Are asset allocation ETFs cheap, well-diversified and convenient? Absolutely. Are they optimally tax-efficient? Perhaps not, though any tax edge you might get from using multiple ETFs and asset location strategies is likely to be outweighed by the additional costs and complexity. But what if there was an asset allocation ETF that could deliver better tax-efficiency without significantly higher fees or more moving parts?
That’s the promise of the one-ticket solutions from Horizons ETFs. They include a globally diversified mix of stocks and bonds in a single wrapper—just like their counterparts from Vanguard, iShares, and BMO—but with a unique twist. Most of the holdings are what Horizons calls Total Return Index ETFs (or TRIs), and all of them use a corporate class structure: both features are designed to pay no distributions, making them more tax-efficient than traditional ETFs.
| Horizons One-Ticket ETF | Asset Mix |
|---|---|
| Horizons Conservative TRI ETF Portfolio (HCON) | 50% equities / 50% bonds |
| Horizons Balanced TRI ETF Portfolio (HBAL) | 70% equities / 30% bonds |
| Horizons Growth TRI ETF Portfolio (HGRO) | 100% equities |
Although the ticker symbols are similar to those used by other asset allocation ETFs, the stock/bond mixes are more aggressive in the Horizons family. Vanguard’s VBAL and iShares’ XBAL both hold 60% stocks, for example, but Horizons’ HBAL is 70%. Meanwhile, HGRO is 100% equities, making it comparable to VEQT and XEQT, rather than to VGRO or XGRO, both of which include 20% bonds.
There are many more differences between the Horizons one-ticket ETFs and their competitors. So let’s jump in.
On the equity side
We’ll start by looking at the equity side of the Horizons portfolios, and the easiest way to do this is to zero in on HGRO, which is all stocks. (HCON and HBAL use the same underlying ETFs in similar proportions in their equity portfolios.) HGRO uses six underlying equity ETFs to achieve global exposure:
| Asset class | Underlying ETF | Allocation |
|---|---|---|
| Canadian equities | Horizons S&P/TSX 60 Index ETF (HXT) | 16.3% |
| US equities | Horizons US Large Cap Index ETF (HULC) | 32.5% |
| Horizons NASDAQ-100 Index ETF (HXQ) | 22.2% | |
| International equities | Horizons International Developed Markets (HXDM) | 14% |
| Horizons Europe 50 Index ETF (HXX) | 7% | |
| Emerging markets | Horizons Emerging Markets ETF (HXEM) | 7.3% |
Source: Horizons ETFs, as of February 15, 2021
One of the first things you’ll notice is the high allocation to US stocks compared with the asset allocation ETFs from Vanguard and iShares. VEQT allocates about 41% to US equities, while XEQT gives the country a 48% share. The Horizons portfolios trump both with a 55% allocation.
That extra helping of US stocks comes at the expense of a much lower allocation to Canada. Whereas Vanguard and iShares assign roughly equal amounts to Canadian and overseas stocks, Horizons gives homegrown equities just a 16% share, compared with 21% to international developed markets and a little over 7% to emerging markets. (The emerging markets holding is a new addition: Horizons launched HXEM last August.)
I asked Mark Noble, Horizons’ executive vice president of ETF strategy, why they decided on a relatively low allocation to Canada. He points out that one of the reasons to overweight domestic stocks is the favourable tax treatment of Canadian dividends. But (as we’ll discuss later) this isn’t an issue for the Horizons ETFs. “We have huge underweight on Canada relative to our competitors because we don’t need to be concerned with the ETFs’ dividends or taxation.”
Another reason Canadians might overweight domestic stocks is to reduce currency risk. But this is another way the Horizons ETFs differ from their competitors: the one-ticket ETFs use currency hedging for all the foreign equities.
Why track the NASDAQ?
All of the underlying ETFs in the Horizons portfolios are index funds, which is good news. However, not all of the funds track the broad market.
