Two Canadian Monthly Income ETFs That Aren’t Worth Your Money

To put it bluntly, iShares Canada still offers several legacy ETFs that may have looked fine when they launched over a decade ago. Back then, they were still a better option than most Canadian mutual funds. But in 2025, they no longer hold up.

These ETFs are under diversified, tax inefficient, and expensive by today’s standards. Their long-term performance has also been anemic. Even if you’re investing for income, you should care about total return. A big distribution is not useful if it comes with poor prospects for capital appreciation.

Here are two high-yield iShares Canadian ETFs that I think completely miss the mark when it comes to passive income investing.

iShares Canadian Financial Monthly Income ETF (FIE)

There are four big issues I have with this ETF. In short, FIE is a legacy product with high fees, weak diversification, and tax complexity. Bear with me as I break them down one at a time.

The first is its narrow focus. When you're planning for retirement income and safe withdrawal rates, diversification is key. Concentrating in one sector from one country makes the income stream more vulnerable to shocks. In this case, the ETF is heavily tilted toward Canadian financials.

Sure, we have strong banks and insurance companies, but these are still equities. They carry market risk along with uncompensated sector and country-specific risks like regulatory changes or economic slowdowns tied to Canadian housing.

That being said, ETF isn’t entirely made up of stocks. It also allocates about 20% to two other iShares ETFs: the iShares S&P/TSX Canadian Preferred Share Index ETF (CPD) and the iShares Core Canadian Corporate Bond Index ETF (XCB).

I actually don’t mind XCB. It’s a plain vanilla corporate bond ETF that charges 0.17% and adds a yield pickup over government bonds in exchange for taking on more credit risk. CPD, however, is a mess.

At 0.49% MER, it’s not terrible on cost alone, but the whole idea of indexing Canadian preferred shares has major flaws. The index includes a lot of rate-reset preferreds with negative yield-to-call profiles, which drags on long-term performance. Over the past 10 years, CPD has returned just 4.92% annually.

Third, FIE is way too expensive. You’re being charged a 0.74% MER to own about two dozen Canadian financial stocks along with two bond-like ETFs. In 2025, that cost is hard to justify when more diversified and tax-efficient income ETFs are available at a third of the cost or less.

Lastly, the tax treatment isn’t great. The current trailing 12-month distribution yield is 5.34%, and the ETF has kept a stable 0.04 per share monthly payout (or 0.48 annually) since inception, aside from 2021.

But those payouts aren’t clean. They come in a mix of eligible dividends, capital gains, and return of capital, which makes tax planning harder unless you’re holding it in a Tax-Free Savings Account (TFSA) or Registered Retirement Income Fund (RRIF).

iShares Diversified Monthly Income ETF (XTR)

In a nutshell, XTR tries to fix some of FIE’s issues, then goes and creates a whole new set of problems. Sure, the name suggests this ETF is more diversified, and that part’s true.

FIE holds a conservative mix of around 55% fixed income and 45% equities through an ETF-of-ETFs structure. The portfolio spans sectors and geographies, with exposure to Canadian, U.S., and international markets. But the way it achieves this is extremely disorganized.

For U.S. exposure alone, you get a mix of high-dividend strategies, minimum volatility factor funds, total market funds, high-yield bonds, and intermediate-term investment-grade corporates.

The Canadian sleeve is equally cluttered—short and intermediate-term corporate bonds, high-dividend equities, minimum volatility stocks, long federal bonds, and aggregate bond exposure.

It’s a mishmash with unclear rationale, and many of the U.S.-listed components are tax inefficient. Dividends from those holdings are subject to a 15% withholding tax in registered accounts.

The 0.61% MER is lower than FIE’s but still high for what amounts to an uncoordinated collection of other ETFs. It’s the kind of over-engineered product that reminds me of what bad financial advisors piece together to justify their fees.

XTR’s trailing 12-month distribution yield is 4.18%, but in 2024, only a small slice of the distributions came from eligible Canadian dividends. Most of it was foreign income and fully taxable ordinary income, plus some return of capital. That’s not a tax-efficient mix for non-registered accounts.

Over the past 10 years, XTR has returned just 5.15% annually with distributions reinvested. If you relied only on the income and didn’t reinvest, you’d have lost purchasing power, which is exactly what a good income fund is supposed to help protect against.