Two more all-in-one ETF portfolios
05 February 2019 | Tim Huver
I'm happy to announce we listed two new asset allocation ETFs on TSX: Vanguard Conservative Income ETF Portfolio (VCIP) and Vanguard All-Equity ETF Portfolio (VEQT). The ETFs offer investors and financial advisors greater flexibility within our suite of Vanguard asset allocation ETFs by providing new options on both ends of the risk spectrum.
When we launched our first asset allocation ETFs about a year ago, I wrote about their relative novelty in the Canadian market. At the time, the idea of combining equity and fixed income in a single low-cost ETF was virtually unheard of here.
What a difference a year makes!
Investors and advisors have enthusiastically embraced Vanguard asset allocation ETFs for their simplicity, diversification and low costs. The ETFs have now accumulated more than $1 billion in assets, making them some of the most successful products we've launched in Canada. Meanwhile, some of our competitors have launched their own balanced ETFs.
Simple and balanced: A big hit with investors
Why are Vanguard asset allocation ETFs so popular?
A partial explanation may relate to the longstanding preference Canadians show for balanced funds. According to The Investment Funds Institute of Canada, 52% of all Canadian mutual funds fell into the balanced category as of year-end 2018.1 Another explanation: Recent equity market volatility may be driving investors toward funds that seek to manage risk through balance and diversification.
I believe the best explanation for the success of our asset allocation ETFs lies in their design. Simply put, they offer investors a combination of features that were previously unavailable in a single unitized investment:
- Simple, yet sophisticated. On the surface, investors see a single ETF. Underneath they get a complete portfolio based on a sophisticated methodology that reflects our research and our four principles of investing success (goals, balance, cost and discipline).
- Built-in strategic asset allocation. Five different asset mixes help meet the risk and return requirements of a wide range of investors. We designed the allocations specifically for Canadian investors with a conscious Canadian "home bias," relative to market-cap-weighted benchmarks.2
- Broad diversification. Broad exposure to global equity and fixed income markets helps reduce portfolio volatility.
- Regular rebalancing. Professional managers maintain the portfolios' respective asset allocations, providing an embedded discipline that frees investors from the need to regularly rebalance their portfolios.
- Low costs. Lower costs can support higher returns. With an annual management fee of just 0.22%, our index-based portfolios offer a significant cost advantage over equivalent industry funds.3 And unlike some fund-of-fund products, Vanguard asset allocation ETFs have no layered or hidden fees.
Using Vanguard asset allocation ETFs in your practice
A growing number of financial advisors are using Vanguard asset allocation ETFs in their practice. We've seen particular interest among fee-based advisors who have incentive to keep investment costs low, and whose value proposition is centred on holistic financial planning rather than investment selection. Some advisors use asset allocation ETFs as a core portfolio holding that they supplement with active or index "satellites." Others use asset allocation ETFs as supplements to an active core.
Outsourcing portfolio construction can have several benefits. Your clients get the low costs and competitive performance of an index-based strategy, while your time is freed up for more value-added activities like relationship management, behavioural coaching, financial planning and tax planning.
There's also a comfort factor in using a portfolio solution designed and backed by The Vanguard Group—a pioneer and leader in balanced-fund investing, with about $1 trillion under management in multi-asset-class portfolios.
A Vanguard effect in balanced products?
Are all-in-one balanced ETFs going to become the most talked-about investing trend since bitcoin and cannabis stocks? Not likely. But don't let the lack of headlines fool you.
If the previous year is any indication, it looks like we'll continue to see new products in this market space. That's a good development for investors, especially if investment providers follow Vanguard's lead and focus on simplicity, broad diversification and low costs.
Rounding out the Vanguard asset allocation ETF lineup
|Vanguard ETF||Investment objective||Ticker||Strategic asset allocation|
|New Vanguard Conservative Income ETF Portfolio||Seeks to provide a combination of income and modest long-term capital growth.||VCIP||20% equity/80% fixed income|
|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|
|New Vanguard All-Equity ETF Portfolio||Seeks to provide long-term capital growth.||VEQT||100% equity|
1 Source: 2018 Investment Funds Report, published by The Investment Funds Institute of Canada.
2 Vanguard asset allocation ETFs apply approximate home bias targets of a 30%/70% ratio of Canadian to non-Canadian equities, as well as a 60%/40% ratio of Canadian to non-Canadian fixed income securities.
3 The Vanguard 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 fund which invests in underlying Vanguard fund(s), there shall be no duplication of management fees chargeable in connection with the Vanguard fund and its investment in the Vanguard fund(s). The industry figure is the asset-weighted average management fee for F-series funds in the CIFSC Global Neutral Balanced category, as of December 2017 (Source: Strategic Insight from Investor Economics Insights, September 2018).
Commissions, management fees, and expenses all may be associated with investment funds. Investment objectives, risks, fees, expenses, and other important information are contained in the prospectus; please read it before investing. Investment funds are not guaranteed, their values change frequently, and past performance may not be repeated. Vanguard funds are managed by Vanguard Investments Canada Inc. and are available across Canada through registered dealers.
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