The US equity allocation in the Horizons ETFs includes two components. The largest is the Horizons US Large Cap Index ETF (HULC), which tracks a benchmark very similar to the S&P 500. But there is also a huge allocation to the Horizons NASDAQ-100 Index ETF (HXQ), which holds the 100 largest non-financial stocks on the NASDAQ exchange. This index is a media darling, but it’s poorly diversified and bears no resemblance to the broad US market: it doubles down on the technology sector, which makes up about half the index.
Why include such a large allocation to HXQ rather than simply using HULC for the entire US equity holding? Noble explains the decision was based on backtesting of rolling 20-year periods. “The NASDAQ-100 actually had the best historical risk/reward trade-off: better than the S&P 500. So we combined the US exposure between those two benchmarks.” He added: “This is a somewhat controversial strategic allocation decision, and probably the biggest point of differentiation with our competitors’ strategies.”
The Horizons Europe 50 Index ETF (HXX) is also an oddball: it tracks the 50 largest stocks in the Eurozone, which of course excludes the UK. I would have preferred to see only the Horizons International Developed Markets (HXDM) in the mix, as it tracks a much broader index including all overseas developed markets, similar to the MSCI EAFE Index.
The balance of bonds
Now it’s over to the fixed income side. As we’ve noted, HGRO includes no bonds at all, while HCON and HBAL hold 50% and 30%, respectively. This includes approximately two-thirds Canadian and one-third US bonds.
The Canadian bond allocation comes from the Horizons Canadian Select Universe Bond ETF (HBB), which is pegged to a broad-market index, similar to the flagship bond ETFs from Vanguard, iShares and BMO. Both one-ticket ETFs also include the Horizons US 7-10 Year Treasury Bond ETF (HTB), which gives you exposure to intermediate US government bonds, with the currency hedged to Canadian dollars.
Putting it all together, the overall asset mix for the three funds looks like this:
| Asset class | HCON | HBAL | HGRO |
|---|---|---|---|
| Canadian equities | 7.4% | 10.2% | 16.3% |
| US equities | 29.3% | 40.5% | 54.7% |
| International equities | 10.9% | 15.1% | 21.1% |
| Emerging markets | 3.7% | 5.2% | 7.3% |
| Canadian bonds | 32.3% | 19.2% | 0% |
| US bonds | 16.1% | 9.6% | 0% |
| Other | 0.3% | 0.2% | 0.6% |
| Total | 100% | 100% | 100% |
Source: Horizons ETFs, as of February 15, 2021
According to the funds’ literature, the asset mix will be revisited “on each semi-annual rebalance,” which occurs in January and July. But in practice, it has not changed much since the ETFs were launched in August 2018. The bond allocation in HCON and HBAL have remained at 50% and 30%, respectively, so the overall risk in the one-ticket ETFs has not crept up over time.
Getting down to brass tax
If you’ve been investigating the Horizons one-ticket ETFs, it’s probably not because you were attracted by the details of its asset mix. The big selling point, of course, is the promise of better tax-efficiency.
The potential for tax reduction in the Horizons portfolios comes from the fact that most of the underlying holdings are Total Return Index ETFs (TRIs), also called swap-based ETFs, that do not hold stocks and bonds directly. And all of the ETFs use the corporate class structure, which is different from traditional ETFs and mutual funds (which are trusts).
We don’t have the space here to provide a full explanation of these strategies: for the gory details, I’ll refer you to Horizons Swap ETFs: The Next Generation, which I wrote when Horizons adopted the corporate class structure for many of its ETFs in the fall of 2019. The company has also produced a useful FAQ outlining the potential advantages of both total return indexes and corporate class ETFs.
For now it’s enough to say that swap-based ETFs do not pay dividends or interest (which would be taxable every year), and instead convert all growth into capital gains, which can be deferred until you ultimately sell your units of the ETF. Corporate class ETFs are also designed to pay no distributions, and if they do occasionally make small payouts, they will be tax-friendly Canadian dividends or capital gains.
