A look at how people are using the best all-around investing product. Plus, top stock picks from our new Readers’ Portfolio

   2024-05-31 18:05

Half the greatness of asset allocation ETFs is that they’re a cheap, easily accessible and effective way to invest.

The other half is that these products are well-used. Over $25-billion has flowed into asset allocation funds since Vanguard popularized them six years ago. In a recent strategy note, the ETF team at TD Securities said the amount of money in these funds “consistently continues to grow like a weed each month.”



Asset allocation ETFs are a fund-of-fund product where an ETF company bundles six or so of its stock and bond funds into a single portfolio that offers periodic rebalancing and fees as cheap as 0.2 per cent in total. TD says there are now more than 50 of these funds in the Canadian market from a dozen providers.

The TD note offers some insights into how investors are using asset allocation ETFs. One encouraging trend is that in-flows of money have been steady, regardless of stock market conditions. This suggests investors are making choices they can stick with over the long term, which is a key to successful investing.

Two-thirds of the assets held in these products are in all-equity and growth funds, which typically have an 80-20 mix of stocks and bonds. Another 23 per cent is in balanced funds, which usually have a 60-40 mix. Conservative funds account for 5 per cent of assets and income-focused funds for 4 per cent. This rest is a mix of strategies.

All-equity and growth funds are more popular with DIY investors, while balanced funds are popular among advisers. TD notes that some funds have developed a following on social media platforms. “As an example, XEQT and VGRO both have numerous followers on Reddit, which may explain the sustained interest and flows into these ETFs,” the report says. XEQT is the iShares Core Equity ETF Portfolio, and VGRO is the Vanguard Growth ETF Portfolio.

BlackRock’s iShares brand introduced asset allocation ETFs back in 2007, but the category didn’t take off until Vanguard launched its version in January 2018. TD reports that Vanguard has a 52 per cent share of the asset allocation ETF market, iShares has 31 per cent, Fidelity has 8 per cent, BMO and Global X (formerly Horizons) have 3 per cent each and the rest is spread among a group of small players.

The popularity of all-equity funds speaks to the strong performance of the stock markets in recent months. The appeal of these products is that they offer exposure to Canadian, U.S. and international stocks in a single package.

The 100-per-cent focus on stocks means these funds will be hit hard in the next correction. Unless you consider yourself a trader, they’re best for people with at least five and preferably 10 years or more until they might need their money.

— Rob Carrick, personal finance columnist

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The Rundown

Investing Club: Introducing the Readers’ Portfolio

The best stocks to ride out the coming year draw from several of the biggest technology companies, profit-gushing Canadian energy producers and a couple of beaten-up dividend powerhouses, according to the newly minted Readers’ Portfolio. The portfolio consists of the 10 most popular stock picks sent to us by savvy readers as part of the second annual Globe and Mail Investing Club. David Berman tells us more about it.

Watch these two indicators for clues on how to position your portfolio this year

The U.S. market as it stands is still dominated by a relatively few stocks – the five largest stocks account for 28 per cent of total market cap of the S&P 500 – and is expensive relative to history. But as Scott Barlow explains, the average valuations may not matter as an indicator of returns until years from now and, where technology stocks are concerned, may barely matter at all.

Also see:

Struggling Dow transport stocks could be economic warning signal

Nvidia set to overtake Apple as world’s second-most valuable company

Mutual fund success is driven by luck, not skill. Here’s proof

Each year, S&P Dow Jones Indices tracks the Canadian mutual fund space to see how long the best performing funds can stay on top. The answer: not long. Tim Shufelt reports on the latest results.

It’s time to reassess your fixed income holdings. Here’s a game plan for maximizing returns

Tom Czitron, who has managed some of this country’s biggest bond funds, reports on some of the shifts in the fixed income market of late – and how to profit from them using ETFs.

Wall Street lands on India, looking for profits it can’t find in China

A postpandemic boom has pushed the value of India’s stock market to about US$5 trillion, putting it neck and neck with Hong Kong’s. India’s economy is among the fastest growing in the world. And as The New York Times reports, investors on Wall Street can’t ignore the country anymore.

Oil market torpor sends investors to other commodities

With a comfortable production-consumption balance, hedge funds and other speculators have scaled back oil positions to redeploy capital to more exciting markets in power, gas, metals and soft commodities. It marks a sharp contrast to the start of the year, when most forecasters expected stocks of crude and fuels to deplete as OPEC+ extended production restraint and the major economies emerged from a slowdown in 2022/23.

Crypto ‘re-staking’ platforms boom as traders chase bigger returns

More than US$18 billion worth of cryptocurrency has moved into a new type of platform which offers investors rewards in exchange for locking up their tokens, in a complex scheme that analysts warn poses a risk for users and the crypto market.

Others (for subscribers)

The highest-yielding stocks on the TSX, plus risk data

Number Cruncher: Quantamental approach uncovers outperforming Canadian stocks

Number Cruncher: Twenty Canadian-listed ETFs with sustainability at their core

Odds now heavily favour BoC rate cut next week after unexpectedly weak GDP data: traders and economists

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

Friday’s Insider Report: Director unloads $2.4-million from this stock that’s doubled in 2024

Monica Rizk: Bullish on Lundin Gold

Globe Advisor

This money manager is betting on a slow energy transition. Here are some stocks he likes on the way

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What’s up in the days ahead

Has the rise of artificial intelligence, and its promise of sucking up vast quantities of electricity through data centres, provided enough reason to buy utility stocks again? David Berman will share his thoughts.

Cool jobs at last: World market themes for the week ahead

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

Compiled by Globe Investor Staff


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