Some argue that it’s unfair to simply call one fund—say, XEQT—the best of the bunch since such a one-size-fits-all fund won’t be right for all, indeed most, investors.
“The most important factor in choosing an asset allocation ETF is the investor’s risk tolerance and time horizon. A balanced ETF, for example, may not be entirely appropriate for someone who should be in a growth portfolio—or too aggressive for someone with a short-term perspective,” noted panelist Michelle Robertson. “Many people think that there is one ‘best’ option, rather than realizing that they need to choose the one that suits their particular situation.”
Fair point. For that reason, we have highlighted four funds that represent different risk/return profiles. We will recommend that students first decide which profile suits them best and then choose only between the offers of different fund companies in that segment. All the major providers—iShares, BMO, Vanguard, TD and Global X—offer portfolios of conservative (typically 40% stocks, 60% fixed income), balance (60/40), growth (80/20) and all-equity options.
Our picks for the best ETFs for asset allocation
| An ETF | A ticker | Administrative fee | MER | Holdings | Explanation |
|---|---|---|---|---|---|
| iShares Core Equity ETF Portfolio | XEQT | 0.17% | 0.20% | 5 ETFs/8,425 u/l | Globally diversified stock fund, ~45% US, 25% Canada, 25% EAFE |
| iShares Core Growth ETF Portfolio | XGRO | 0.17% | 0.20% | 8 ETFs/21,875 u/l | 80%/20% bonds portfolio. |
| iShares Core Balanced ETF Portfolio | XBAL | 0.17% | 0.19% | 8 ETFs | A classic 60/40 stock/bond portfolio in one affordable package |
| Vanguard Balanced ETF Portfolio | VBAL | 0.22% | 0.24% | 9 ETFs/>30,000 u/l | Canada’s first asset allocation fund, 2.54% yield. |
As in the past, our panel leans towards all-equity funds that are suitable for aggressive investors and/or those with long time lines. So the top vote getter was the iShares Core Equity ETF Portfolio (XEQT), followed by similar portfolios from Vanguard (VEQT) and BMO (ZEQT).
Among growth solutions, the iShares Core Growth ETF Portfolio (XGRO) topped our poll. And among balanced funds, iShares Core Balanced Portfolio (XBAL) and Vanguard Balanced ETF Portfolio (VBAL) are tied for the lead. There were no conservative funds selected by our panel, but all major fund companies have offerings in that segment with expense ratios similar to their equity-oriented portfolios.
It should be noted, too, that a few of our judges just don’t like individual funds. “These ETFs are marketed as set-it-and-forget-it solutions, but my sense is that these stocks may embed more risk than the average investor realizes,” warned panelist Aman Raina. Not only are they geographically concentrated, typically over 40% of US stocks, they are concentrated in the technology space. “The reality is that a significant portion of the returns driving these stocks are focused on micro-trading driven by AI.”
Of all the categories we cover, however, this is the one that is seeing the most price competition lately. Both BMO and Vanguard have cut fees on their asset allocation ETFs over the past year, bringing them below what was until recently the industry standard of 0.2%.
And as some of our judges point out, a single decision ETF should not serve as a solution for all accounts and investor goals. They may work in a smaller TFSA or taxable account for an investor who uses a number of ETFs (and perhaps individual stocks) in his larger retirement account. The takeaway: come up with a solution that works best for you.
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See: Asset Allocation ETFs
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