Back in February, writing about the newly launched Vanguard’s asset allocation ETFs, I asked why it had taken so long for someone to create an ETF version of the traditional balanced index mutual fund. Now, just 10 months later, Canadian investors who want to build an ETF portfolio with a single trade can choose between two excellent options.
This month, BlackRock Canada launched two one-fund solutions of their own: the iShares Core Balanced ETF Portfolio (XBAL) and the iShares Core Growth ETF Portfolio (XGRO). Like the Vanguard products, these new funds hold several underlying stock and bond ETFs to create a fully diversified portfolio.
Unlike their Vanguard counterparts, however, the new iShares funds are not brand new products. Rather, they’re a reboot of two older funds: the iShares Balanced Income CorePortfolio Index ETF (CBD) and iShares Balanced Growth CorePortfolio Index ETF (CBN). These ETFs had been around since 2007, but they never gained meaningful assets, probably due to their relatively high fees (about 0.75%) and confused strategy (non-traditional indexes, sector funds).
The revamped versions are far more appropriate for Couch Potato investors, as they include only cap-weighted index funds covering the major asset classes. XBAL has a long-term target of 40% bonds and 60% stocks, while XGRO is more aggressive with 20% bonds and 80% stocks. The overall asset mix is broken down as follows:
Asset class | XBAL | XGRO |
---|---|---|
Canadian bonds | 32% | 16% |
US bonds | 8% | 4% |
Canadian stocks | 15% | 20% |
US stocks | 27% | 36% |
International stocks (developed) | 15% | 20% |
Emerging markets stocks | 3% | 4% |
100% | 100% |
Source: BlackRock Canada
According to the funds’ literature, “it is not expected that frequent changes would be made to [the ETFs’] long-term strategic asset allocation and/or asset class target weights,” which suggests there will be no tactical shifts based on market conditions. That’s good news, since these shifts usually add no value.
Popping the hood
Let’s take a look at how these two ETFs are built, including their individual components and the strategy used to combine them into a diversified portfolio.
The underlying ETFs used to get this exposure includes a combination of Canadian and US-listed funds:
Canadian bonds | iShares Core Canadian Universe Bond Index ETF (XBB) |
---|---|
iShares Cdn Short-Term Corporate + Maple Bond Index ETF (XSH) | |
US bonds | iShares U.S. Treasury Bond ETF (GOVT) * |
iShares Broad USD Investment Grade Corporate Bond ETF (USIG) * | |
Canadian stocks | iShares S&P/TSX Capped Composite (XIC) |
US stocks | iShares Core S&P Total U.S. Stock Market ETF (ITOT) * |
International stocks (developed) | iShares MSCI EAFE IMI Index ETF (XEF) |
Emerging markets stocks | iShares Core MSCI Emerging Markets Index ETF (IEMG) * |
* = US-listed ETF
None of the foreign currency exposure is hedged on the equity side, so any appreciation in the Canadian dollar will negatively affect the ETFs’ returns, while a falling loonie will give them a boost. This is a good long-term strategy: the research is clear that in Canada equity portfolios with exposure to foreign currencies actually have lower volatility than those that try to hedge this risk.
On the bond side, however, all of the US-dollar exposure is hedged. This, too, is the right strategy to use with fixed income. (For more on why it’s important to hedge currency exposure in fixed income, listen to my recent podcast interview with Todd Schlanger, one of the architects behind Vanguard’s asset allocation ETFs.)
As for rebalancing, this will likely be done regularly using new cash flows, which are likely to be significant as the revamped ETFs attract new investors. If that’s not enough, BlackRock says the ETFs “would not be expected to deviate from the asset class target weights by more than one-tenth of the target weight for a given asset class.” In other words, if the target for Canadian bonds is 32%, the fund would be rebalanced if that asset class was over- or underweight by 3.2 percentage points.
iShares vs. Vanguard: How do they differ?
