What are we looking for?
Balanced ETFs for the do-it-yourself small investor.
Over the past decade, technology, competition and scale have dramatically lowered the barriers to entry for the small Canadian investor. Today, investors with very small starting amounts who want to be well diversified can achieve a reasonable asset mix by using a combination of a discount brokerage account and an asset-allocation, or balanced, exchange-traded fund. This combination can be a good value to gain exposure to a broad number of securities – these ETFs invest in both stocks and bonds – if investors are willing to do a bit of homework to understand their risk appetite. To help with this, today I’ve used Morningstar Direct to screen for Canadian-domiciled asset-allocation ETFs that:
- Have received a Morningstar Rating Overall (also known as the Star Rating) greater than three stars. Recall the Morningstar Rating is a backward looking assessment of risk-adjusted fund returns after fees relative to their peers.
- Have received a Morningstar Quantitative Rating of gold, silver or bronze. This is Morningstar’s forward-looking assessment of a fund’s prospective ability to outperform similar funds after fees, based on five factors: people (the quality of management team); process (the effectiveness and consistency of the investment process); parent (organizational structure and talent retention); performance; and price (fees). Over the long term, gold, silver and bronze funds are expected to outperform neutral and negative funds after fees.
Please note that funds can qualify by meeting either one of the above two criteria.
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 multi-asset analysis platform built for asset management and financial services professionals. Morningstar Canada on Twitter: @MorningstarCDN.
What we found
The ETFs that have met the above requirements are listed in the table along with their associated fees, ratings and, importantly, their allocation to stocks, bonds and cash. The list is sorted by stock exposure with the lowest exposures at the top. Investors are reminded that investment time horizon is often related to risk appetite and proportion of assets allocated to equities. As time passes and investors draw closer to withdrawing investments, it is prudent to de-risk by allocating more assets into less volatile asset classes such as bonds.
This article does not constitute financial advice. It is always recommended to speak to a financial adviser or professional before investing.
Ian Tam, CFA, is director of investment research for Morningstar Canada.
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