The numbers are in and no one is shooting the messenger this year. If 2018 was disappointment—returns were negative even for balanced portfolios—2019 had investors popping the champagne, as every major asset class was up on the year, and equities delivered double-digit returns both at home and abroad.
Below are the 2019 returns for the various versions of my model portfolios. But before we get to the data, let’s review the performance of the major asset classes last year:
- Is there anyone who left who still believes they can forecast interest rates and bond returns? The yield curve got run over by a truck in 2019, and it ended the year essentially flat, meaning the spread between short- and long-term interest rates was much narrower than normal. As those longer-term rates declined, bond prices soared and the asset class everyone loves to hate had its best year since 2014: the FTSE TMX Canada Universe Bond Index was up 6.9%.
. - Canadian equities lagged the US in 2019 for the ninth consecutive year, but at least this time it was a photo finish. The S&P/TSX Capped Composite Index rebounded from a dismal 2018 by delivering a 22.9% return, its best showing since the huge recovery of 2009.
. - The bull run in US equities continued in 2019, and the S&P 500 topped 25% in Canadian dollars. In a reversal of 2018, hedging the currency would have worked in your favour this year, as the index returned 31.5% in its native currency.
. - In overseas markets, international developed and emerging markets joined the party, too. The MSCI EAFE Index (Western Europe, Japan, Australia) returned just over 16% for the year, while the MSCI Emerging Markets Index (China, Korea, Taiwan, India, and so on) grew 12.7%.
OK, on to the real-world performance. Below are the returns of the individual funds, as well as the performance of the portfolios made up of those holdings. As always, these returns include all distributions (dividends and interest), which are presumed to be reinvested. The portfolio returns assume you started the year with the target asset allocation and made no transactions.
Option 1: Tangerine Investment Funds
The Tangerine Investment Funds are balanced portfolios that offer ease and convenience for investors who prefer not to open a brokerage account. They are available with three different asset mixes, ranging from the conservative Balanced Income Portfolio (30% stocks) to the more assertive Balanced Growth Portfolio (75% stocks):
| Fund | Asset Allocation | 2019 Return |
|---|---|---|
| Tangerine Balanced Income Portfolio | 30% equities / 70% bonds | 9.97% |
| Tangerine Balanced Portfolio | 60% equities / 40% bonds | 14.06% |
| Tangerine Balanced Growth Portfolio | 75% equities / 25% bonds | 16.10% |
Option 2: TD e-Series Funds
The TD e-Series funds allow you to assemble your own portfolio using four funds as the building blocks: one for each of the major asset classes. Here are the 2019 returns for the individual mutual funds:
| TD e-Series Fund | 2019 Return |
|---|---|
| TD Canadian Bond Index – e (TDB909) | 6.34% |
| TD Canadian Index – e (TDB900) | 22.68% |
| TD US Index – e (TDB902) | 24.32% |
| TD International Index – e (TDB911) | 15.25% |
My model portfolios combine these funds in five variations, ranging from 30% to 90% stocks. Here’s how they performed in 2019:
| Model e-Series Portfolio | Asset Allocation | 2019 Return |
|---|---|---|
| Conservative | 30% equities / 70% bonds | 10.50% |
| Cautious | 45% equities / 55% bonds | 12.63% |
| Balanced | 60% equities / 40% bonds | 14.79% |
| Assertive | 75% equities / 25% bonds | 16.99% |
| Aggressive | 90% equities / 10% bonds | 19.22% |
Option 3: Individual ETFs
The first of my ETF models uses three individual funds (including one that combines US, international and emerging markets) to build a globally diversified portfolio. Here are the individual ETF returns for the year:
| Fund | 2019 Return |
|---|---|
| BMO Aggregate Bond Index ETF (ZAG) | 6.78% |
| Vanguard FTSE Canada All Cap Index ETF (VCN) | 22.06% |
| iShares Core MSCI All Country World ex Canada Index ETF (XAW) | 19.37% |
In 2019, these combined to deliver the following portfolio returns:
| Model ETF Portfolio | Asset Allocation | 2019 Return |
|---|---|---|
| Conservative | 30% equities / 70% bonds | 10.75% |
| Cautious | 45% equities / 55% bonds | 12.89% |
| Balanced | 60% equities / 40% bonds | 15.02% |
