By Anna Sharratt on January 23, 2024
Estimated reading time: 9 minutes

Building a “core and explore” portfolio with an all-in-one ETF

By Anna Sharratt on January 23, 2024
Estimated reading time: 9 minutes

For investors who want a resilient, diversified “core” of investments, all-in-one ETFs can provide a simple and effective solution.

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Photo by Karolina Grabowska from Pixabay

Investing shouldn’t be all or nothing, with investors forced to choose products that solely correspond to their risk tolerance and offer little flexibility. That’s why some people take a “core and explore” (or “core and satellites”) approach to building their portfolio. With this approach, investors can allocate the majority of it—80% to 90%—to a core of diversified holdings, like broad-market index funds, and the rest toward speculative or more volatile opportunities, such as emerging sectors and cryptocurrencies.

For investors who embrace this hybrid strategy, new all-in-one exchange-traded funds (ETFs) can offer a one-ticket solution for their portfolio’s core. Many all-in-one ETFs are lower-cost investments that are bundled together so that investors don’t have to track or manage them. These products often include ETFs and pooled stocks and bonds, which are rebalanced, if the investment mandate permits.

With an all-in-one ETF as their portfolio’s core, investors can then be a little bolder with their room to explore. Here’s what to consider before getting started.

Take stock of your needs

All-in-one ETFs can be appropriate if you have a medium- to long-term savings goal, such as home renovations, a sabbatical or retirement.

First, consider how much you need to save, how much stable income you’ll have from other sources and when you’ll need your money. Think about your risk tolerance, as well. Are you a cautious type or more adventurous? What is your investment horizon? Is your financial position better suited for an investment with fewer ups and downs or one that’s more volatile but has the potential for higher long-term returns?

For example, Fidelity All-in-One Balanced ETF (FBAL) is a low- to medium-risk option, with a mix of approximately 59% global equity, 39% global fixed income and 2% cryptocurrencies (as at Oct.31, 2023]. If you’re a less conservative investor with an eye for growth, Fidelity All-in-One Growth ETF (FGRO) has a higher equity weighting, with approximately 82% global equity, 15% global fixed income and 3% cryptocurrencies (as at Oct. 31, 2023) and has a medium level of risk. Both ETFs were launched in 2021.

Two more funds, Fidelity All-in-One Conservative ETF (FCNS) and Fidelity All-in-One Equity ETF (FEQT), joined the program in 2022. The more conservative of the two, FCNS, offers a global multi-asset strategy with a neutral mix of approximately 40% global equity, 59% global fixed income and 1% cryptocurrencies (as at Oct. 31, 2023) and has a low-to-medium level of risk. FEQT has a neutral mix of approximately 97% global equity and 3% cryptocurrencies (as at Oct. 31, 2023) and has a medium level of risk.

You can hold Fidelity’s All-in-One ETFs in a tax-free savings account (TFSA), registered retirement savings plan (RRSP), first home savings account (FHSA) or registered education savings plan (RESP).

Decide how much of your portfolio will be the “core”

Core holdings are usually investments that strive for consistent results. They typically include a mix of equities and fixed income, weighted to the investor’s risk tolerance. The core can be globally diversified across countries and regions—Canada, the U.S. and international markets.

If you’re younger and have a longer time horizon, you’ll probably have a portfolio that’s more geared towards longer-term investments. On the other hand, if you have a shorter time horizon, you might want to have more in the core than in any satellite position.

Choose your “explore” investments

Once you’ve determined the “core” portion of your investment portfolio, you can consider a range of “explore” investments—anything from initial public offerings (IPOs), special-purpose acquisition companies (SPACs), thematic funds and venture capital funds to cryptocurrencies, if eligible to be held within a type of an account.

Other popular explore options can be sustainable investments. Two possibilities to consider—for those who want the potential for aggressive growth—are technology stocks and health care investments.

Explore options tend to be more volatile than core positions.

How Fidelity All-in-One ETFs are different

For “core and explore” investors, Fidelity’s All-in-One ETFs offer one-ticket solutions diversified across regions, market caps and investment factors. The portfolios’ fixed income portions also have an active component—trying to reduce risk, be diversified and get as high of a yield as possible.

In addition to professional management, strategic asset allocation and consistent portfolio rebalancing, these ETFs offer the following management fees: FBAL’s indirect management fee is estimated to be 0.36%, FGRO 0.38%, FCNS 0.35%, and FEQT 0.39% (as at Oct. 31, 2023), though their fees will differ from time to time depending on their portfolio composition.

This article is sponsored.

This is a paid post that is informative but also may feature a client’s product or service. These posts are written, edited and produced by MoneySense with assigned freelancers and approved by the client.

An important message from Fidelity Investments Canada ULC

Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in ETFs. Please read the ETF’s prospectus, which contains detailed investment information, before investing. The indicated rates of return are historical annual compounded total returns for the period indicated including changes in unit value and reinvestment of distributions. The indicated rates of return do not take into account sales, redemption, distribution or option charges or income taxes payable by any unitholder that would have reduced returns. ETFs are not guaranteed. Their values change frequently, and investors may experience a gain or a loss. Past performance may not be repeated.

The management fees directly payable by Fidelity All-in-One ETFs are nil. The Fidelity All-in-One ETFs invest in other underlying Fidelity ETFs that charge a direct management fee and/or administration fee. Based on the weightings of underlying Fidelity ETFs, it is expected that the effective indirect management and/or administration fee for Fidelity All-in-One Conservative ETF will be approximately 0.35%, Fidelity All-in-One Balanced ETF will be approximately 0.36%, Fidelity All-in-One Growth ETF will be approximately 0.38% and Fidelity All-in-One Equity ETF will be approximately 0.39%. The actual effective, indirect fees may be higher or lower than the estimated rates shown above based on the performance of the underlying Fidelity ETFs, rebalancing events initiated by the portfolio management team of the Fidelity All-in-One ETFs and changes to the strategic allocation, which may include the removal or addition of underlying Fidelity ETFs. Actual indirect fees will be reflected in the management expense ratio (in addition to sales tax, fixed administration fees, commissions, portfolio transaction costs and other expenses, as applicable, of each Fidelity All-in-One ETF and mutual fund version), posted semi-annually.

Each of the Fidelity All-in-One ETFs has a neutral mix, which includes a small allocation to Fidelity Advantage Bitcoin ETF™ ranging between 1% and 3%. If each portfolio deviates from its neutral mix by greater than 5% between annual rebalances, it will also be rebalanced. Such rebalancing activity may not occur immediately upon crossing that threshold but will occur shortly thereafter.

The statements contained herein are based on information believed to be reliable and are provided for information purposes only. Where such information is based in whole or in part on information provided by third parties, we cannot guarantee that it is accurate, complete or current at all times. It does not provide investment, tax or legal advice, and is not an offer or solicitation to buy. Graphs and charts are used for illustrative purposes only and do not reflect future values or returns on investment of any fund or portfolio. Particular investment strategies should be evaluated according to an investor’s investment objectives and tolerance for risk. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.