MultiAsset ETFs – VGRO vs XGRO vs ZGRO

The Canadian ETF space has been undergoing some intense competition over the past few months. The big problem for retail investors has been to mix and match various ETFs to find a good balanced diversified multi-asset portfolio. How much weightage do you give stocks & bonds, how much per geographical region, hedge currencies or not….the choices are endless and overwhelming. Also, this came with the problem of rebalancing regularly and making the appropriate purchases on a regular basis.

The Canadian ETF providers have thus launched the all-in-one multiasset ETFs which addresses these problems and fills the gap in the market. I have received a few questions on this front, so I will try to provide a simple overview on this front. While there are different ETFs with different weighting based on risk tolerance (growth vs balanced vs conservative portfolio ETFs), this post will look at the growth-oriented series, since that seems to garner the most attention from the readers.

The three comparable growth multi-asset ETFs compared in this post are:

  • Vanguard Growth ETF Portfolio (TSE: VGRO)
  • iShares Growth ETF Portfolio (TSE: XGRO)
  • BMO Growth ETF (TSE: ZGRO)

All three have an approx 80/20 stocks/bonds approach.

MultiAsset ETFs

MultiAsset ETFs are what they sound like, a single ETF that hold multiple assets in it – i.e., both stocks and bonds to provide a one-stop shop for retail investors to follow a buy-and-forget couch potato style investing approach. I am a big fan of using ETFs and recommend it for most people who are not familiar with investing, or do not want the risk of researching and monitoring individual companies, or simply do not have the time to dedicate to follow various stocks in the public investing markets.

In fact, I use ETFs in my portfolio as I follow a multi-pronged approach to investing – ETFs for broad diversification & market returns, dividend growth stocks for more concentrated investing and potential over or underperformance, and high growth stocks (potential moonshots).

Companies like Blackrock have had multi-asset ETF for a while. In fact, the iShares Core Growth ETF Portfolio (CBN.TO) underwent a reinvention after Vanguard entered the market and changed ticker & dropped expense fees to go head-to-head against Vanguard (Blackrock dropped the word “core” from the name, changed the ticker to XGRO and dropped fees from 0.84% to 0.18%).

Comparison – Fees

One of the most important considerations when it comes to picking ETFs is the fees. Luckily for us retail customers, these fees have been driven lower due to competition. The management fees are:

  • Vanguard VGRO = 0.25%
  • iShares XGRO = 0.18%
  • BMO ZGRO = 0.20%

Blackrock (iShares) is the clear winner here, having dropped its fees from 0.84% to 0.18% in 2018. However, Vanguard is known to routinely cut expenses on its funds, so I wouldn’t be too surprised if they cut their fees further as the competition heats up.

Comparison – Yield

  • Vanguard VGRO = 2.02%
  • iShares XGRO = 2.43%
  • BMO ZGRO = (no announcement yet)

Again, Blackrock XGRO is the clear winner here with a higher yield. It will be interesting to see what the yield from BMO ZGRO will be once the first quarter ends. I will update this post when the data becomes available.

Comparison – Portfolio Composition

Each ETF has a slightly different portfolio composition. A quick overview of the composition is presented below in a table.

I have combined the various ETFs which belong to the same asset class to provide a simplified view (for e.g. Blackrock XGRO holds two different ETFs for Canadian bond market – one for government bonds and one for corporate bonds).

Growth ETF Portfolio Composition

Some comments:

  • Vanguard VGRO
    • Vanguard gives Canadian equities a bigger piece of the pie at 23%
    • Vanguard is the only fund that has ex-North America exposure in the bond market
    • Vanguard tends to favor the FTSE index for its weighting and composition (XGRO & ZGRO use MSCI index).
    • The non-Canadian bonds are CAD-hedged
  • iShares XGRO
    • iShares provides more exposure to US market, and since US companies in general have a more global reach, results in more global exposure
    • iShares has a very low EM equity exposure at only 3.9%
    • Another advantage of using iShares is that they offer DRIP/PACC/SWP programs, so you can really put this on cruise control by setting this up one time and automating it. Click here for details.
  • BMO ZGRO
    • BMO uses S&P 500 for US equity exposure (VGRO & XGRO use US Total Stock Market instead).
    • BMO has a higher EM equity exposure at 7.1%
    • BMO also has a high Canadian bond market exposure at ~18%
    • The non-Canadian bonds are CAD-hedged

Conclusion

It is really hard to choose between the three funds. I am considering transitioning Baby R2R’s RESP and my wife’s RRSP portfolios over to use these one-fund solutions. To be honest, I have been staring at this comparison for over a month and end up with analysis paralysis. In a decade, I’m sure the difference in results will be minimal and we will be hard pressed to justify one against the other. If I had a gun to my head and had to pick one, I suppose I would go with the iShares Growth ETF Portfolio (XGRO) option for three main reasons (1) lower management fee, (2) higher yield, and (3) higher US exposure (which provides a more global reach since 1/2 the revenue of S&P 500 companies comes from overseas).

What are your thoughts on this? Do you use ETFs and have considered switching to the one-fund solution? Share your thoughts below.

Full Disclosure: None. Our full list of holdings is available here.

11 thoughts on “MultiAsset ETFs – VGRO vs XGRO vs ZGRO

    • Glad you like it, Bob.

      Fees does make a big difference over the years. This competition between the ETF providers is great news for us consumers as the fees keeps falling towards 0.

      cheers
      R2R

  1. Su-Chong says:

    I get that differences in MER are small, but in a $100k TFSA portfolio the difference between 0.18% and 0.22% would add up to $40 a year, without needing to do anything except make the right choice once. (Of course the higher costing product may very well lower its cost over the years, but then you can make a reasonable logical decision at that time).

    Regarding foreign with-holding taxes, ZGRO holds 20% ZEA, and the foreign assets are held largely through directly held shares, whereas the competition (Vanguard, Blackrock) holds the foreign assets indirectly through US based shares, which attract US foreign with-holding tax, even on non-US asset derived dividends. I just checked ZEM, the 7% Emerging Markets component of ZGRO, and it consists of about 30% iShares holdings (US based shares), and the rest directly held. That does make a consistent difference, although small.

  2. Anthony says:

    Thanks for addressing this question. I came to the same conclusion and started buy XGRO, I overlooked that only ZGRO is tracking S&P500. What is the potential impact on growth comparing that to US Total Stock Market? Has anyone given thought to buying two or three with time for even broader diversification?

    • The total stock market will provide a better diversification at the risk of being spread too thin. Its a tradeoff and depends on your outlook for difference indices. Unfortunately, we cant answer this question now and we will only know in hindsight 5,10,20 yrs later that one was better than the other.

      R2R

  3. Ian says:

    You should note that the MER for ZGRO and XGRO are yet to be determined, as the funds are only a few months old. They both have the same listed expense ratio (0.18) and BMO provides an estimated MER of 0.20, but we won’t know the true MER until February 2020.

  4. Bob Loblaw says:

    I believe you’ve quoted the XGRO MF rather than the MER. It is expected that both XGRO and ZGRO will have MFs of .18% and MERs of .20% or .21%. I love the simplicity of these offerings and intend to make switch soon, of 75% of my stash, adding a REIT ETF and a preferred share ETF.

Leave a Reply

Your email address will not be published. Required fields are marked *