It used to be possible to reassure investors swamped by the selection of exchange-traded funds by telling them to just focus on asset-allocation ETFs.
But the ETF population of Canada has ballooned to the point where there are 50 asset-allocation funds, also known as balanced ETFs. That’s a considerable number, even if it’s just 4.8 per cent of the total 1,050 ETFs listed on Canadian exchanges. Asset-allocation ETFs give you all or most of a balanced portfolio in single purchase. At their best, they’re a marvel of cost-efficient, low-effort investing.
Here are four points to consider when choosing between those 50 asset-allocation ETFs. All data come from the latest ETF Handbook produced by National Bank Financial.
If you like to follow the crowd ...
Vanguard introduced asset-allocation ETFs to the Canadian market a little more than two years ago and is the leader as measured by assets in most subcategories by far. For example, The Vanguard Growth ETF Portfolio (VGRO-T) has assets of $2.2-billion, with the second-ranked iShares Core Growth ETF Portfolio (XGRO-T) at $766-million and third-ranked BMO Growth ETF (ZGRO-T) at $80-million. Vanguard also leads in all-equity, balanced and conservative portfolios.
If you want the lowest fees …
Vanguard leads in assets but not fees. The management expense ratios for its funds come in at 0.25 per cent, while BMO and iShares are at 0.2 per cent. MERs run as high as 0.91 per cent for some products, which seems high for portfolios where a substantial portion would typically be in bonds.
If you want income …
Several long-standing income-oriented ETFs have been classified by NBF as asset-allocation funds. These funds may not be suitable as your entire portfolio, but they do provide the service of packaging a variety of income-producing investments into a single convenient package. The king of income ETFs is the iShares Canadian Financial Monthly Income ETF (FIE-T), with assets of $839-million and a bloated MER of 0.96 per cent. In fact, many of the yield-focused ETFs have extremely high fees. An exception is the Vanguard Retirement Income ETF Portfolio (VRIF-T), which targets a distribution rate of 4 per cent and has an MER of 0.33 per cent.
If you hate bonds …
There are three all-equity ETF portfolios on the NBF list, from iShares, Horizons and Vanguard. They provide exposure to stock markets in Canada, the United States and beyond (including emerging markets). A thought for bond-wary investors who still want some diversification: Hold an all-equity portfolio and a high-interest savings ETF as a bond alternative. NBF lists five of these cash alternatives, all with MERs of 0.17 per cent and below. Providers include: CI Financial (CSAV-T), Evolve ETFs (HISA-NEO), Horizons (HSAV-T), Purpose Investments (PSA-T) and Ninepoint Partners (NSAV-NEO).
If you’re looking for socially responsible funds …
BMO Balanced ESG ETF (ZESG-T) is an asset-allocation product with holdings selected using ESG criteria – environment, social and governance. There are four iShares offerings as well.