Simple and balanced: Vanguard's new ETFs
01 February 2018 | Tim Huver
In the search for simplicity in investing, balanced funds deserve some consideration. Any fund that consists of a mix of equities and fixed income provides some measure of balance between risk and return for investors.
Vanguard's new asset allocation ETFs represent our approach, offering different asset mixes through all-in-one portfolios to deliver benefits to investors and financial advisors.
"ETFs" and "balanced funds" rarely come together in the Canadian market, which is what makes our three asset allocation ETFs exciting additions to our product lineup.
Research shows that investment success is largely determined by the long-term mix of assets in a portfolio. These new ETFs combine a simple and straightforward portfolio with regular rebalancing in one easy-to-understand package, all at a low cost—just 22 basis points.1
Global diversification, regular rebalancing
Through each asset allocation ETF, investors and advisors can gain exposure to more than 20,000 holdings of global stocks and bonds. Vanguard continuously assesses the portfolios and rebalances them to their intended risk levels, making these ETFs an appealing and low-maintenance investment option.
Developed by Vanguard's experienced global research teams, the new ETFs check a lot of boxes for investors, whether that involves saving for retirement within a Registered Retirement Savings Plan (RRSP) or providing a well-diversified investment solution for a Tax-Free Savings Account (TFSA). They provide a low-cost and scalable solution as part of a core asset allocation strategy and could also be used to complement more active alpha generation opportunities as part of the satellite around that core.
The new ETFs are:
|Vanguard ETF||Investment objective||Ticker||Strategic asset allocation|
|Vanguard Conservative ETF Portfolio||Seeks to provide a combination of income and moderate long-term capital growth.||VCNS||40% equity/
60% fixed income
|Vanguard Balanced ETF Portfolio||Seeks to provide long-term capital growth with a moderate level of income.||VBAL||60% equity/
40% fixed income
|Vanguard Growth ETF Portfolio||Seeks to provide long-term capital growth.||VGRO||80% equity/
20% fixed income
Each portfolio invests in seven of our underlying index-based ETFs, including four equity and three fixed income ETFs that seek to track well-known benchmarks.
Different asset mixes
These portfolios will include varied strategic asset allocation weightings of equity to fixed income holdings that correspond to one of three different investor risk appetites. They also reflect the preferences of Canadian investors with a conscious Canadian "home bias," relative to market-cap-weighted benchmarks.
The investments' global nature provides diversified exposure across asset classes, geographies, sectors and styles. Foreign fixed income exposure is also hedged. These features help dampen volatility and manage risk.
With an annual management fee of 0.22%, our asset allocation ETFs cost well below the median management fees of other balanced fund categories, including 0.80% for fixed income balanced and neutral balanced and 0.90% for equity balanced.2
Keep the focus on costs
All else being equal, lower-cost ETFs allow investors to keep more of the returns that may be generated and give them a better chance at investment success. Investors should carefully consider all costs associated with holding an asset allocation ETF compared with the costs involved with managing a portfolio of individual ETFs.
Vanguard is focused on providing ETFs based on proven strategies that are enduring and long-term. We designed our asset allocation ETFs as all-in-one portfolios intended to meet the risk and return requirements of a wide spectrum of investors.
While asset allocation ETFs are new for Vanguard in Canada, they provide the same high quality, low costs and broad diversification that investors have come to expect from us.
1 The management fee is equal to the fee paid by the Vanguard ETF to Vanguard Investments Canada Inc. and does not include applicable taxes or other fees and expenses of the Vanguard ETF. For any Vanguard ETF which invests in underlying Vanguard fund(s), there shall be no duplication of management fees chargeable in connection with the Vanguard ETF and its investment in the Vanguard fund(s).
2 Source: Vanguard analysis, based on data from Strategic Insight and Morningstar, Inc. Series F asset-weighted median management fee for Canadian Investment Funds Standards Committee (CIFSC) categories as of December 31, 2017. Calculation includes mutual funds and ETFs.
The views expressed in this material are based on the author's assessment as of the first publication date (February 2018), are subject to change without notice and may not represent the views and/or opinions of Vanguard Investments Canada Inc. The author may not necessarily update or supplement their views and opinions whether as a result of new information, changing circumstances, future events or otherwise. Any "forward-looking" information contained in this material should be construed as general investment or market information and no representation is being made that any investor will, or is likely to achieve, returns similar to those mentioned in this material or anticipated in this material.
While this information has been compiled from sources believed to be reliable, Vanguard Investments Canada Inc. does not guarantee the accuracy, completeness, timeliness or reliability of this information or any results from its use.
This material is for informational purposes only. This material is not intended to be relied upon as research, investment, or tax advice and is not an implied or express recommendation, offer or solicitation to buy or sell any security or to adopt any particular investment or portfolio strategy. Any views and opinions expressed do not take into account the particular investment objectives, needs, restrictions and circumstances of a specific investor and, thus, should not be used as the basis of any specific investment recommendation. Please consult your financial and/or tax advisor for financial and/or tax information applicable to your specific situation.
This material does not constitute an offer or solicitation and may not be treated as an offer or solicitation in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so.
In this material, references to "Vanguard" are provided for convenience only and may refer to, where applicable, only The Vanguard Group, Inc., and/or may include its affiliates, including Vanguard Investments Canada Inc.
All investments are subject to risk, including the possible loss of principal. Diversification does not ensure a profit or protect against a loss in a declining market. Any given ETF may not be a diversified investment.
Investments in bonds are subject to call risk, credit risk, income risk and interest rate risk. Please see the Vanguard ETFs' prospectus for a description of the unique risks applicable to bond investing.
Foreign investing involves additional risks, including currency fluctuations and political uncertainty. Stocks of companies in emerging markets are generally more risky than stocks of companies in developed countries.