Canadian all-in-one ETFs: an attractive alternative to robo-advisors

The popularity of robo-advisor services is well established. Investors are most attracted to these products due to the fact that they are professionally managed. However, a new competitor has emerged and risks changing the landscape!

This product is called an all-in-one ETF or an asset allocation ETF. Like all ETFs, you can buy all-in-one ETFs through an online broker.

So what exactly is an all-in-one ETF?

For the record, Vanguard was the first issuer to launch this product in 2018. Vanguard wanted to offer a product that would fall between:

• Autonomous management, that is, acquiring several ETFs yourself and building your own portfolio

And

• Relying on robo-advisors to build a personalized portfolio with a certain level of monitoring and customer support.

The result: a turnkey ETF featuring a diversified and multi-asset portfolio. There is need to acquire other ETFs, because the product itself is a portfolio (hence the name all-in-one ETF). The investor will just have to determine their risk tolerance and choose among the portfolios offered (conservative, balanced and growth). All-in-one ETFs trade on an exchange like any other financial product. 

For example, if you acquire VCIP (Vanguard Conservative Income ETF Portfolio), the manager will invest 20% in equity ETFs and 80% in bond ETFs. The manager will choose from a pre-determined list of ETFs that cover the Canadian and international markets, as well as various types of fixed-income ETFs. 

In addition to Vanguard, there are currently several other all-in-one ETF issuers like iShares, BMO, TD and Horizons, to name just the big ones.

What are the benefits of owning an all-in-one ETF?

There are two main advantages:

1. Easy access to a professionally-managed portfolio

In fact, you just need to determine your risk profile and buy the right all-in-one ETF. You can relax and let the professionals choose your ETF’s composition. They will ensure that the initial allocation you’ve chosen is always respected. In addition, they’ll make sure to rebalance our portfolio to maintain it in the future.

2. Low management fees

Currently, the management fees for all-in-one ETFs range from 0.18% to 0.25%. These rates are very attractive compared to professionally-managed funds and the savings on transaction costs. Also, with all-in-one ETFs, the investor is exempt from doing some of the work that an independent investor must do, such as choosing securities and rebalancing their portfolio periodically.

All-in-one ETF versus robo-advisor, which one should you choose?

The choice between these two products depends on several factors and their relative importance. I’ve listed a few differences below. It’s up to investors to determine whether the additional services that come with robo-advisors justify paying a higher management fee compared to all-in-one ETFs. 

Determining your profile

With robo-advisors, the investor answers multiple questions online to determine their profile. Based on these answers, they will be offered a portfolio that corresponds to their risk profile, so the chance of choosing an inappropriate profile is low. 

In the case of all-in-one ETFs, the investor must determine their risk profile on their own. If the investor lacks objectivity in this exercise, they risk choosing an inappropriate profile. In this case, it is unlikely to achieve the expected objectives. 

Long-term portfolio monitoring 

Robo-advisors provide flexibility that may interest investors. When major life events occur, like a marriage, childbirth or other, the investor can contact their advisor to revise their initial allocation. This facilitates the process of updating their portfolio. 

With all-in-one ETFs, it’s the investor’s responsibility to ensure that their allocation is still appropriate. For example, consider an investor who initially invested in a growth portfolio. As their retirement date approaches, they must prepare to switch it to a less risky portfolio, and they must do this work themself. In this case, the recommended approach would be to gradually sell the growth portfolio and evolve it into a conservative portfolio. 

Management fees

As mentioned in the two points above, the portfolios offered by robo-advisors come with support, which is not the case with all-in-one ETFs. Because of this additional service they typically charge higher management fees than all-in-one ETFs. The average fee for robo-advisors is about 0.70%. Also, they require a minimum investment of $1000, unlike all-in-one ETFs.