If you’re already familiar with Vanguard’s asset allocation ETFs, you’ve noticed that these new iShares offerings are quite similar to the Vanguard Balanced ETF Portfolio (VBAL) and the Vanguard Growth ETF Portfolio (VGRO), right down to the names and ticker symbols. But the iShares ETFs have a few differences in strategy:
No international bonds. The fixed income allocation of the iShares ETFs is made up of 80% Canadian and 20% US bonds, with no allocation to international bonds. The Vanguard asset allocation ETFs, by contrast, include a blend of Canadian, US and global fixed income.
More corporate bonds. The Vanguard ETFs use only broad-market bond funds, which include mostly government bonds and a smaller amount of corporates. The new iShares funds tilt more toward corporate bonds by adding XSH as about 20% of the Canadian fixed income allocation, and by splitting the US component equally between Treasury bonds and corporates. This makes the iShares funds slightly more risky than their Vanguard counterparts, though all of the bonds are investment grade (no high-yield bonds).
A different mix of Canadian, US, and international equities. XBAL and XGRO allocate a greater share to US stocks (45% of the overall equity allocation) compared with their Vanguard counterparts (40%). The share allotted to Canadian stocks is correspondingly lower at 25% of the overall equity target, compared with 30% in the Vanguard funds.
In both the iShares and Vanguard products, overseas stocks make up about 30% of the equity allocation, but emerging markets make up a smaller proportion in XBAL and XGRO compared with VBAL and VGRO.
Here is the approximate breakdown in each fund:
Equity asset class | XBAL | VBAL | XGRO | VGRO | ||
---|---|---|---|---|---|---|
Canada | 15% | 18% | 20% | 24% | ||
US | 27% | 24% | 36% | 32% | ||
International (developed) | 15% | 14% | 20% | 19% | ||
Emerging markets | 3% | 4% | 4% | 5% |
Lower fee. iShares has always been very competitive on fees, and with these new ETFs they have undercut Vanguard by four basis points: the new funds both have a management fee of 0.18%, compared with 0.22% for VBAL and VGRO. (This includes the fees on the underlying ETFs: there is never any double-dipping on fees in “funds of funds.”) Once taxes are added to that management fee, expect the MER of the iShares funds to be about 0.20% or 0.21%.
Before you buy
I’ve done my best to help investors compare the strategies of the iShares and Vanguard all-in-one ETFs, which leads to the obvious question: which one is a better choice?
Based on what we know about their strategies and costs, I have no strong preference for one over the other. They are all excellent products, and they’re likely to perform very similarly over time, with any variance being the result of randomness and not any structural feature.
If you’re doing more comparison shopping, here’s an important thing to be aware of: because XBAL and XGRO are new mandates for ETFs with a relatively long history (their predecessors were launched 11 years ago), their past performance history is entirely meaningless. As of November 30, 2018, for example, XBAL’s webpage reports an annualized return of 7.41% over the last 10 years. But this performance was what the old CBD racked up with a completely different strategy, so it has zero relevance going forward.
If you’re interested in seeing how the XBAL and XGRO strategies would have performed in the past (using index data minus the ETFs’ current fee), my colleague Justin Bender has backtested both the iShares and Vanguard asset allocation ETFs and published the results on his Model ETF Portfolios page.
Justin’s backtest suggests you can spare yourself any hand-wringing over the iShares vs. Vanguard decision. Over the 20-year period ending November 30, the performance of the comparable ETFs was within a couple of basis points in both returns and volatility.
Avoid a New Year’s surprise
Just one more caveat: if you’re attracted to XGRO and you’re planning to invest in a taxable account, do not buy this ETF until January 2019. That’s because the new mandate of the fund resulted in significant capital gains being realized as the old holdings were sold and replaced. When ETFs and mutual funds realize gains, they pass these along to unitholders at the end of the year. That means if you buy these ETFs in late December, you’ll pay taxes on the capital gains realized before you owned the units—it’s like being handed the bill for dinner at a restaurant even though you showed up after dessert.
iShares has estimated that the capital gains distribution for XGRO will be a whopping 6.84% of its net asset value. If that number is accurate, a $10,000 purchase (about 500 shares) could result in a capital gain distribution of $684, half of which would be taxable at your marginal rate. You can avoid this tax trap by waiting until the new year to purchase the ETF. (iShares does not expect there to be a similar capital gain distribution for XBAL.)
