Balanced portfolios represent a compelling investment option for investors seeking diversified exposure to multiple asset classes within a single fund. This article will profile the balanced ETF portfolio suite of Fidelity Investments Canada, RBC (TSX:RY) iShares, and Mackenzie Investment.
Balanced ETF Portfolios Explained
Balanced ETF portfolios are modern investment vehicles that combine the diversification benefits of traditional mutual funds with the liquidity and transparency of ETFs. These funds offer investors exposure to a diversified portfolio of assets encompassing stocks, bonds, and sometimes other asset classes. Balanced ETF portfolios have gained prominence among investors as a means of navigating the complexities of today’s dynamic markets.
The Benefits of a Balanced ETF Portfolio
With their emphasis on diversification, simplicity, and cost-effectiveness, balanced ETF portfolios offer a prudent approach to portfolio construction and risk management. Below are the advantages of a balanced ETF portfolio:
Diversification:
One of the foremost advantages of balanced ETF portfolios is their ability to provide investors with diversified exposure to various asset classes within a single investment vehicle. By holding a mix of stocks, bonds, and potentially other assets like real estate or commodities, these ETFs help spread risk across different sectors and geographies. Diversification is a crucial risk management tool, mitigating the impact of volatility in any single market or asset class.
Simplicity:
Balanced ETF portfolios offer investors a convenient and straightforward investment option. Instead of managing a complex portfolio of individual securities, investors can achieve diversification with just one investment. This simplicity saves time and reduces the administrative burden associated with portfolio management.
Risk Management:
Asset allocation is a cornerstone of portfolio construction, and balanced ETF portfolios inherently embody this principle by holding a diversified mix of assets. Including equities and fixed-income securities allows these funds to balance the risk-return trade-off. In times of market volatility, the stability provided by bonds can help cushion the impact of equity market downturns, thereby enhancing overall portfolio resilience.
Cost-effectiveness:
Balanced ETF portfolios typically have lower expense ratios than actively managed mutual funds. With passive management strategies, these funds aim to replicate the performance of their underlying index at a fraction of the cost. Lower fees translate into higher net returns for investors over the long term, making Balanced ETF portfolios an attractive option for cost-conscious investors.
Transparency:
ETFs, including balanced ETF portfolios, offer high levels of transparency regarding their holdings and portfolio composition. Investors can access detailed information about the underlying assets, sector allocations, and geographic exposure of these funds daily. This transparency fosters trust and confidence among investors, enabling them to make informed investment decisions.
Balanced ETF Portfolio Consideration for Investors
While balanced ETF portfolios are turnkey solutions that investors can easily utilize, some considerations should be made when selecting portfolio solutions. Below are some considerations that investors should make when considering the suitability of a portfolio for their investment goals.
Risk Profile:
While balanced ETF portfolios aim to balance risk and return, investors should carefully assess their risk tolerance and investment objectives before allocating capital to these funds. Conservative investors may opt for balanced ETF portfolios with a higher allocation to fixed-income securities, while aggressive investors may favor funds with a higher weighting towards equities.
Asset Allocation:
The asset allocation of balanced ETF portfolios plays a pivotal role in determining their risk-return characteristics. Investors should evaluate the underlying asset mix of these funds to ensure alignment with their investment goals. Factors such as investment horizon, income requirements, and market outlook should inform asset allocation decisions.
Performance:
Past performance is often considered a key indicator of future performance, although it is not guaranteed. Investors should conduct thorough research on the historical performance of their chosen balanced ETF portfolio, considering factors such as volatility, drawdowns, and consistency of returns. Additionally, analyzing the performance of the underlying index and understanding the fund’s investment strategy can provide valuable insights.
Canadian Balanced ETF Portfolio Solutions
Investors have a broad choice of balanced ETF portfolio solutions within Canada, as this is standard among ETF manufacturers. However, each ETF manufacturer may have small nuances in their solution to differentiate themselves from their peers.
Fidelity Investments: Fidelity All-in-One ETFs
Fidelity Investments All-in-one ETFs offer investors a convenient, cost-effective option that is globally diversified and balanced to minimize risk. The portfolio suite comprises four asset allocation solutions that utilize Fidelity Investments ETF offerings as their building blocks. The respective solutions are:
Fidelity All-in-One Conservative ETF (Ticker: NLB:FCNS), designed with a neutral mix of approximately 40% equity factors, 59% systematic and actively managed fixed income ETFs, and 1% cryptocurrencies.
