Best ETFs 2018 - One-stop portfolios

Overview Canadian U.S. International Fixed-Income All-in-one ETFs

As noted earlier, the panel was unanimous in creating a new All-Star category around what Vanguard calls “Multi-Asset” ETFs. We will offer one-stop or one-decision portfolios as a catchier moniker. Many MoneySense readers will hold ETFs in registered portfolios – chiefly RRSPs, RRIFs and TFSAs – and any of the three new AA ETFs can provide for these vehicles everything the All-stars were designed to do: asset allocation, international diversification and low-cost (0.22%), with automatic rebalancing to boot. Vanguard Canada spokesperson Matthew Gierasimczuk says all three of the new funds “rank among our best-selling ETFs since launch.” VGRO has been the most popular.

However, one area where our panel was less enthused about the three asset allocation ETFs was in taxable portfolios. Asked to clarify the new products’ tax efficiency, Vanguard referred us to PWL’s comments on the tax efficiency (both registered and non-registered) of the new AA ETFs that ran online here.

Perhaps the second foot will fall next year but in the meantime, our panel views our long-standing picks as more tax efficient in non-registered portfolios: particularly in Canadian equities: Horizons’ HXT and in fixed income, First Asset’s BXF, and BMO’s ZPR.

While VGRO makes a lot sense for small-ticket purchases in TFSAs, especially for those with a long time horizon – and VBAL or VCNS for older folks who will soon need to draw income from RRSPs or RRIFs – admittedly it may be difficult to incorporate asset allocation ETFs into large existing portfolios. Clearly, nothing prevents investors from cherrypicking the Vanguard ETFs to bolster asset classes in which they may be underrepresented, which is one reason we considered adding VGB and VBU in a new category of International Fixed Income.

B.C.-based fee-only advisor Fred Kirby – who was an All-star panelist in the first few years – recently issued an advisory to his clients on the Vanguard packages. “Whenever a number of people contact me about the same subject I can be sure that many others are interested too,” Kirby begins, “My only quibble with these portfolio ETFs is that the equity portion has a tiny allocation to REITs (about 1%), no currency hedging on the equity side and of course no opportunity to customize and use other assets such as GICs unless one wishes to do that separately.

“There is also an issue with account location whereby like with any other balanced fund, the most tax efficient allocation of investments among registered, taxable, and TFSAs is lost. On the positive side, I can see a very interesting use for these ETFs for those who want to be a little more in control and active. When the markets are bullish, focus on the 60% and 80% equity allocation ETFs and when bearish or uncertain switch to the more conservative 40% equity allocation.”

ONE-DECISION PACKAGES (New Category)	Ticker	Management Fee	# of Holdings	Description
NEW! Vanguard Growth ETF Portfolio	VGRO	0.22	23000	Holds 7 Vanguard ETFs, 80% equities versus 20% bonds
NEW! Vanguard Balanced ETF Portfolio	VBAL	0.22	23000	Holds 7 Vanguard ETFs, 60% equities versus 40% bonds
NEW! Vanguard Conservative ETF Portfolio	VCNS	0.22	23000	Holds 7 Vanguard ETFs, 40% equities versus 60% bonds

About Jonathan Chevreau

As MoneySense’s Investing-Editor-at-Large, he is also author of Findependence Day and co-author of Victory Lap Retirement. Reach him at [email protected], where he is the founder of Financial Independence Hub.