Would holding both XGRO and VGRO (50/50) be even better diversification and protection of your investment between the two? Thanks for your on-going insightful analyses.
@Tom: No, it makes no sense to hold two almost identical funds. There is no diversification benefit, only twice as many trades.
I will be 65 next month and am wanting to invest a cash amount of $96,000 within my TD self directed RRSP. There is a remaining $20,000 in individual securities (mostly commodity stocks well underwater) that I plan to leave in place. My RRSP is maxed out and I don’t plan on adding to the plan much. I also don’t plan to access this money until my 70’s. I have stable defined pension that covers my needs plus CPP (am delaying OAS). I am looking at the Vanguard one fund solution but can’t decide on whether to go with the balanced or conservative fund?
Also – would this investment product have to be cashed out at 71/72 years of age when the RRSP has be collapsed into RIF. Or can it just be transferred into RIF without income payouts vs DRIPs.
Also am wanting to invest $60,000 in cash in my TFSA and thinking IShares Core balanced for a bit more diversification.
Any help would be greatly appreciated. Hard to get banking advice unless you are buying their products.
Thank you.
Hi CCP, a quick newbie question here: interested in one of these funds particularly XGRO. how is this fund taxed? b/c it’s made up of canadian and us equities, and bonds. what would the tax treatment be if it were held in non-registered, TFSA, and RRSP.
thank you
@Sonny: In a taxable account, the various types of income retain their character (Canadian dividends, foreign dividends and interest) and are taxed accordingly. Any foreign withholding taxes on dividends are recoverable. It’s the same as if you held the underlying ETFs directly.
In a TFSA or RRSP, no tax is payable on any of the income, but foreign withholding taxes would apply on the US and international dividends and are not recoverable. This could be reduced by holding the US-listed ETFs directly, but this adds significant cost (for currency conversion) and complexity.
Hi Dan! I’d like to add to Sonny’s question above if that’s ok…
I have approx 50k I’d like to “invest” and the relatively low maintenance / low risk of an XGRO or VGRO type product appeal to my novice knowledge at this point (so thank you for your information).
I apologize if this has been answered recently already but is the TFSA the best place for one of these All In One ETFs given the non recoverable FWT?
I make a good living and am contributing to my pension as well – I just don’t know how much tax on the US/International equities we’d be looking at here. If it’s simply the nature of the beast and is still a great vehicle for me then I’m fine with that but if there’s more pros than cons to having it in a taxable account I’d hear that logic as well. Thank you in advance!
@Tara: Thanks for the question. If you are investing in a TFSA, then there is no way to avoid foreign withholding taxes. So using VGRO or XGRO is no worse than any other option, and it is better than most because of the convenience. My colleague Justin Bender has estimated the total drag from foreign withholding taxes to be about 0.18% for VGRO, which is $90 per year on a $50,000 investment.
It is always better to invest in a TFSA than in a non-registered account:
https://canadiancouchpotato.com/2015/01/30/the-wrong-way-to-think-about-withholding-taxes/
That New Year’s surprise sounds brutal…wouldn’t you get hit with that ‘extra tax’ every year if you held these funds for the long term and added to them monthly – in other words, wouldn’t you be paying significantly more on tax than if you followed one of your ETF model portfolios?
@CA: Year-end capital gains distributions are not unique to these ETFs: they can happen with any ETF or mutual fund, including the ones in my model portfolios. But the amount of the distributions are usually quite small. In this case, XGRO essentially sold all of its holdings and replaced them when it had a wholesale change in strategy. This is a very rare event.
