Eleven balanced funds for bargain-hunting

What are we looking for?

Deals on balanced ETFs for do-it-yourself investors.

The screen

Although recent marketing efforts have branded these vehicles as one-stop ETFs, the idea itself is not new. Also known as balanced funds, they are designed to provide investors exposure to a relatively static mix of stocks and bonds, which are rebalanced regularly so the investor doesn’t have to. That said, a clear trend is emerging: Many of these balanced exchange-traded funds use other low-cost index ETFs as component funds, allowing for exceptionally low fees to investors.

To start, I used Morningstar Direct to look at the directory of 1,036 Canadian-domiciled ETFs and narrowed the list to only those that hold a relatively static mix of stocks and bonds, of which there were 48. I then limited my search to funds that charge an MER of less than 0.75 per cent and have a Morningstar Quantitative Rating of gold, silver or bronze. Recall that this rating is Morningstar’s assessment of a fund’s prospective ability to generate positive risk-adjusted returns (also known as alpha) after fees. The rating is rooted in our analyst framework, which assesses three “pillars” that Morningstar believes are crucial to a fund’s future performance: people (the quality of the management team); process (the robustness of the investment and risk management process); and parent (organizational structure and talent retention).

This analyst framework is augmented with a machine learning algorithm to arrive at the aforementioned rating. Since the launch of the ratings in Canada, it has been found that as a group, gold, silver and bronze rated funds tend to outperform neutral and negatively rated funds over multiple periods after receiving the rating.

More about Morningstar

Morningstar Research Inc. is a leading provider of independent investment research in North America, Europe, Australia and Asia. Morningstar offers an extensive line of products and services for individual investors, financial advisers, asset managers, retirement plan providers and sponsors and institutional investors. Morningstar Direct is the firm’s multiasset analysis platform built for asset management and financial services professionals. Morningstar Canada on Twitter: @MorningstarCDN.

What we found

The ETFs that met the requirements are listed in the table along with their fee, inception date, rating, trailing performance and category. Pay particular attention to the category, which is meant to outline two dimensions: 1) the regional exposure (in today’s case, all but one fund is global); and 2) the exposure to stocks or bonds. Investors who have a short investment time horizon and hence a lower risk tolerance will likely benefit from picking funds that have higher exposure to bonds. For additional clarity, the exposure to core asset classes are listed in the table and the funds are ranked by fixed income holdings, from least exposure (or highest risk) to greatest exposure (least risk).

Note that over the past few months, two Canadian-domiciled providers have recently launched their own suites of all-in-one ETFs, namely Mackenzie Financial and Toronto-Dominion Bank. At the time of writing these suites of funds have not yet been rated by Morningstar and hence are excluded.

This article does not constitute financial advice. It is always recommended to speak to a financial adviser or professional before investing in any of the products listed here.

Ian Tam, CFA, is director of investment research for Morningstar Canada.

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