Mutual fund portfolios built around iShares ETFs

Most investment advisers in Canada are qualified only to sell mutual funds but not ETFs—much to the frustration of many Canadian investors seeking portfolios constructed from ETFs. But now BlackRock Canada has launched a series of mutual fund portfolios built with iShares ETFs, providing investors with one-stop shopping for asset allocation and geographic diversification.

MoneySense editor-at-large Dan Bortolotti recently explained why advisers—many of whom work at bank branches and firms such as Investors Group—can sell mutual funds and nothing else here.

But the BlackRock iShares ETF mutual funds side-step the whole issue of what advisers are and are not qualified to sell by simply creating a series of balanced mutual funds of funds that track iShares ETFs. In some ways, the strategy resembles the PowerShares Funds introduced not long ago by Invesco Canada, which allows mutual fund reps to serve customers who insisted on individual ETFs, and incidentally pay the adviser normal trailer commissions. Of course, the associated higher cost negates some of the cost advantage associated with the underlying ETFs.

Internationally this is nothing new for BlackRock, as the company currently manages mutual fund platforms in more than 35 countries including the United States.

As to be expected, these ETF mutual funds don’t necessarily come cheap, as there are also trailing commissions attached to compensate advisers for their services (albeit not in a highly visible way). For instance, a BlackRock all-bond portfolio has a projected MER of 1.30% (of which 0.50% goes to your adviser), while its iShares ETF global equity portfolio boasts a projected MER of 1.81% (of which 1.0% goes to your adviser).

These A-series balanced mutual funds may not be attractive or appropriate for those with discount brokerages and who are comfortable making their own calls on asset allocation and geographical mix. Sophisticated DIY investors can buy ETFs directly (not to mention comparable index mutual funds) dramatically cheaper on their own.

But these new iShares portfolios do provide a reasonable option for those who want access to the combination of strategic asset management and the iShares ETF platform. Moreover, actively-managed mutual fund portfolios typically charge MERs of 2.5%, so you could do worse in terms of getting management fees slashed back.

BlackRock’s strategic portfolio series offers seven different allocation funds across income or risk/return-oriented outcomes described below. All of these balanced funds invest primarily in iShares ETFS (or mutual funds) that are managed by BlackRock Canada or an affiliate. The fund may also invest directly in securities.

BlackRock Diversified Monthly Income Portfolio (1.75% MER): This Canadian fixed income monthly fund seeks to provide its investors with a consistent monthly cash distribution and modest long-term capital growth,  and provide exposure to 65% fixed income and 35% equity securities.

BlackRock All Bond Portfolio (1.30% MER): The Canadian fixed income fund seeks to preserve the value of your investment and provide income, and provide exposure to 100% fixed income securities.

BlackRock Defensive Portfolio (1.70% MER): This Canadian fixed income balanced fund seeks to provide investors with income and modest long-term capital growth, and provide exposure to 75% fixed income and 25% equity securities.

BlackRock Conservative Portfolio (1.70% MER): This Canadian neutral balanced fund seeks to provide investors with a balance of income and long-term capital growth, and provide exposure to 40% fixed income and 60% equity securities.

BlackRock Balanced Portfolio (1.75% MER): This global neutral balanced fund seeks to provide its investors with a balance of long-term capital growth and income, and provide exposure to 60% equity and 40% fixed income securities.

BlackRock Growth Portfolio (1.75% MER): This global equity balanced fun seeks to provide its investors with long-term capital growth and modest current income, and provide exposure to 75% equity and 25% fixed income securities.

BlackRock Max Growth Portfolio (1.81% MER): This global equity fund seeks to provide its investors with long-term capital growth, and provide exposure to 100% equity securities.

A simplified prospectus detailing fees, expenses, dealer compensation and further information on these products can be found here.