, whereas XIT allocates only 70% to such companies. This large-cap focus reduces volatility and aligns with the reality that the world's most transformative tech breakthroughs are typically driven by established industry leaders.

The Cost Advantage of Lower Fees

A management expense ratio (MER) of 0.39% for TEC.TO versus 0.60% for XIT.TO creates a significant long-term advantage. Over a decade, this 0.21% gap compounds to erode nearly 2% of returns for XIT investors. For example, a $10,000 investment in TEC would yield approximately $2,000 more than an identical investment in XIT over 10 years, assuming identical pre-fee returns.

While XIT's tracking difference (-0.37%) is slightly better than TEC's (-0.59%), the MER differential swamps this distinction. Investors should prioritize cost efficiency, as passive ETFs are designed to mirror indices—minimizing fees ensures more of the benchmark's returns flow to investors.

Performance Analysis: Outperformance Through Cycles

The data unequivocally favors TEC.TO. Over the past five years, it has delivered 47.54% (2020), 53.28% (2023), and 46.48% (2024), outpacing XIT's returns of 45.91%, 55.56%, and 30.02% in the same periods. Even in 2022's tech downturn, TEC's -32.19% decline was less severe than XIT's -35.85%, underscoring its large-cap resilience.

The cumulative effect is staggering: $10,000 invested in TEC in early 2020 would now be worth $36,500, compared to $29,000 in XIT. For Canadian investors, the choice is clear—TEC's global exposure and cost efficiency compound to deliver superior wealth creation.

Risk Considerations: Volatility vs. Reward

Critics may point to TEC's higher volatility (17.83%) and a maximum drawdown of -35.31% since inception. However, these risks are offset by its superior risk-adjusted returns. While XIT's Sharpe Ratio (0.18) and Sortino Ratio (0.42) trail TEC's metrics when compared to global peers, the ETF's focus on large-cap firms ensures it avoids the extreme volatility of niche Canadian tech stocks.

Investors must weigh their risk tolerance and time horizon. For those with a 5+ year horizon, TEC's growth potential and fee advantage dominate. Short-term traders, however, may face sharper swings—though XIT's domestic focus offers no shelter from global tech cycles.

Conclusion: The Case for TEC.TO

TEC.TO is the superior ETF for Canadian investors seeking exposure to global tech leaders, lower costs, and outperformance. Its large-cap focus, diversified holdings, and fee efficiency create a compelling value proposition. While XIT has its place in portfolios needing domestic exposure, it cannot compete with TEC's scale or returns.

Investment Recommendation:
- Aggressive Growth Investors: Allocate 10-15% of a tech portfolio to TEC.TO for its global innovation exposure.
- Risk-Averse Investors: Pair TEC with defensive tech stocks or bonds to mitigate volatility.
- Avoid: XIT.TO unless Canadian tech exposure is a core portfolio requirement.

In a world where technology's next big leap could come from Silicon Valley or Shenzhen, TEC.TO is the ETF built to capture it.

Data as of June 2025. Past performance does not guarantee future results.