There’s no question this structure is more tax-efficient than traditional ETFs. But an apples-to-apples comparison with Horizons’ competitors would be extremely complicated, misleading, and not very useful.
It’s one thing to compare the Horizons S&P/TSX 60 Index ETF (HXT) to the iShares S&P/TSX 60 Index ETF (XIU), which track the same index. It’s another thing to try to measure, for example, whether HGRO is more tax-efficient than VEQT. Any comparison would need to account for the former’s much larger allocation to US stocks, which will have far more influence on performance. Any backtest would also have to acknowledge that emerging markets have only been part of the Horizons funds for a few months. And the different currency hedging strategies make any comparison even more problematic.
It’s worth noting that neither of the two US equity ETFs in the one-ticket portfolios use swaps: both the Horizons US Large Cap Index ETF (HULC) and the Horizons NASDAQ-100 Index ETF (HXQ) hold their stocks directly. The swap-based Horizons S&P 500 Index ETF (HXS) was replaced after the launch of HULC in February 2020, because the latter has a much lower fee (just 0.08%). In any case, thanks to the corporate class structure neither HULC nor HXQ are expected to make distributions.
Your year-end surprise
Which leads to one final note before we leave the tax discussion. You would expect a portfolio of total-return swaps and corporate class funds to pay little or no cash distributions: indeed, that’s the whole point. However, all three Horizons one-ticket ETFs made year-end distributions in both 2019 and 2020.
In some cases these were trivial amounts (less than a penny per share), but last year HCON distributed almost $0.10 per unit (about 0.75% of the fund’s value) and HGRO paid out over $0.17 (about 1.3%). Most of the distributions were capital gains, with small amounts of return of capital and “other income,” the latter of which is fully taxable.
| Horizons ETF | 2019 cash distribution (per unit) | 2020 cash distribution (per unit) |
|---|---|---|
| HCON | $0.00377 | $0.0985 |
| HBAL | $0.02081 | $0.00492 |
| HGRO | $0.02439 | $0.17219 |
What’s going on here? “The corporate class ETFs in the underlying holdings don’t make distributions,” Horizons’ Mark Noble confirms. However, HCON, HBAL and HGRO themselves are not corporate class ETFs: they use the same trust structure as traditional funds. As a result, they can realize capital gains when rebalancing the underlying holdings, and they may distribute taxable income as a result of managing the currency hedging. “In total, though,” says Noble, “the level of distributions and the tax liability of the ETFs is substantially lower than our competitors’ strategies.”
Counting the cost
If you’re doing a cost comparison of the Horizons asset allocation ETFs and their competitors, you need to understand the subtleties, and that’s not easy.
The management fee for HCON, HBAL and HGRO is given as 0% on the Horizons website, which is potentially misleading, and has been misinterpreted by some investors. This simply means that the one-ticket ETFs do not add a fee on top of those of the underlying holdings. (By contrast, Vanguard and iShares add a few extra basis points.) The site clearly adds that the funds are “subject to the fees of the underlying ETFs,” and indicates an MER of 0.15% or 0.16%.
But even that’s not the total cost. Many of the underlying ETFs also carry a “swap fee,” which is not reflected in the MER. It only shows up in the fund’s trading expense ratio (TER), which you’ll need to hunt for in the funds’ semi-annual reports. Last year, the three one-ticket ETFs reported TERs between 0.15% and 0.18%, pushing their overall costs to 0.29% to 0.34%.
Bottom line
It’s taken us a while to get here, but now let’s ask the only question that really matters: are the Horizons one-ticket ETFs an improvement on the asset allocation funds offered by Vanguard, iShares and BMO?
I don’t feel they have any place in a tax-sheltered account, such as an RRSP or TFSA. The only compelling argument you can make for the Horizons ETFs is in a non-registered account, where they are likely to be significantly more tax-efficient than their competitors.