| Assertive | 75% equities / 25% bonds | 17.16% |
| Aggressive | 90% equities / 10% bonds | 19.29% |
Option 4: Asset Allocation ETFs
My only change to the model portfolios last year was the addition of the new one-fund portfolios from Vanguard and iShares. The iShares versions launched at the end of 2018, so 2019 was their first full year of performance:
| Fund | Asset Allocation | 2019 Return |
|---|---|---|
| Vanguard Conservative ETF Portfolio (VCNS) | 40% equities / 60% bonds | 12.06% |
| Vanguard Balanced ETF Portfolio (VBAL) | 60% equities / 40% bonds | 14.81% |
| Vanguard Growth ETF Portfolio (VGRO) | 80% equities / 20% bonds | 17.66% |
Fund Asset Allocation 2019 Return
iShares Core Balanced ETF Portfolio (XBAL) 60% equities / 40% bonds 15.19%
iShares Core Growth ETF Portfolio (XGRO) 80% equities / 20% bonds 17.96%
The fine print
When comparing the performance of the above four options, a good touchstone is the traditional blend of 60% stocks and 40% bonds. In this category, the iShares Core Balanced Portfolio (XBAL) was the leader at 15.19%, but the Individual ETFs (15.02%), the Vanguard Balanced ETF Portfolio (14.81%) and the TD e-Series portfolio (14.79%) were close on its heels. Only the Tangerine Balanced Portfolio lagged significantly at 14.06%, not surprising given the much higher MER.
But the difference in performance between the various options is only partly due to fees: indeed, costs are not even the biggest factor here. Most of the variation can be explained by subtle differences in the “asset subclasses” and in the specific indexes tracked by the funds.
Although all the portfolios are 40% bonds and 60% stocks, these broad asset classes are not subdivided in the same way in each portfolio. Some examples:
- The TD e-Series portfolio (which changed its benchmark indexes mid-year) tracks only large-cap stocks in the US and large and mid-cap stocks internationally, and it does not included emerging markets. The ETF portfolios track large, mid, and small cap stocks, and they all include emerging markets.
. - The Vanguard funds use the FTSE Canada All-Cap Index for Canadian stocks, while iShares and TD (for part of the year) use the S&P/TSX Composite Index: the latter outperformed this year, but the longer-term performance of these two popular benchmarks is almost identical. Tangerine uses the large-cap-only S&P/TSX 60 Index, which slightly lagged both in 2019.
. - My model portfolios generally allocate one-third each to Canadian, US and international equities (as do the Tangerine funds). The iShares asset allocation ETFs (XBAL and XGRO) assign significantly more weight—about 45%—to US equities.
. - BMO, iShares and Vanguard and TD all use different bond indexes. And the asset allocation ETFs (Option 4) are the only ones that include non-Canadian bonds. Vanguard’s versions include global as well as US bonds.
The lesson here is that you can usually ignore short-term variations in similar portfolios, because the differences are random and likely to even out over time.
Finally, a reminder that your personal rate of return may have differed significantly from the above, even if you followed the model portfolios closely. Your own results could have been affected by trading commissions, foreign withholding taxes, mid-year rebalancing, or large contributions or withdrawals.
Not sure if this is a silly question or not, but do people invest in all three of the Vanguard Asset Allocation ETFs? Put some in conservative, some in balanced and some in growth? Is this a way to diversify? Would one be better sticking to one of these and then adjust as you near retirement?
Hi Dan,
I’m a long term follower of your magazine articles, your blog and your podcast. And like many of your readers, I would really really REALLY like to see a blog post from you right now, given the state of the world, the economy and people’s investments.
Thanks for all your great advice over the years!
…trev
Jason, the asset allocation ETFs hold the same underlying assets. The difference between each is in the importance of each underlying ETF. VGRO has a bigger chunk allocated to equity, while conservative is more tilted towards Bonds. If you want something in-between those three choices in terms of allocation, you’re probably better off buying a couple of ETFS (go see the model portfolios, you only need two ETFs to do so I believe).