Under the hood of two new Vanguard all-in-one ETFs

Ruth Saldanha 20 March, 2019 | 2:00PM
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Ruth Saldanha:
Last year Vanguard was the first asset management company to launch all-in-one asset allocation ETFs with three options to choose from, conservative, balanced and growth. These funds raised over $1 billion in assets since their launch. Last month, the company added two more ETFs to the list, the Conservative Income and the All Equity. Tim Huver, Head of Product at Vanguard Investment Canada is here with us to discuss these new launches.

Tim, thank you so much for joining us.

Tim Huver: Thanks for having me, Ruth.

Saldanha: How have the responses been so far to these two new products?

Huver: The responses have been to the new products and the suite as a whole very, very positive in the marketplace. And when you think about the existing ETF industry and through our product development process, we did notice a gap for broadly-diversified low-cost balanced portfolios that can form a sensible portfolio, all-in-one portfolio, for investors. And so, through that we launched the suite of five products. Difference risk tolerances. So, we have the different asset mix, whether you are conservative or maybe a more aggressive investor looking for growth, you have the portfolio to select from, from the range. And so, with each portfolio you get access to over 260,000 underlying securities, so global diversification packaged in a low-cost vehicle at 22 basis points in terms of the management fee.

Saldanha: What are the benefits of owning a single all-in-one ETF as opposed to building up your own portfolio?

Huver: Well, we think it's a very simple yet sophisticated approach. So, it uses underlying ETFs – it's an ETF-of-ETF structure – using underlying ETFs to provide the broad diversification, so a very efficient way to package the ETFs to achieve that diversification. Low-cost, so 22 basis points. The asset allocation was actually constructed by our investment strategists internally and this is our best thinking around portfolio construction. And I think the key part here is that our portfolio management team will rebalance the portfolios looking at the portfolios on a daily basis, they will reallocate to equities and to bonds as you get out of weight as well as to the underlying exposures, the underlying ETFs. So, we take that completely off your hands and manage that internally, as I mentioned, for very, very low cost.

Saldanha: You mentioned this is an ETF-of-ETFs. Why would an investor invest in this fund as against the underlying ETFs themselves?

Huver: I think it is the rebalancing aspect. And so, many of the ETFs will – the portfolio construction – or asset allocation ETFs will be derived from seven underlying ETFs. And so, when you think about trying to rebalance those seven ETFs, that becomes a difficult task to monitor and to maintain that asset allocation over time. And so, we will – as I mentioned, our portfolio managers will rebalance the portfolios. And you are also accessing our scale and our expertise in trading the underlying ETFs as well and with that scale tends to lead lower transaction costs and more skilled rebalancing at the end of the day.

Saldanha: With these new launches you released an income product as well as an all equity product. Are you seeing investors increasingly invest on polarizing ends of the spectrum?

Huver: Well, we certainly recognize that Canadian investors really value balanced portfolios and portfolios comprised of both fixed income and equities. And so, this really rounded out the suite and provided a comprehensive suite of products across different investors' risk appetites, maybe across different time horizons. So, really, we saw the addition of these two portfolios enabling them to meet those needs across that risk tolerance.

Saldanha: Thank you so much for joining us, Tim.

Huver: Thank you, Ruth.

Saldanha: For Morningstar, I'm Ruth Saldanha.

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About Author

Ruth Saldanha

Ruth Saldanha  is Editorial Manager at Morningstar.ca. Follow her on Twitter @KarishmaRuth.


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