If Horizons had stuck with a more traditional equity asset mix, this argument would have been stronger. For example, they could have created a fund that held only the Horizons S&P/TSX Capped Composite Index ETF (HXCN) for Canadian equities, either HXS or HULC for US equities, and a combination of HXDM and HXEM for overseas stocks, leaving all the currency unhedged. Such a portfolio would have been very similar to VEQT and XEQT, with much less in the way of taxable distributions.
Combine that equity lineup with the two swap-based fixed income ETFs in HBAL and HCON and you would certainly have a very tax-friendly balanced fund for non-registered accounts. That would have been enough to differentiate the Horizons funds from their competitors.
But the strategies used in these ETFs—the large allocation to the NASDAQ-100 index (and to a lesser extent the Europe 50 index) and the currency hedging—have added another layer to the decision. Anyone looking for more tax-efficiency will also need to change their investment strategy, and that’s letting the tail wag the dog.
Finally, anyone considering these ETFs should spend some time understanding their complicated structure. You won’t just be holding a portfolio of stocks and bonds: you’ll be getting the majority of your exposure from derivatives, which are confusing, and carry some additional risks. These include the possibility that the federal government may stop allowing these structures, as they have done with several other tax-advantaged investments in the past. As always, make sure you understand what you’re buying.
So because these swaps historically pay nominal dividends, they should be tax deductible if you borrow to invest into them?
So let’s resume. A higher cost, less diversification, a 1.3% distribution, a risk of a large unexpected capital gain should they be shut down. This validates my decision to buy VEQT not HGRO in my taxable account. Best piece that’s been written on this fund so far. Thank you!
Thanks, CCP. Do you have any insight into why Horizons went with HXT instead of HXCN in these ETFs?
When it takes that long to explain the complexity of a fund(s) and their still is more information to dig out, I will pass. KISS horizon, looks like you failed.
Mark.
@Tyler: I can’t say for sure. HXCN did not exist when the one-ticket ETFs were launched, but neither did HULC. My guess is that HXT is cheaper and they did not want to increase the cost.
@Johnson: To clarify, I don’t believe any of the swap ETFs themselves have ever paid distributions, so they would not meet the definition of an income-producing asset. But these one-ticket ETFs, which do make distributions (however small), would qualify.
How does HXCN start with a billion float from CIBC and still have a higher MER than HXT? ZCN is the same index as HXCN but only has an MER of 0.06%.
Thanks for your analysis Dan. I do wonder if on a forward looking basis that the heavy UK weighting in HXDM/MSCI EAFE is unjustified post brexit whereas STOXX 50 is a smarter long term play, but that would go against the rules based market cap weighting.
I have one your model portfolio recommendations, an iShares asset allocation ETF, but the trading expense ratio (TER) you mention here is a new concept for me. Do you know what I’m actually paying (total) for the iShares model portfolios? Is it higher than the listed MERs of 0.20%? Thank you
Once again, a nice and easy to understand explanation of these products. My honest take away from the post is that : if I’m attracted to the Horizon’s TRI / corporate class structure, I might be better off going with the components rather than the whole deal.
Here’s another risk that is rarely considered with these swap-based ETFs: counterparty risk. What happens to your holdings if the fund carrier goes under? That isn’t ever a good situation, but at least in the case of direct holdings you have a fighting chance of getting the bulk of your assets back.
Swap-based funds are extremely popular in Europe, because Europeans have few tax-sheltered options and as you pointed out, they are tax-efficient. But they are also impenetrable: you basically have no real idea what the carrier is doing with the money and have to advance it a huge helping of trust.
All in all, not really compatible with a simplified passive investment strategy, if you ask me.
Thank you again for this great post!
I used to own HXS and HXT before, but got worried after their counterparty exposure shot up to almost 30% after march 2020.
Should this be an issue? …although the counterparty is the National Bank, I never saw an explication for this sudden added risk…
These all-in-ones might have a place in anyone’s taxable account. Certainly, they are higher risk than your vanilla variety all-in-ones, but this strategy has worked for at least 20 years and could work in the future. If you had your time back over the last 20 years, would you have invested in Canadian oil or US technology?
