The ETF industry has suddenly fallen in love with balanced funds. For years there were only a few available. Now it seems like there is a new one announced every week.
Some of the newbies look good on paper. But we have no history to tell us how they will perform against their peers over time. There are a few exceptions, however. Here is one that I recommend.
iShares Core Balanced ETF Portfolio (XBAL)
- Type: Exchange-traded fund
- Current price: $25.35
- Annual payout: 51.2 cents (trailing 12 months)
- Yield: 2 per cent
- Risk: Low-moderate
Background: Balanced funds have not been big sellers for the ETF industry. As a result, there has not been a lot of choice until recently. Now, many more are appearing, but they don’t have any history to work with. This is one of the few exceptions. It was launched in 2007, so we have a good idea of what to expect from it.
The security: This is a balanced ETF that invests globally in a portfolio that is roughly divided 60 per cent stocks, 40 per cent bonds. It’s a fund of funds, holding assets in eight basic iShares funds.
Performance: For the 10 years to Oct. 31, this ETF generated an average annual compounded rate of return of 5.4 per cent. Year-to-date (to Nov. 26) it has returned 9.2 per cent.
Why we like it: This fund offers one-stop shopping for investors who want to hold a balanced portfolio with global reach. The risk is relatively low – when the ETF does have an off year, the loss is small. The yield isn’t high, but the average annual total return is quite acceptable.
Key metrics: The fund has $424-million in assets under management. The management expense ratio is low at 0.2 per cent.
Portfolio: The largest position is in the iShares Core S&P Total U.S. Stock ETF, which accounts for just over 29 per cent of the fund. The iShares S&P/TSX Capped Composite ETF has about a 15 per cent position. Overseas stocks, including emerging markets, represent about 18 per cent of assets. The current asset mix is 62.1 per cent equities, 37.6 per cent bonds, and the rest in cash and derivatives,
Risks: The equity component means the fund is susceptible to stock market risk, but the fixed-income segment offsets that to some extent.
Distribution policy: The fund makes quarterly distributions that vary in amount. The trailing 12-month total is 51.2 cents.
Who it’s for: This ETF is suitable for low-risk investors who want a balanced portfolio with modest quarterly income.
How to buy: This ETF trades on the Toronto Stock Exchange. Average daily volume is almost 38,000 units so you should have no problem getting a fill.
Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca/subscribe
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