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Asset allocation ETFs are one of the greatest investing innovations ever because they make it so easy to invest in a well-diversified portfolio.

But there’s a variation on these exchange-traded funds that gets low grades on diversification, even while offering serious appeal to aggressive investors. These ETFs hold an all-equity portfolio – no bonds. They’re suitable for young investors in their 20s and early 30s, for risk-tolerant investors of older generations and for people who want a quick, one-stop way to take advantage of buying opportunities in the stock market.

The Vanguard, iShares, Fidelity and BMO ETF families offer this type of fund – the tickers, respectively, are VEQT, XEQT, FEQT and ZEQT. The Horizons version of this product is HGRO. These ETFs all divide their holdings into global stock markets, usually using underlying ETFs that target the S&P/TSX Composite or S&P/TSX 60 indexes, the S&P 500 or similar, the MSCI EAFE Index or similar, and the MSCI Emerging Markets Index or similar. The Fidelity version has a 2.4-per-cent weighting in cryptocurrency.

Costs are very reasonable for these funds, as is generally the case with asset allocation ETFs. Expect management expense ratios in the 0.2-per-cent to 0.4-per-cent range, which is cheap for a product that channels your money into multiple global stock indexes and rebalances as required.

Most people, particularly those investing for five to 10 years and longer, would be better off with a conventional asset allocation ETF targeted at balanced or growth investors. In these funds, you’d have 20 per cent to 40 per cent of assets in bonds.

But when stock markets are flying, an all-equity version of these ETFs has its benefits. VEQT, for example, with a substantial $2.2-billion in assets, produced a total return of 19.6 per cent in 2021, and it was down 11.4 per cent for the first seven months of 2022. HGRO made 22.3 per cent last year and lost 13.9 per cent year to date. These numbers highlight how different stock index blends can affect returns, and also the risk-reward profile of all-equity asset allocation ETFs.

Last year was a great year for stocks, so these ETFs crushed it. This year has been a challenge, so these ETFs are struggling. Want to catch the next stock market surge higher? All-equity asset allocation ETFs might be the answer.

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