It’s not an all or nothing proposition, either. You could do 50/50 vanilla and HGRO in your taxable. Many people are quick to write-off anything that isn’t “pure” even though there’s nothing wrong with increasing your risk profile if that suits your strategy.
Choosing an investment based on Tax treatment first and investment selection second sounds like the tax tail wagging the investment dog, as they say. It would be hard to justify these in a taxable account unless you were already looking for the specific tilts that these ETSs provide.
Thanks for the detailed review guys. This explains why their returns in 2020 were so widely different than more conventional asset allocation ETFs.
Should I be concerned that, for example, HSX, has a counterparty exposure of 39%. This is much higher than in the past, which I believe you wrote a few years ago was capped at 10 %. I can’t find the counterparty exposure for the funds actually held in HGRO. Could you shed any light on this mattter.
Thanks as always for your help and guidance.
To all those who asked about counterparty risk: I reached out to Mark Noble at Horizons ETFs a couple of months ago when another reader asked about this. He provided the following response. TLDR: the 10% maximum counterparty exposure is no longer a requirement as of January 2019. And the reason the current counterparty exposure is so high is that the funds did some tax-loss selling of the swaps during the downturn in March 2020 and the subsequent recovery increased the banks’ obligations. Full response below.
Excellent article. Could you comment on the treatment of US LLC units in an RRSP? I understand that most US stocks are sheltered in RRSPs/RRIFs but it seems there is a tax risk.
Tks
@Patrick: The TER on most traditional index funds is zero.
thanks for the thorough analysis in insights into the Horizon funds. Would there be any withholding taxes if HBAL were held in a TFSA account?
@j: Remember that the structure of the Horizons funds is designed so there are no foreign dividends at all, and therefore no foreign withholding taxes. However, there are swap fees that would apply no matter what account type these funds are held in. I would not recommend using these funds in registered accounts based on an expectation that you would reduce foreign withholding taxes.
Great sleuthing. I have been wondering about these TRI funds for some time.
I am setting up RESP account with ETFs. I want to ad Nasdaq ETF. But I am little confused which one to use . QQQC.f , HxQ zqq of znq ? Which etf you recommended for nasdaq ?
Hi Dan,
My husband and I have about 46 thousands in non-registered joint account at CIBC. We pay 0.87% MER overall on this passive account. We want to move the money either to CIBC investor’s edge or our Questrade account. Do we have to sell it and generate capital gain to buy Vgro at Questrade? If yes, can we transfer the fund to CIBC investor’s edge without generating capital gain? If we can, any recommendation of a good product to buy at investor’s edge? Thank you very much.
@Amy: If you want to switch from your current mutual funds to an ETF, there is no way to avoid the capital gains/losses. You can transfer your holdings to another brokerage in-kind, and this will not trigger gains or losses immediately. But once the holdings are transferred you would still need to sell them.
Hi Dan, I don’t comment often but couldn’t resist this one. I don’t think you could have done better than this in one of your April Fools posts.
https://www.bloomberg.com/news/articles/2021-03-10/a-new-etf-named-fomo-targets-everything-from-spacs-to-volatility
@Darren: OK, it’s official, we’re in a bubble. :) I actually had to check twice to make sure this was real.
Hey Dan,
I see MANY people talking about “due diligence” when it comes to investing in a stock. However, from what I know, even professionals can’t outperform index funds on average. Is the idea of ‘due diligence’ for individual stocks therefore a (large) myth, or is there any bit of truth to it?
It seems like it’s not a thing. I guess I’m just confused why so many people give that advice out and act like it is a thing. But I am a passive investor without life experience lol.
Thanks for answering all my questions!
