Balanced ETFs have aced the first serious test of their potential to bring smart, sensible investing to investors of all types.
Through the sharp stock market downs and ups of the past 12 months, these easy-to-buy funds made a strong case for chucking individual stocks and ETFs and instead buying a fully diversified ETF portfolio in a single bundle.
Balanced exchange-traded funds go by a few different names – asset allocation, all-in-one and one-click funds, to name a few. What all these products have in common is that they rope together bond and stock market ETFs into configurations suiting conservative, middle-of-the-road and aggressive investors.
Choose the mix of assets that suits your needs and keep adding money over the years via an account at an online broker or a trading app. As you’ll see in this sixth and final installment of the 2021 Globe and Mail ETF Buyer’s Guide, balanced ETFs managed the sharp stock market decline in the first quarter of 2020 and wired investors directly into the subsequent rally. (The S&P/TSX Composite Index fell 20.9 per cent in the first three months of last year; the S&P 500 dropped 20.5 per cent in U.S. dollars.)
Use this installment of the ETF guide to examine the different asset mixes used by various ETF companies and how they played out in both the good and bad periods of the past 12 months. There are now roughly 50 balanced ETFs in total. The guide covers funds that have a history of at least one year and offer true balance by combining both stocks and bonds. (There are a few funds that deliver exposure to Canadian, U.S. and international stock markets without bonds.)
Almost all of the balanced ETFs covered here are “fund of funds,” which means they hold individual stock and bond ETFs from the same corporate family. Typically, there are seven or eight individual funds in a balanced ETF, comprising bonds from Canadian and, sometimes, U.S. and international, issuers plus stocks from Canada, the United States and international markets (outside North America). Balanced ETFs each follow guidelines on how much of the portfolio to keep in each asset class and they rebalance periodically to ensure investors stay on target.
Click here to download an Excel version of the guide.
Click here to download a PDF version of the guide.
Notes: *Bond weighting may include a small amount of cash. Market data as of April 19, 2021. Returns to March 31, 2021.
Sources: Rob Carrick; Globeinvestor.com, TMX Money, ETF company websites
Here’s a discussion of terms used in this edition of the ETF Buyer’s Guide:
Assets: Shown to give you a sense of how interested other investors are in a fund.
Management expense ratio: The MER is the main cost of owning an ETF on a continuing basis; published returns are shown on an after-fee basis. The MERs shown here include the cost of the underlying funds in a balanced ETF.
Trading expense ratio: The TER is the cost of trading commissions racked up by the managers of an ETF as they make adjustments to the portfolio of investments; add the TER to the MER for a full picture of a fund’s cost.
Stocks/bonds split: Shown as of the most recent portfolio update on ETF company websites. It’s normal for the actual split to drift a little bit from the targeted asset allocation – periodic rebalancing takes care of this.
Top three weightings: “Canadian broad bond” means a bond ETF that includes both government and corporate bonds; the “total stock market” exposure some ETFs have means large, medium and small companies; the S&P 500 and S&P/TSX Composite tend to hold larger stocks.
Returns: Total returns (price changes plus dividends and bond interest) for the past one-year and three-year periods are included. To remind investors how balanced ETFs did in the crash of 2020, returns for the first quarter of that year are included as well.
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Rob Carrick