Maybe a comparison with BMO’s new line of all in one ETFs is in order? I am looking at ZGRO in particualr and it seems this ETF has nearly double the holdings in emerging markets at 7.19% when compared to VGRO or XGRO.
Good piece, Dan … thanks.
Please correct me if I’m wrong. Start with 80% of your stash in one of ZGRO, VGRO or XGRO. Add 5% REIT ETF and 15% Preferred Share ETF and you’ve emulated the equivalent of ZBAL, VBAL or XBAL plus added a bit more yield to a three fund portfolio? It sounds too good to be true.
@Rob: This is only an appealing option if you assume that adding REITs and preferred shares improve a portfolio. They may indeed provide additional yield, but unless they provide higher total returns then there is no improvement.
Now that there are 3 credible competitors for “best single fund” spot, could you spare some thought for some help in head scratching here?
I would preface my question with acknowledging that the differences are very small, and that we can’t fairly include clairvoyant-type considerations in driving our choices. But, given the fact that one’s TFSA assets might be worth $100k now, a small real difference might add up to some dollars over several years, assuming no cash-draining frequent tinkering.
My first thought was that the difference between 0.18% MER and 0.22% MER would be $40 a year. Not startling, but a real difference, and additive over the years if sustained. (But of course the higher priced outlier would face some pressure over the years to reduce its fee).
I seem to remember some years back when I was looking at buying ZEM that one advantage ZEM carried was that ZEM held a large proportion of foreign equities through directly held shares, rather than through US based subsidiaries, thus saving on US foreign with-holding tax in dividend payments from foreign (non-US) assets. Given that ZGRO holds about 20% ZEM, is this a reasonable, if small, but additive consideration?
I should add that I have really loaded up to the max on my grandchildren’s RESPs, so these plan portfolios would be looking for a “best single-fund” selection too.
Sorry, I meant to say ZEA. But having corrected my mis-speak, I understood that ZEM was going to do the same thing as far as possible, and given that ZGRO also holds a substantial hunk of ZEM, do you know if they followed through on this?
@Oldie: I don’t think there is any meaningful difference between the three families. There are no structural differences in foreign withholding taxes if you’re holding them in a TFSA or RESP: this is only an issue in RRSPs, and even then, the international equity components are all the same (VIU, XEF and ZEA all hold the stocks directly) and in ZEM (which holds most of its stocks directly) it’s such a small part of the portfolio that any advantage would be trivial.
While it is true that Vanguard’s cost is very slightly higher, as you note, this may not always be the case. Because the ETFs all track different indices with slightly different asset allocations, their performance will vary a little in random, unpredictable ways. There is no reason to expect Vanguard to lag the others by four basis points a year. It’s hard to imagine that any of these funds will shine brighter than the others. Just take your pick.
Hello Dan and team at CPP, As a follower of CCP, I took your advice and invested in XGRO in early Jan. I received the disclosure material from BlackRock Asset Management Canada Limited titled ETF facts dated Dec 11th 2018. It shows the MER as being 0.80% and total ETF expenses including trading expense ration at 0.82%. Even the most recent post that links to the Globe and Mail article shows the MER as being 0.18%. I have scanned copies of the disclosure material I could send if you require. I’d appreciate it if you could please clarify the discrepancy between the different MER percentages. Thanks in advance for your response
@Sashi: This is a common question, so thank you for bringing it up. XGRO and XBAL are not new funds: they evolved from two older iShares ETFs that had much higher fees. Regulatory filings and published MERs are backward-looking: they tell you what the MER of the fund was over the previous 12 months. So that 0.82% is what investors would have paid last year. Going forward, the new management fee is 0.18%, so any investor holding these ETFs will pay that much lower fee. Once the new funds have a full year under their belts, the published MER will be updated to reflect this.
(Please note also that MER and management fee are not the same thing. The new management fee is 0.18%, but there will likely be a couple of additional basis points in taxes, so exepct the new MER to be about 0.20%.)