@Vince: Performing due diligence on a stock before investing makes sense, of course, and is certainly better than buying it simply because you like the company, it pays a dividend, or it has performs well recently (the usual reasons people buy stocks). But the point is that it’s naïve to think that your due diligence is going to give you any insight into whether the stock is undervalued. If you believe markets are efficient (even if not perfectly so) you can be confident that analysts with a lot more experience and more complete information have already done their due diligence and this is factored into the current price of the stock. So it’s not clear what new information your due diligence will reveal.
Are you sure HTB is currency hedged?
Vs HTH
@Jonathan: The underlying holdings are not hedged, but the One-Ticket ETFs add their own layer of currency hedging.
This fund sounds too complicated for me. I was hoping for an a tax efficient one-fund solution for my taxable account and now it seems that there isn’t one. I currently hold XBAL/XGRO in my registered accounts. However, my TFSA is maxed out and I would prefer not to put anymore in my RRSP, since I don’t need the tax deduction. Do you have a new CP “model portfolio” for taxable accounts? Thanks
@Wanda: The asset allocation ETFs are entirely appropriate in taxable accounts.
https://www.canadianportfoliomanagerblog.com/tax-efficiency-of-vanguards-asset-allocation-etfs/
Hi Dan
Thanks for everything
Would you use HTH or HTB for the us bonds part if I Was trying to do a VGRO/XGRO with these ETFs for my corporate account
Should the US bonds be hedged?
Canada HXCN 20%
USA HULC 35%
World HXDM 20%
Émerging HXEM 5%
HBB 13.5%
HTB or HTH??6.5%
@Jonathan: As a general rule, all foreign fixed income in your portfolio should be hedged. This is the case with asset allocation ETFs from iShares, Vanguard and BMO.
HTH has been terminated by Horizons a few weeks ago. :(
https://www.horizonsetfs.com/news/Press-Release/Horizons-ETFs-Announces-March-2021-ETF-Closures
Ideas for get HTB hedged???
Hi Dan,
My parents had a meeting with their Edward Jones advisor yesterday and realized that they were being somewhat grifted (they also asked me for advice so I came and talked with the representative). They have asked/offered me to take over for them for free. I have only personally maxed my TFSA and some of a regular account with VEQT as that’s what applies to me, I have less knowledge about RRSP (not good for me, but maybe better for them), and other stuff such as my stepdad’s work pension/contribution to a plan he had done, and I also have to check their line of credit interest rate.
Do you have a suggestion as to where I can get started to figure out what’s ideal for them based on their time horizon? I don’t mind putting answers if you would like to give specific advice however i ask a lot already lol. I am wondering if there are retirement advisors for older people who would have more knowledge than me in this area.
Thank you!
I will add I thought something like VBAL/etc and maxing TFSA was ideal, however the Edward Jones rep said RRSPs are often better than TFSAs for some individuals, which I did not know. Doesn’t apply to me or my parents i think cause we don’t make enough, but I want to ensure I’m not missing anything for them.
@Vince: If you believe the advisor is not providing useful advice, I might suggest you consider consulting a fee-for-service financial planner, who can provide unbiased advice without being motivated by commissions on investment products. Many planners specialize in helping those in or close to retirement.
Hi Dan,
I met with the advisor yesterday alone. She showed me some of the portfolios she would be creating. I was unhappy to find they included mutual funds such as CIF843. They had a list of ETFs also, and I asked about the benefits of ETFs vs those mutual funds she didn’t really have an answer except she feels “active management is better than passive” and other similar answers you get due to “less risk”, and also said that if she bought the ETFs that I ask for for the equity portion of the portfolio, Edward Jones would charge a 2% fee/commission that goes to them (not her, so arguably not a conflict of interest, but still…)
I think advice would be helpful with RRSPs, stock/bond ratio, etc, but any portfolio my parents would have with them is getting charged commission fees in mutual funds and ETFs, it was pretty bad.
