The asset allocation ETF started out as a way to give investors quick, cheap and easy access to portfolios with professional-grade diversification.
It turns out there’s demand for asset allocation ETFs that aren’t quite so diversified. BMO ETFs recently launched the BMO All-Equity ETF (ZEQT), which joins the Vanguard All-Equity ETF Portfolio (VEQT), the iShares Core Equity ETF Portfolio (XEQT), the Horizons Growth TRI ETF Portfolio (HGRO) and the Fidelity All-In-One Equity ETF (FEQT) on the shelf of exchange-traded funds for people whose idea of a complete portfolio doesn’t include bonds.
The case for an all-equity asset allocation ETF is that you get the global stock market served up on a platter. ZEQT’s holdings are spread out as follows: 42 per cent in the S&P 500, 26 per cent in the S&P/TSX Capped Composite Index, 20 per cent in the MSCI EAFE Index and 9 per cent in the MSCI Emerging Markets Index. The rest is in U.S. small- and mid-cap indexes.
Fees are one key point of comparison between these all-equity asset allocation funds. Management expense ratios for ZEQT, XEQT and HGRO are in the 0.16 per cent to 0.2 per cent range, while VEQT is at 0.24 per cent and FEQT should be in the area of 0.4 per cent.
Another point of comparison is the asset mix – country weightings differ, as do the indexes used to target a particular country. For example, HGRO’s 54 per cent U.S. weighting comprises a 33 per cent helping of the Solactive US Large Cap Index and a 21 per cent weighting in the tech-dominated Nasdaq 100. Typically, asset allocation ETFs don’t focus on a particular sector like this. One other philosophical difference worth noting is the 3 per cent cryptocurrency weighting in FEQT.
All-equity asset allocation ETFs have attracted roughly $3-billion, which makes sense in the kind of bull market conditions we’ve seen since March, 2020. But these funds aren’t just for risk junkies who want a pure play on stocks.
To add a safety margin, consider partnering an all-equity ETF with some guaranteed investment certificates or individual bonds. Yes, bond ETFs are another potential pairing. But if that’s your plan, you may just as well buy an asset allocation ETF that mixes equities and fixed income. Really, that’s the selling point of these products: a diversified portfolio of stocks and bonds, wrapped in a single package.
-- Rob Carrick, personal finance columnist
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Stocks to ponder
Constellation Software Inc. (CSU-T) Constellation’s stock has now posted positive returns in 15 consecutive calendar years. It has never had a down year. And since its IPO in 2006, Constellation’s shares have returned an average of 37 per cent annually. That beats even the U.S. tech and internet giants, such as Apple Inc. and Amazon.com Inc., over the same time frame. But Constellation has not been immune to the recent convulsions in the tech sector globally; the company’s shares declined by 15 per cent over the first few weeks of the year. As Tim Shufelt reports, that’s a signal to some to buy the stock.
The Rundown
The worst nightmare for income investors is coming. Here’s how to prepare
What’s the worst thing that can happen to an income investor? A long period of inflation. Unfortunately, that’s what seems to be coming. Income investors are particularly vulnerable for two reasons. First, rising inflation will erode the purchasing power of the cash flow they receive from their securities. Second, rising interest rates will tend to drive down the market values of many of their investments, such as bonds, some types of preferred shares, and interest sensitive stocks. But some investments may still muddle through just fine. Gordon Pape looks at a couple of them.
As tech stocks struggle, will investors prefer profits over growth?
Don’t look now, but investors who once were content to invest in technology companies with scant net earnings or inconsistent revenue growth may be starting to expect them to make money. The result: Some tech stocks have been on a roller-coaster over the past month. As David Berman reports, the shift may be creating some opportunities for investing in the beaten-up stocks of companies with strong potential.
Where exactly are we in the economic cycle? Right now, it’s hard to tell
The economy normally follows a well-worn pattern known as the business cycle. The cycle starts turning with a burst of vigorous expansion. Then comes a long patch of more moderate growth. Eventually a slowdown occurs, which leads to a recession that clears out the excesses of the past cycle. This sets the stage for a new expansion to kick the cycle into gear all over again. The first job of every smart investor is to know where in the cycle we are. But, right now, that is difficult, because things are moving so fast. Ian McGugan sizes up the situation.
What $6.3-billion fund manager Craig Jerusalim is buying and selling amid a ‘massive rotation’ to value stocks
Craig Jerusalim may be known as a growth-oriented investor, but the multibillion-dollar money manager is seeing a lot of opportunities in the market shift toward value stocks in today’s rising-interest-rate environment. Brenda Bouw speaks with Mr. Jerusalim about what he’s been buying and selling and the advice he gives friends and family about investing.
A global investing giant decides bitcoin belongs in balanced funds
The Canadian arm of one of the world’s largest money managers has decided there’s a place for cryptocurrency in the portfolios of everyday investors, even those who see themselves as conservative. As Rob Carrick reports, a small bitcoin weighting can be found in each of the four All-In-One exchange-traded funds offered by Fidelity Investments Canada.
Crypto investors face more uncertainty after rocky start to 2022
Worries that an aggressive central bank tightening cycle going forward will hamstring risky assets has made it difficult for some traders to maintain their bullish outlook on bitcoin and other cryptos, an asset class already identified with intense volatility. But bitcoin’s volatility hasn’t stopped some analysts from trying to gauge the currency’s fair value or point out potentially important price levels. John McCrank of Reuters reports.
Others (for subscribers)
The most oversold and overbought stocks on the TSX
Goldman Sachs cuts S&P 500 forecast to under 5,000 as inflation worsens
Monday’s analyst upgrades and downgrades
Insider Report: Chair invests nearly $2-million in this stock that soared 8% on Friday
Ask Globe Investor
Question: I am a Canadian citizen living abroad for 20-plus years. I have not filed taxes in Canada in several years as I am a non-resident. The country I live in does not have a tax treaty with Canada. I would like to start investing in the Canadian stock market. What are the tax implications for non-residents? Are there other issues I should take into consideration before I begin this process?
Answer: There are a couple of things to consider here. First, according to the Canada Revenue Agency website, you are in fact obligated to file a tax return in this country even though your country of residence does not have a treaty with Ottawa. However, only certain types of income are subject to Canadian tax. Read the details here.
Dividends and capital gains are among the types of income that may be taxed by the CRA.
If you still want to proceed with investing in the Canadian market, you will need to find a broker who will accept you as a client. My broker at CIBC Wood Gundy checked with that company’s compliance department and was told yes, they would accept you.
--Gordon Pape
What’s up in the days ahead
How should investors approach holding companies? David Berman will share some thoughts.
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Compiled by Globe Investor Staff