Thanks for fleshing out the relative merits and few differences between the big 3 offerings.
I must add that it was a breath of fresh air to read your Globe and Mail Business Section contribution this weekend, the first time in years that I have read anything there whose premise and information I could fully accept.Some other writers get close (to Couch Potato neutrality), but then spoil it by suggesting some added element of sector selection, stock selection, market timing, or some other secret sauce.
Hello all,
Thanks for your info. I am wondering if people try to use the Norbert Gambit method to buy US to lower the conversion fee and avoid the withholding foreign tax. As you know some ETF with lower MER like 0.06. Now the questions is which one more expensive in comparing with the cost of conversion (using the Norbert Gambit method) vs. the 0.16 (which is the difference between the one fund solution and the low cost of the ETF with 0.06 for example)? Thanks.
Dan are the withholding taxes only on dividends and nothing else? When Justin Bender says that the tax drag on the Canadian Asset Allocation etf’s is .18% does he mean it was actually the same 15% mentioned for dividend paying stocks in nonregistered acct but he is dissolving it by showing it against the whole etf market value?
Somewhere i thought i saw a statement either by urself or Mr.Bender saying from a tax perspective it was better to own the individual etf’s that r in the Vbal or Vgro – however in making that statement the costs of rebalancing were not included which to me could make the Asset Allocation etf the better choice
Now here is some article on Seeking Alpha that digs deepley agin index investing for several reasons : https://seekingalpha.com/article/4077202-danger-index-funds
WOULD LIKE TO HEAR your comments getting to the exact truth by going thre the filings as this co.says it has done
Here is its weigh in on the real costs vs these published etf mers’ showing” the truth” at over 4%
In reality however there is no disclosure for the real cost of an index investment. You have to search through filings and calculate it yourself. Wintergreen Advisors has done just that, in a rather thorough analysis, and found the expenses to be upwards of 4.2% for the S&P 500 in indirect cost.
In reality however there is no disclosure for the real cost of an index investment. You have to search through filings and calculate it yourself. Wintergreen Advisors has done just that, in a rather thorough analysis, and found the expenses to be upwards of 4.2% for the S&P 500 in indirect cost.
@Ron: When Justin refers to the drag from foreign withholding tax (FWT) as being 0.18%, that is expressed as a percentage of the entire value of the holding. The idea here is to allow you to easily estimate the total cost as MER + FWT.
I’m afraid I don’t have the patience to read through and respond to yet another attack on index funds by active managers with a vested interest in the discussion. They come out constantly, and they are little more than fear-mongering by firms that are losing assets to index funds and are acting desperate. I’ve written about these before here:
https://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/its-time-to-stop-bashing-index-funds/article36519080/
https://canadiancouchpotato.com/2011/10/17/couch-potatoes-the-next-financial-time-bomb/
https://canadiancouchpotato.com/2013/03/22/confessions-of-an-investing-parasite/
If my fund underperformed its benchmark this badly, I would be looking for excuses too:
http://www.wintergreenfund.com/performance/
Hi Dan,
Very nice articles to read. Always easy to understand and very helpful.
I have been using the following ETF”S in my TAXABLE account since their inception and never looked back, always adding new money once a year for rebalancing:
VUN(30%) (USA)
VIU (25%) (Developed markets excluding US)
VEE (5%) (Emerging markets)
ZDB (40%) (BMO Bonds)
Do you think it is still worth it using the above mentioned ETF or should I switch to VBAL instead.
I understand that the bond component is a tax drag in a taxable account.
Re-balancing 4 ETF’s is not an issue for me as I’ve been using this portfolio for quite some time with great success.
Cheers
John
@John: If you are already effectively managing a four-ETF portfolio then there is no compelling reason to switch. But I would note that you have no exposure to Canadian equities now (unless it is in a different account) so switching to VBAL/XBAL would change your asset mix significantly.