Ack, I am googling fee-for-service financial planners and they are expensive. This lady was $50 a year flat fee but you get grifted via the mutual funds/ETF commissions (hidden fees). I’ll see what I can find for any financial planners that are somewhat affordable and hopefully won’t take too many sessions lol. Thank you for the help!
AGF201 was another mutual fund that was held in the sample portfolio this advisor provided for me. The list of ETFs I don’t recall as well, I remember seeing some vanguard in there however if I recall correctly they were mostly or completely actively managed stuff and certainly not any of vbal/veqt/etc.
I am currently looking for more fee-for-service planners as we speak though, hopefully I’ll find someone!
Hi Dan, it’s tax season, and I have to calculate my adjust cost basis because in 2020, I sold some bond ETFs a few times which I had previously bought at difference price points in my taxable account. I have not done this before. I am afraid of making a mistake so I am tempted to pay an accountant to file my taxes for me. This is a dumb question but do all accountants know how to calculate ACB properly?
Follow up to previous post: I meant to say that I am tempted to pay Turbotax to file my taxes for me and the person doing it may be a “tax expert”, so not necessarily an accountant. Is this something to be concerned about?
Also, I thought of this just now: if I don’t sell an ETF, do I still have to track the ACB, since there may have been capital gains that incurred within the fund? If so, that means I’ll have to refile my taxes from previous years?
@noob: Although accountants clearly understand how to track ACB and report gains and losses, they may not have any specific experience with ETFs and their tendency to distribute small amounts of return of capital and reinvested capital gains. And I think it’s safe to assume that your average tax preparer won’t know how to do this properly.
If you did not sell any shares in previous tax years, you don’t need to worry about re-filing: any capital gains distributions from your ETFs would have appeared on your T3 slips and you would have reported these even if you didn’t realize it.
You don’t necessarily have to keep track of your ACB on an ongoing basis if you are not planning to sell shares in the near future: you could go back and do all of the calculations in the year you do actually sell. But it’s easier to stay on top of it. I highly recommend using the premium service on AdjustedCostBase.ca, which automatically adjusts for return of capital and reinvested distributions. It’s very easy to use and it’s much cheaper than an accountant:
https://www.adjustedcostbase.ca/blog/streamlined-import-of-return-of-capital-and-phantom-distributions-and-for-exchange-traded-funds-etfs-publicly-traded-mutual-funds-and-trusts/
Hi Dan.
Since the S&P 500 typically outpaces the average stock market return according to history, what’s the reasoning for not simply getting a S&P 500 ETF? Does it have to do with less diversification/more risk?
Thanks!
Thanks Dan! Glad I don’t have to refile.
@Vince: I think it’s because you’re only getting 500 US companies and it’s tech heavy. You’re more concentrated in one sector and in one country.
@Vince: There have been many periods when US stocks have lagged the rest of the world (the first decade of the 2000s is the most recent example). There is no reason to expect that the US (or any other country) will outperform the rest of the world indefinitely, so the prudent choice is to diversify globally.
Thank you guys!
Hey Dan, do you know if US index funds/international index funds and ETFs that include non-Canadian stocks (such as XAW) count as “foreign property”? (with respect to having to fill out the T1135 if you hold more than 100k’s worth of foreign property)?
Thank you once again!
@noob: Canadian-listed ETFs (including XAW) are not considered foreign property even if they hold foreign stocks. The T1135 only needs to be completed if you hold US-listed ETFs in a taxable account.
What would you recommand for the bonds part of a non registered account
HBB only?
I have been interested in the Horizons funds for quite a while. One issue that does not get mentioned enough with them is the bid ask spreads. To me they are unforgivably wide on most of their funds most of the time, even those with big AUM. For example HBB has 1.4B net assets but the big ask spread is 10X more than on traditional equivalent funds like XBB or VAB. The spreads are bad on all the horizons funds that I have looked at other than HXT with 2.4B AUM which seems to have reasonable bid ask spreads most of the time. It has been enough of a hurdle to prevent me from buying most of their funds. It feels like a front end fee.