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 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 MERs (management expense ratio) 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).
- 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
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 MER, (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.