Hi Dan
Thanks for the comparison and great information as always.
Long time CCP follower and built my TFSA using TD E-Funds and a couple of TD D-Funds
Pretty much new to EFT’s but interested to learn
I’m looking to invest $40,000 into a Good Tax Efficient All-In-One ETF for a Non-Registered account as I max out my RRSP and TFSA yearly.
I’m interested in your thoughts on how the iShares and Vanguard All-in-One ETF’s compare to the 2 new Horizon TRI ETF All-In-One portfolio’s released last summer with regards to costs, diversity, volume and tax efficiency?
One is called Horizons Conservative TRI ETF which 50% Fixed Income and 50% Equities and globally diversified. The other is Horizons Balanced TRI ETF which is 30% Fixed Income and 70% Equities and globally diversified.
These are rebalanced semi-annually
MER’s not to exceed o.17% and 0.18 respectfully.
I understand BMO has also recently released All-In-One ETF’s so a comment or two on them would be helpful.
Looking forward to your thoughts and comments
Much Appreciated
Brian
Hello, great article and site! I do have a question for you if you wouldn’t mind. While I’m currently far from retirement, I’m comfortable investing in an 80/20 split between stocks and bonds, as in XGRO. However, as I get older or closer to a time when I may want to access a portion of this money, I will want to bring that ratio down, say closer to the 60/40 split of XBAL, and later even maybe lower yet. This would be to reduce the volatility of the investment that comes with a high weighting toward stocks as I get closer to needing the money. What is the best or most efficient way to accomplish this transition (say if one has a lot of money in XGRO) taking into account transaction costs to buy and sell?
I would like to invest $50,000 into each XBAL & XGRO which would give me the asset allocation of 30% bonds and 70% equities. Does this make sense? From then on out my contributions would just be so that I balanced each ETF the same.
@Eric: That would work, though another option is to use VEQT (100% equities) and a bond ETF. Though in that case you would need to rebalance to keep the portfolio at 70/30. Using XBAL and XGRO would allow you to do that math in your head because you would just need to keep the to holdings roughly equal in value.
Hello,
I’m brand new to all this and have decided to build a portfolio in my RRSP and TFSA entirely of XGRO. The tax drag of this scares me a bit. From how I understand it I need to add the expected MER to the FWT to get a total cost of owning this ETF to be about .38% annually. That seems quite high to me. For example, what turned me off of robo advisors was their .50% fee but when I look at these funds they aren’t much cheaper in the end.
I currently have about $35000 in XGRO between the two accounts but I’ve also got about 40 years until retirement. This .38% fee/tax seems like it would be very significant over that time line.
@Paul: Any time you make an investment decision like this you always need to ask what the alternative is:
– There is no way to avoid foreign withholding taxes in a TFSA, other than avoiding foreign equities. Using XGRO is no less tax-efficient than holding the underlying ETFs directly. (In other words, you still pay them if you use a robo-advisor.)
– In an RRSP, you can reduce the effect of foreign withholding taxes by using US-listed ETFs, but if you do that you will need to pay the cost of currency exchange and manage multiple ETFs instead of just one. Or you can pay a robo-advisor to do that for you, which would actually be more expensive than using an all-in-one ETF in a self-directed account.
If you are able to build a globally diversified portfolio that requires alomost no maintenance and hold it for 40 years for an annual cost of 0.38%, that is an opporunity that previous generations have never been able to enjoy. I cannot think of a better alternatve for the vast majority of DIY investors.
I like the new one-stop ETFs and am considering converting my CP portfolio. However, one area I have not seen addressed is whether a strictly one ETF portfolio makes sense for someone retired and is thus in the decumulation phase.
Let me elaborate. With a CP portfolio, when the market is down one would normally sell primarily fixed income assets in order to rebalance. Selling equities would only be done if the fixed income sale did not generate the required cash (on a monthly or quarterly basis). This results in one not unnecessarily “selling low” w.r.t. equities. Similarly, when the market is up one would normally sell primarily equity assets.
