Some new exchange-traded funds that basically give you an entire diversified portfolio in a single purchase are showing you can be successful in the ETF business by selling nutrition as well as junk food.
The three balanced ETFs introduced by Vanguard a month-and-a-half ago are off to a great start, if you judge by trading volumes on the TSX. There are close to 640 ETFs listed on the Canadian market (including multiple versions of the same fund), some of them zombie funds that barely or rarely trade on any given business day. Here's the story on the three Vanguard funds:
- Vanguard Conservative ETF Portfolio (VCNS), with a 40/60 mix of stocks and bonds, traded a daily average of 9,777 shares in the 30 trading days to March 16;
- Vanguard Balanced ETF Portfolio (VBAL), with a 60/40 mix, generated an average 30-day volume of 36,502;
- Vanguard Growth ETF Portfolio (VGRO), with an 80/20 mix, generated an average volume of 73,920.
These would be impressive numbers for any ETF. But the trio of funds from Vanguard are the sensible shoes of investing, not anything hot or trendy. It's impressive that they're building a following at a time when some ETF companies have been looking to hot sectors like marijuana stocks, blockchain technology and artificial intelligence for their new products.
The three Vanguard ETFs borrow an idea the mutual fund industry has been using for decades to make gazillions of dollars in fees. Combine some bonds and stocks from Canada and around the world and sell this more or less complete portfolio to people who value the convenience of having diversification delivered automatically.
The innovation of balanced ETFs is much lower costs. The three Vanguard balanced funds have a management expense ratio that should come in around 0.24 per cent, less than one-quarter the cost of the average comparable balanced mutual fund. You'll pay trading commissions of close to $10 to buy and sell them at some online brokerage firms, but National Bank Direct Brokerage, Qtrade, Questrade, Scotia iTrade and Virtual Brokers all offer some version of zero-cost ETF investing.
If the idea of balanced ETFs appeals to you, take a look at what Vanguard's offering and compare these funds to a couple of competitors that have quietly been in the market for years – the iShares Balanced Income CorePortfolio Index ETF (CBD) and the iShares Balanced Growth CorePortfolio Index ETF (CBN).
If you have five years-plus until you need your money and are looking for a sensible way to steadily build wealth, a balanced ETF might be just what you need. It's the nutritious option that seems to be catching on.