The asset allocation ETF started out as a way to give investors quick, cheap and easy access to portfolios with professional-grade diversification.
It turns out there’s demand for asset allocation ETFs that aren’t quite so diversified. BMO ETFs recently launched the BMO All-Equity ETF (ZEQT), which joins the Vanguard All-Equity ETF Portfolio (VEQT), the iShares Core Equity ETF Portfolio (XEQT), the Horizons Growth TRI ETF Portfolio (HGRO) and the Fidelity All-In-One Equity ETF (FEQT) on the shelf of exchange-traded funds for people whose idea of a complete portfolio doesn’t include bonds.
The case for an all-equity asset allocation ETF is that you get the global stock market served up on a platter. ZEQT’s holdings are spread out as follows: 42 per cent in the S&P 500, 26 per cent in the S&P/TSX Capped Composite Index, 20 per cent in the MSCI EAFE Index and 9 per cent in the MSCI Emerging Markets Index. The rest is in U.S. small- and mid-cap indexes.
Fees are one key point of comparison between these all-equity asset allocation funds. Management expense ratios for ZEQT, XEQT and HGRO are in the 0.16 per cent to 0.2 per cent range, while VEQT is at 0.24 per cent and FEQT should be in the area of 0.4 per cent.
Another point of comparison is the asset mix – country weightings differ, as do the indexes used to target a particular country. For example, HGRO’s 54 per cent U.S. weighting comprises a 33 per cent helping of the Solactive US Large Cap Index and a 21 per cent weighting in the tech-dominated Nasdaq 100. Typically, asset allocation ETFs don’t focus on a particular sector like this. One other philosophical difference worth noting is the 3 per cent cryptocurrency weighting in FEQT.
All-equity asset allocation ETFs have attracted roughly $3-billion, which makes sense in the kind of bull market conditions we’ve seen since March, 2020. But these funds aren’t just for risk junkies who want a pure play on stocks.
To add a safety margin, consider partnering an all-equity ETF with some guaranteed investment certificates or individual bonds. Yes, bond ETFs are another potential pairing. But if that’s your plan, you may just as well buy an asset allocation ETF that mixes equities and fixed income. Really, that’s the selling point of these products: a diversified portfolio of stocks and bonds, wrapped in a single package.
-- Rob Carrick, personal finance columnist
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Ask Globe Investor
Question: I am a Canadian citizen living abroad for 20-plus years. I have not filed taxes in Canada in several years as I am a non-resident. The country I live in does not have a tax treaty with Canada. I would like to start investing in the Canadian stock market. What are the tax implications for non-residents? Are there other issues I should take into consideration before I begin this process?
Answer: There are a couple of things to consider here. First, according to the Canada Revenue Agency website, you are in fact obligated to file a tax return in this country even though your country of residence does not have a treaty with Ottawa. However, only certain types of income are subject to Canadian tax. Read the details here.
Dividends and capital gains are among the types of income that may be taxed by the CRA.
If you still want to proceed with investing in the Canadian market, you will need to find a broker who will accept you as a client. My broker at CIBC Wood Gundy checked with that company’s compliance department and was told yes, they would accept you.
What’s up in the days ahead
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Compiled by Globe Investor Staff