This post may contain affiliate links. Please read my disclosure for more info.

All-in-one ETFs by Vanguard, iShares, BMO and other ETF providers can make investing much cheaper and easier for Canadian investors, whether you are a veteran or you are just starting your investment journey.

In 2018, Exchange-Traded Funds (ETFs) sales continued to grow in Canada with net sales exceeding mutual funds sales for the first time since 2009

This is not surprising. Like I have been saying for a while, Canada’s expensive mutual funds (highest in the developed world) and less-than-stellar active management performance will eventually face a day of reckoning. While we are not there yet, that day is closer than ever, and the Big Banks are starting to notice.

To cut investment fees, investors can follow one or a combination of options:

1. Do-it-yourself investing

DIY completely by using a discount brokerage account to purchase individual stocks, low-cost ETFs, etc. This option requires that you are comfortable with the idea of allocating assets inside your portfolio to match your risk tolerance and investment objectives. You also need to be willing /able to re-balance your portfolio as required from time to time.

With the advent of all-in-one ETF portfolios, it has never been easier to jump on the do-it-yourself investing bandwagon.

2. Use a robo-advisor

These online wealth managers use low-cost ETFs and do all the work for you so there’s no need to fret over portfolio diversification or re-balancing. In exchange, they charge a ‘small’ management fee.

When you open a new account, robo-advisors ask you some questions to determine your risk tolerance, time frame, and investment objectives. You can update your preferences later if required and can also easily set up automatic contributions to your account.

Compare Canada’s Best Robo-Advisors here. 

Investment fees are not the be-all and end-all of investing. However, they are very important, particularly when you realize that active mutual fund managers rarely live up to their hype, and the investment returns that matter to you in the long-run are ‘net’ of fees.

All-in-One ETF Portfolios for Investors in Canada

All-in-One ETF Portfolios in Canada

In the past year, we have seen Vanguard pioneer all-in-one asset allocation ETFs in Canada and closely followed by the other major ETF providers – iShares, BMO and Horizons.

These all-in-one low-cost ETF portfolios serve as a fund of funds with each one built using several underlying ETFs and essentially serving as a basket for tens of thousands of securities. They are pre-designed to satisfy investors with varying risk profiles.

These complete portfolios make it extremely easy to hold a diversified portfolio as a do-it-yourself investor and not have to worry about re-balancing or high management fees. Simply ‘set-it and (almost) forget-it.’

Vanguard All-in-One ETF Portfolios

1. Vanguard Conservative Income ETF Portfolio (VCIP): This portfolio seeks to provide a combination of income and some long-term capital growth by investing in equity and fixed income securities. It is made up of 7 underlying Vanguard ETFs.

  • Asset allocation: 80% fixed income and 20% equity
  • Management fee*: 0.22%

2. Vanguard Conservative ETF Portfolio (VCNS): Seeks to provide a combination of income and moderate long-term capital growth. It is made up of 7 underlying ETFs.

  • Asset allocation: 60% fixed income and 40% equity
  • MER: 0.25%

3. Vanguard Balanced ETF Portfolio (VBAL): Seeks to provide long-term capital growth with a moderate level of income. It consists of 7 underlying Vanguard ETFs.

  • Asset allocation: 60% equity and 40% fixed income
  • MER: 0.25%

4. Vanguard Growth ETF Portfolio (VGRO): Seeks to provide long-term capital growth. It consists of 7 underlying Vanguard ETFs.

  • Asset allocation: 80% equity and 20% fixed income
  • MER: 0.25%

5. Vanguard All-Equity ETF Portfolio (VEQT): Seeks to provide long-term capital growth and consists of 4 underlying ETFs.

  • Asset allocation: 100% equity
  • Management fee*: 0.22%

*The MER is not yet available because these funds are less than 1 year old. The overall annual fee is expected to be 0.25% similar to the other Vanguard funds.

iShares All-in-One ETF Portfolios

1. iShares Core Balanced ETF Portfolio (XBAL): Seeks to provide long-term capital growth and income and is made up of 8 underlying iShares ETFs. 

  • Management fee*: 0.18%
  • Asset allocation: 60% equity and 40% fixed income

2. iShares Core Growth ETF Portfolio (XGRO):  Seeks to provide long-term capital growth and is made up of 8 underlying iShares ETFs.

  • Management fee*: 0.18%
  • Asset allocation: 80% equity and 20% fixed income

*The MER is expected to come in at around 0.20% to 0.21%.

BMO All-in-One ETF Portfolios

1. BMO Conservative ETF (ZCON): Seeks to provide income and moderate long-term capital appreciation and consists of 7 underlying BMO ETFs.