New trend in the United States: Lifecycle ETFs

ETF products have been recently launched in the United States. The lifecycle ETF was designed to be a complete solution for someone wishing to save for retirement. As with all-in-one ETFs, the investor must first determine their risk profile and then specify when they plan to retire. The fund manager will tailor its allocation (equity ETFs versus bond ETFs) according to the information provided. As the retirement date draws closer, the manager will shift towards more conservative investments. 

This product is only available in Canada at this time as a mutual fund. It is offered by BMO as the LifeStage Plus Fund. 

All-in-one Canadian ETF offerings by an issuer

Vanguard

Vanguard has 6 different all-in-one ETFs with relatively low management expense ratios. These ETFs provide exposure to various financial markets, including Canada, U.S., developed and emerging countries.

1. Vanguard Conservative Income ETF Portfolio (VCIP)

• 0.25% MER
• 7 securities
• 20% equities; 80% bonds

2. Vanguard Conservative ETF Portfolio (VCNS)

• 0.25% MER
• 7 securities
• 20% equities; 80% bonds

3. Vanguard Balanced ETF Portfolio (VBAL)

• 0.25% MER
• 7 securities
• 60% equities; 40% bonds

4. Vanguard Growth ETF Portfolio (VGRO)

• 0.25% MER
• 7 securities
• 80% equities; 20% bonds

5. Vanguard All-Equity ETF Portfolio (VEQT)

• 0.25% MER
• 7 securities
• 100% stocks

6. Retirement Income ETF Portfolio (VRIF)

• 0.29% MER
• 7 securities
• Percentage varies to maximize monthly income. Maximum of 60% in stock.

BMO

BMO offers three all-in-one ETFs with low management fees. The composition of each of their portfolios is very diversified and covers different types of assets.

1. BMO Conservative ETF Portfolio (ZCON)

• 0.20% MER
• 7 securities
• 40% equities versus 60% bonds

2. BMO Balanced ETF Portfolio (ZBAL)

• 0.20% MER
• 7 securities
• 60% equities versus 40% bonds

3. BMO Growth ETF Portfolio (ZGRO)

• 0.20% MER
• 7 securities
• 80% equities versus 20% bonds

iShares Canada

iShares has 4 all-in-one ETFs. Their portfolios are well diversified with low management fees. Each portfolio is invested in a basket of 8 ETFs.

1. iShares Core Conservative Balanced ETF Portfolio XCNS

• 0.20% MER
• 8 securities
• 40% equities versus 60% bonds

2. iShares Core Income Balanced ETF Portfolio XINC

• 0.20% MER
• 8 securities
• 20% equities versus 80% bonds

3. iShares Core Balanced ETF Portfolio XBAL

• 0.20% MER
• 8 securities
• 60% equities versus 40% bonds

4. iShares Core Growth ETF Portfolio XGRO

• 0.20% MER
• 8 titles
• 80% equities versus 20% bonds

Horizons

Horizons offers 3 all-in-one ETFs with very competitive management fees. As you will see below, the percentages chosen by Horizons for their risk profiles are different from their competitors. 

Horizons’ ETFs are fairly diversified, but provide no exposure to emerging markets.

1. Horizons Conservative TRI ETF Portfolio HCON

• 0.14% MER
• 7 securities
• 50% equities versus 50% bonds

2. Horizons Balanced TRI ETF Portfolio HBAL

• 0.15% MER
• 7 securities
• 70% equities versus 30% bonds

3. Horizons Growth TRI ETF Portfolio HGRO

• 0.16% MER
• 7 securities
• 100% stocks

TD

TD has 3 all-in-one ETF profiles. Each profile is invested in a basket of 15 ETFs and provides good diversification.

1. TD One-Click Conservative ETF Portfolio TOCC

• 0.27% MER
• 15 securities
• 30% equities versus 70% bonds

2. TD One-Click Moderate ETF Portfolio TOCM

• 0.28% MER
• 15 securities
• 60% equities versus 40% bonds

3. TD One-Click Aggressive ETF Portfolio TOCA

• 0.28% MER
• 15 securities
• 80% equities versus 20% bonds