However, with a 1Stop ETF, when the market is down one would end up selling both fixed income and equity assets in the proportion of the fund. I.e., one would end up “selling low” w.r.t. equities.
As such, it seems to be that ideally one would need 2 ETFs – one all equity and one all fixed income. That way there’s no danger of excessive selling of equities when the market takes a turn for the worse.
Not sure if I explained that well, but would really appreciate hearing your thoughts on this, Dan. Am I correct in my thinking, or am I missing something?
What’s XGRO approximate MER?
@Doc: Should be about 0.20% (management fee + taxes).
@Jim R: I answered your comment on this page:
https://canadiancouchpotato.com/2018/12/31/beyond-one-stop-etf-shopping/
Thank you for writing this beginner-friendly article! It has been very useful. I was hoping to get some advice on whether there is a need to switch to XBAL/VBAL/XGRO/VGRO if I have the current ETF portfolio of XAW and VEE. Is there considerable overlap or would it be okay to invest in XBAL/VBAL/XGRO/VGRO additionally?
Thank you very much!
Good day!
RRSP maxed, TFSA’s maxed. Non-registered is a corporate HOLDCO. Sale of business possible within next year. Funds currently in Mawer tax efficient balanced fund. Ultimately will move to most tax efficient ETF’s for HOLDCO future investment.
Question 1:
Horizons HBAL vs. HXT, HXS, HXDM, HBB 25% equal investment. Aside from hands-off auto rebalancing, your comments?
Question 2: If capital gains (TRI) and deferral of tax are key to tax efficient investing, how does one draw an income and mitigate taxes?
BTW, “Retirement Income for Life” Fred Vettese, endorsed as required reading for any pre-retiree! We plan to adopt this plan to the letter!
Excellent content on this site
@Mark: Given the recent budget announcement I think it would be wise to hold off on swap-based ETFs:
https://www.theglobeandmail.com/investing/markets/etfs/article-federal-government-looks-to-quash-tax-loophole-for-etfs-in-new-budget/
As for balancing tax deferral and drawing and income, there is always a trade-off. It’s not possible to manage a portfolio to generate cash flow without accepting some level of taxable income from interest, dividends or capital gains.
What’s the difference between the IGRO and the AOR ETFs? From what I can see both of them are labelled “Ishares Core Growth ETF” and they both seem to be compiled of 70-80% equity ETFs & 20-30% bond ETFs.
I really appreciate all the great info on here! Thanks!
I bought XBAL last week. I thought the MER was 0.18 but I found out in their prospectus (https://www.blackrock.com/ca/individual/en/literature/prospectus/xtr-prospectus-en-ca.pdf)
that the annualized MER is 0.76, not 0.21. I am reading the wrong documents?
My question was already answered
I plan to buy around $20000 XBAL for my RSP account.
Should I buy once now? or buy around $2000 every month? I use questrade, so 0 fee for each trade.
@Marc, I have the same question. I saw: http://quote.morningstar.ca/Quicktakes/etf/etf_ca.aspx?t=XBAL MER is 0.75 so would you please share your answer?
@Kaman: This has been a common misunderstanding since the launch of XBAL/XGRO. Their MERs are not 0.75%.
These two funds (unlike their counterparts from Vanguard and BMO) were not brand new: they evolved from two older ETFs (tickers CBD and CBN) that had much higher fees. Published MERs are backward-looking: they tell you the expenses of the fund over the previous 12 months. So investors holding CBD or CBN did pay an MER of 0.75% last year. But when iShares changed the mandate of these ETFs they lowered the management fee to 0.18%. I would estimate another 0.02% for taxes, so the MER will be right around 0.20%. Only after these funds have been live for a full year will the published MER reflect that current investors are paying this much lower cost.
