Asset allocation ETF have gained reputation for offering a simple plan for long-term investing success
This year is shaping up as a decisive one for exchange-traded fund companies taking out their trash.
Think of asset allocation ETFs as a much cheaper version of the mutual fund industry’s ever-popular balanced funds. ETF companies previously made only half-hearted attempts to compete with balanced mutual funds. That changed five years ago, when the Canadian arm of the U.S. investing giant Vanguard introduced a trio of asset allocation ETFs pitched at mainstream investors and their advisers.
The recent anniversary for the three Vanguard funds is significant because five years is considered long enough to get the measure of a fund’s ability to deliver consistently competitive returns. The five-year numbers are less flattering for the $477-million Vanguard Conservative ETF Portfolio , which has spent time in the bottom two quartiles.
Other ETF companies offering asset allocation funds include Bank of Montreal, Fidelity, Franklin Templeton, Horizons, iShares, Invesco, Mackenzie, and Toronto-Dominion Bank. You can compare on costs – some Vanguard competitors have MERs of 0.2 per cent – as well as the extent of portfolio diversification beyond Canadian bonds and stocks. Noteworthy in this regard is Fidelity’s decision to include a very small cryptocurrency weighting in its asset allocation ETFs.
While the cost of asset allocation ETFs is quite low, it’s a little more expensive than assembling your own portfolio of ETFs. Vanguard said the MER premium for owning its original asset allocation funds amounts to roughly 0.07 or 0.08 per cent.
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