  • MER: 0.20%
  • Asset allocation: 60% fixed income and 40% equity

2. BMO Balanced ETF (ZBAL): Seeks to provide moderate long-term capital appreciation and income. It is made up of 7 underlying BMO ETFs.

  • MER: 0.20%
  • Asset allocation: 60% equity and 40% fixed income

3. BMO Growth ETF (ZGRO): Seeks to provide long-term capital appreciation and is also made up of 7 underlying BMO ETFs.

  • MER: 0.20%
  • Asset allocation: 80% equity and 20% fixed income

Horizons All-in-One ETF Portfolios

1. Horizons Balanced Tri ETF Portfolio (HBAL): This one-ticket solution portfolio seeks long-term capital growth. It currently holds 9 underlying Horizons ETFs.

  • MER: 0.20%
  • Asset allocation target: 70% equity and 30% fixed income

2. Horizons Conservative Tri ETF Portfolio (HCON): Seeks moderate long-term capital growth and is comprised of 9 underlying Horizons ETFs.

  • MER: 0.18%
  • Asset allocation target: 50% equity and 50% fixed income

Vanguard vs. iShares vs. BMO vs. Horizons One-Ticket ETFs

I generally like all the one-ticket solution ETFs provided by the major ETF providers in Canada. While I tend to be biased in favour of Vanguard given their historical leadership when it comes to providing everyday investors with cost-saving opportunities in the financial markets, the others are great as well.

In fact, iShares, BMO, and Horizons are currently beating Vanguard slightly on fees at up to 5 basis points (0.05%). Not much, but worth noting for the cost-conscious investor.

There are also some subtle differences between the different portfolio offerings by these providers.

For example, Vanguard’s fixed income consists of U.S., Canada, and international bonds, whereas for iShares, the fixed income component only consists of U.S. and Canadian bonds. You will also find some variations in how the different providers allocate their share of Canadian, U.S., and international equities.

Horizons uses a type of derivative (swaps) as part of the investment strategy for their one-ticket ETF offerings.

All the aforementioned all-in-one ETF portfolios are re-balanced to keep their asset allocation within the target range. For example, BMO re-balances on a quarterly basis, while Horizons does it semi-annually.

What is an ETF and Why Should You Use Them?

An ETF is similar to a mutual fund in that it is a basket of securities that tracks a market index. Unlike mutual funds, however, the market price of an ETF fluctuates during the trading session similar to stocks (Equity) and they are bought and sold on an exchange at the market price.

Broadly, there are two types of ETFs – passive and actively managed.

Index (passive) ETFs attempt to replicate the performance of the broad index they are tracking e.g. S&P 500, while active ETFs are similar to mutual funds and aim to beat the market. The low-cost ETFs discussed in this post are index-style ETFs for the most part.

For more details on ETFs, click here.

Some of the core benefits of ETFs include:

1. Lower Fees: The management expense ratio (MER) charged by ETFs is much lower than mutual funds with annual costs as low as 0.06% compared to 2% or more for the average equity mutual fund. Over time, lower fees may translate into higher returns.

2. Diversification: An ETF can hold hundreds to thousands of stocks, bonds, commodities, currencies, and real estate on a global basis, providing investors with diversification across asset classes and Geo-locations.

They also come with some downsides:

1. Trading fees: If you are an investor hoping to purchase a few ETFs monthly to add to your portfolio, the transaction fees can add up. There are now options to purchase commission-free ETFs in Canada, so this is no longer a big issue.

That being said, frequent small-size trading using an online discount brokerage that charges commissions on either buy or sell side can easily wipe out the savings from lower MERs.

2. Re-balancing: Unless you are using a robo-advisor or all-in-one ETF, you will need to re-balance your portfolio 1-2 times a year when the asset allocation significantly strays from its desired target due to variations in price fluctuation for different assets.

Conclusion

Investing success can be all about your costs. Over time, investment fees can significantly erode your returns and negatively impact your retirement savings.

All-in-one ETF portfolios are already designed to fit the different spectrum of investors’ risk appetites and you can easily switch between funds if your financial situation changes.

If you’d rather not get your hands dirty with DIY investing, you can still enjoy the benefits of low-cost ETF investing by using one of Canada’s best robo-advisors (such as Wealthsimple).

Related Reading:

ETF investing the easy way. All-in-one ETF portfolios are a great way to grow your wealth when you are just starting to invest. You save on investment fees and there are no hassles with re-balancing your portfolio. #financetips #investingmoney #ETFinvesting #startinvesting #moneymanagement #passiveincome #investing101