The most influential ETF product of the past year or so has nothing to do with cannabis, artificial intelligence, liquid alts or any other trends of the day.
Balanced ETFs – diversified portfolios packaged into a single fund – are much more of a foundation for the future success of the ETF business. The original products in this category, the Vanguard Conservative ETF Portfolio (VCNS), Balanced ETF Portfolio (VBAL) and Growth ETF Portfolio (VGRO), were listed for trading on the TSX in late January, 2018.
Here are four things we’ve learned about them in the past year.
Investors love them
As of mid-April, the combined assets in these three funds was $1.2-billion. That’s a home run when you consider that these products are about sensible investing and have zero buzz factor. Balanced mutual funds have been a franchise product for mutual fund companies for decades. Now, the ETF industry has a formidable competitor. The potential for balanced ETFs is validated by the entrance of other ETF firms, including BMO, BlackRock’s iShares franchise and Horizons, into the balanced category
Growth is most popular
VGRO’s asset mix is 20-per-cent bonds and 80-per-cent stocks, including the Canadian, U.S., and the rest of the world, including emerging markets. That’s an aggressive mix for anyone above the age of 40 or so, yet VGRO has taken in $639-million to VBAL’s $453-million and VCNS’s $151-million. No wonder Vanguard recently added an all-stocks balanced ETF, VEQT.
Companies are competing hard on fees
The three Vanguard ETFs have management expense ratios of 0.25 per cent, which is an extremely reasonable cost for an instantly diversified portfolio where the rebalancing is done for you. Both BMO and iShares have come in with fees that should undercut Vanguard by about 0.03 of a percentage point or so.
Returns should be steady, not spectacular
VCNS delivered a total return – that’s share price change plus income from dividends and bond interest – of 4.9 per cent in the 12 months to March 31, VBAL made 5.2 per cent and VGRO made 5.4 per cent. These returns remind investors that balanced funds are about making steady progress over the long term and won’t deliver a big score. The oddity in these return numbers is how close they are, despite much different mixes of stocks and bonds. Something to watch in the future is whether VGRO produces a bigger long-term return premium over the more conservative VBAL and VCNS.