I find one good thing about Canadian companies jumping into the fray is that they are supported by no-fee purchase options of QTrade, and formerly Credential Direct of the Credit Unions. Now there’s a greater chance you don’t have to switch companies to take advantage of these ETFs
@Marc: This has been a common misunderstanding since the launch of XBAL/XGRO. Their MERs will not be anywhere close to 0.75%.
These two funds (unlike their counterparts from Vanguard and BMO) were not brand new: they evolved from two older ETFs (tickers CBD and CBN) that had much higher fees. Published MERs are backward-looking: they tell you the expenses of the fund over the previous 12 months. So investors holding CBD or CBN did pay an MER of 0.75% last year. But when iShares changed the mandate of these ETFs they lowered the management fee to 0.18%. I would estimate another 0.02% for taxes, so the MER will be right around 0.20%, maybe 0.21%. Only after these funds have been live for a full year will the published MER reflect that current investors are paying this much lower cost.
If I am going to buy XGRO, would it be a good idea to add some international bond exposure, such as with IAGG? If I do that, then I’m going to be increasing my overall bond exposure to be more than 20% (what XGRO has).
@twistypencil: In almost all cases, investors should not use bond funds denominated in foreign currency unless those currencies are hedged:. So IAGG is almost never appropriate for a Canadian investor. Vanguard Canada offers US and international bond funds with hedging if you want to go that route (VBU and VBG).
However, if you want an all-in-one ETF and global bond expsoure, you can just use Vanguard’s versions (VBAL or VGRO), as these have US an interntainal bonds incorporated.
https://canadiancouchpotato.com/2018/11/10/podcast-20-one-stop-etf-shopping/
Thanks for the comment, but I guess I should have said that I am in a weird position because I’m a US citizen that lives in Canada (on track for permanent residency, but its still a couple years away). Because of that, I cannot buy canadian funds (ETFs, mutual funds and any primarily ex-US primarily investment vehicles… can buy stocks in actual companies whose main purpose is something other than investment income), and can only buy US ones. If I do, I get hit by the PFIC rule in the US, which is a MAJOR tax pain. This is extra problematic, because I cannot have a US investment account, if they find I am living outside of the US, they will sell my holdings and close my account. So I have to have a Canadian investment account and buy only US-specific funds. This is why I was looking at XGRO, and IAGG.
However, I think the best approach for having something like XGRO, but with some international bond exposure, is to to “build” my own version comprised of: ITOT (core US S&P market index etf), IXUS (international stock index etf), AGG (US corporate/government bond index ETF), IAGG (international bond index etf).
Hi,
Great article great discussion I have two stupid questions Thank You for excellent work by you.
(1) Should I Buy VGRO / XGRO now where market is very Up and High. OR Park money in RRSP and Buy when dip?
(2) Why price of VGRO 25.XX / XGRO 20.XX ? If I buy XGRO will get more units than VGRO ?What will be more beneficiary to me
Please advise me and help to make decision…
Thanks in advance…
@HAT:
(1) Parking in cash and “waiting for the dips” is just market timing. It’s guesswork, and it goes against the whole philosophy behind index investing. Invest when you have the cash and a good plan in place.
(2) The unit price of an ETF tells you virtually nothing. It’s like saying this restaurant charges $2 for a slice of pizza and that one charges $3. Unless you know how large the slices are, the comparison is meaningless.
Imagine that Fund ABC has $100 million in assets. It might have 5 million outstanding shares, which would mean a net asset value (NAV) of $20 per share. Now imagine that Fund XYZ tracks the same (or similar) index has $125 million in assets. It might also slice that pie into 5 million shares, in which case the NAV per share would be $25. If you had $10,000 to invest, you could buy 500 shares of the ABC or 400 shares of XYZ: both would have an identical value, and there is no reason to prefer one over the other.
Im looking to do either XGRO or VGRO in a month two putting around 25k-30k into it. Would it be wise to do it in installments or all at once?If I do it through questrade, how is the withholding tax calculated (i.e. 15% for total amount)? Also would you recommend pairing VGRO or XGRO with XAW?