Fidelity All-in-One Balanced ETF (Ticker: NLB:FBAL), designed with a neutral mix of approximately 59% equity factors and 39% systematic and actively managed fixed income ETFs, and 2% cryptocurrencies.
Fidelity All-in-One Growth ETF (Ticker: NLB:FGRO), designed with a neutral mix of approximately 82% equity factors, 15% systematic and actively managed fixed income ETFs, and 3% cryptocurrencies.
Fidelity All-in-One Equity ETF (Ticker: NLB:FEQT), designed with a neutral mix of approximately 97% equity factors ETFs and 3% cryptocurrencies.
As noted by Fidelity Investments, the underlying ETFs used within the portfolios are ‘factor-based’, providing distinct exposure to return drivers across asset classes. Factor ETFs have the potential to outperform traditional index ETFs because they are based on a more strategic approach to investing. The portfolios also allocate to cryptocurrencies, namely Bitcoin. Though the allocation is relatively small, it is a differentiating factor in comparison to other balanced ETF portfolio solutions; furthermore, given the historical performance of Bitcoin - it can potentially be an additive component to each portfolio.
RBC iShares: iShares Core ETF Portfolios
RBC’s iShares Core ETF Portfolios are designed to be simple, one-ticket solutions to help investors reach their long-term investment goals. Each ETF portfolio adheres to a strategic target asset allocation to help meet a range of investors’ goals and risk profiles, delivering broadly diversified exposure to Canadian, U.S., Developed, and Emerging Market Equities and Canadian and U.S. Fixed Income. The respective solutions are:
iShares Core Income Balanced ETF Portfolio (Ticker: XINC) has a strategic allocation of 20% equity and 80% fixed-income; with a significant exposure to Canadian fixed income.
iShares Core Conservative Balanced ETF Portfolio (Ticker: XCNS) has a strategic allocation of 40% equity and 60% fixed-income, with significant exposure to Canadian fixed-income.
iShares Core Balanced ETF Portfolio (Ticker: XBAL) has a strategic allocation of 60% equity and 40% fixed income; with significant exposure to Canadian fixed income and U.S. Equity.
iShares Core Growth ETF Portfolio (Ticker: TSX:XGRO) has a strategic allocation of 80% equity and 20% fixed income, with significant exposure to U.S. Equity, Canadian Equity, International Equity, and Canadian Fixed Income.
iShares Core Equity ETF Portfolio (Ticker: XEQT) is an all-equity portfolio with exposure to U.S. Equity, Canadian Equity, International Equity, and Emerging Market Equity.
iShares Core ETF Portfolios are continuously monitored and automatically rebalanced, as needed, in order to maintain asset class target weights.
Mackenzie Investments: Mackenzie Asset Allocation ETFs
Mackenzie Asset Allocation ETFs combine the benefits of broad diversification with strategic asset allocation. The asset allocation suite’s unique distinction is its exposure to emerging market local currency bond ETFs alongside other asset classes. The EM local-currency bond universe is diverse and changes over time. It contains bonds issued by governments, government agencies, and corporations in their home currencies. Local-currency bonds typically offer somewhat higher yields, offered by somewhat less-risky issuers. The respective solutions are:
Mackenzie Global Fixed Income Allocation ETF (Ticker: MGAB) provides broad exposure to the fixed income universe, with allocations to Short-term debt, Government and Corporate Debt, High-Yield Debt, and Emerging Market Debt & Currency.
Mackenzie Conservative Allocation ETF (Ticker: MCON) has a strategic allocation of 40% equity and 60% fixed-income, with significant exposure to Canadian fixed-income and U.S. Fixed Income.
Mackenzie Balanced Allocation ETF (Ticker: MBAL) has a strategic allocation of 60% equity and 40% fixed income; with significant exposure to Canadian fixed income and U.S. Equity.
Mackenzie Growth Allocation ETF (Ticker: TSX:MGRW) has a strategic allocation of 80% equity and 20% fixed income, with significant exposure to Canadian and U.S. Equities.
Mackenzie All-Equity Allocation ETF (Ticker: MEQT) is an all-equity portfolio with exposure to U.S., Canadian, International, and Emerging Market Equities.
This content was originally published by our partners at the Canadian ETF Marketplace.