A sponsored post
Mutual funds can be a great way to invest in a diversified basket of stocks and bonds. 30 years ago, they were the primary way my parents invested their earnings.
Eventually, the balanced mutual fund became the investment of choice for many Canadians, who wanted broad diversification with just one product.
Then along came lower-cost ETFs. ETF investing continues to gain traction in Canada as investors look to reduce their fees and take more control over their own portfolios.
The latest innovation is a new twist on the balanced mutual fund idea. They’re called asset allocation ETFs or all-in-one ETFs. The premise is the same: take a globally diversified, risk-appropriate basket of stocks and bonds, and wrap it all up into one easy-to-use product. The key difference is that an all-in-one ETF typically costs less.
Take Fidelity’s All-in-One ETFs. Investors have two flavours to choose from for their long-term investing goals. FGRO is Fidelity’s All-in-One Growth ETF and it has a target asset mix of 85% stocks and 15% bonds. FBAL is Fidelity’s All-in-One Balanced ETF and it has a more traditional target asset mix of 60% stocks and 40% bonds.
Each of these ETFs provides exposure to a globally diversified portfolio of stocks and bonds with just one purchase.
That’s an important quality today in an environment where there are distractions everywhere you look. Meme stocks, crypto, NFTs. Heck, even the Canadian ETF Association reports there are now more than 940 different ETFs to choose from! It’s enough to make your head spin.
An all-in-one ETF simplifies your portfolio and your life by giving you all the diversification you need with just a single product. You can ignore the hype around individual stocks, sectors, or geographic regions and just participate in the growth of a globally diversified portfolio.
Smart millennial investors know that the less they tinker with their portfolio, the better off they’ll be in the long term. After all, staying invested through the market’s ups and downs may give you a better chance to reach your long-term goals.
Should you worry about putting all your eggs in one basket? Nah. The point of an all-in-one ETF is that it can indeed be your entire portfolio thanks to its globally diversified underlying holdings. In fact, it’s helpful to think of an all-in-one as the sum of its collective parts.
Let’s peek under the hood of Fidelity’s All-in-One Growth ETF to see what I mean:
FGRO is made up of 14 different ETFs, each representing a particular asset class or geographic region. The top 10 ETF holdings include:
- Fidelity U.S. High Quality Index ETF
- Fidelity U.S. Value Index ETF
- Fidelity Systematic Canadian Bond Index ETF
- Fidelity U.S. Low Volatility Index ETF
- Fidelity U.S. Momentum Index ETF
- Fidelity Canadian Value Index ETF
- Fidelity Canadian Low Volatility Index ETF
- Fidelity Canadian High Quality Index ETF
- Fidelity International High Quality Index ETF
- Fidelity International Momentum Index ETF
Altogether we’re looking at over one thousand individual stock and bond holdings inside this one balanced ETF portfolio. It’s a big basket!
My favourite feature of the all-in-one ETF is that you don’t see the daily ups and downs of each individual part. You just see the total return of the entire portfolio. That’s a good thing because some investors will see an individual holding in the red (that means it’s down) and start seeing red. They want to know if something’s wrong with that specific holding and start questioning why they hold it in the first place.
Sure, we don’t like to see any of our investments lose value. But such is the nature of investing – it’s a feature, not a bug. Put it this way, if you’re happy with the performance of everything in your portfolio then chances are you’re not diversified enough. You want certain investments in your portfolio to move in opposite directions – that’s a truly diversified portfolio.
Fidelity elegantly tackles this diversification problem not only by holding stocks and bonds from different geographic regions but also by adding exposure to other known risk factors such as value, quality, momentum, and low volatility. These unique sources of risk and return add further diversification to the portfolio.
The best part? This is all done within a professionally managed portfolio that will stick to a strategic asset allocation and rebalance for you – so you don’t have to do anything except add new money to invest.
All-in-One ETFs like FGRO or FBAL work exceptionally well when investing for the long-term inside your RRSP or TFSA. They hold a variety of different stocks and bonds from all over the world that get automatically rebalanced, so you don’t have to worry about anything other than contributing to your account on a regular basis.
That automatic rebalancing can have positive implications for your portfolio’s risk and returns. It also mitigates behavioural biases, since typical investors holding multi-ETF or stock portfolios have all kinds of trouble sticking to their investing plan when stocks and bonds are moving up and down.
Savvy investors are gravitating towards all-in-one ETFs. They’re a true set-it-and-forget-it investing solution at a lower cost.
It’s your parents’ balanced mutual fund, redesigned for the 2020s using lower-cost ETFs.
Commissions, trailing commissions, management fees, brokerage fees and expenses may be associated with investments in ETFs. Fidelity’s All-in-One ETFs pay indirect management fees through their investments in underlying Fidelity ETFs that pay management fees and incur trading expenses. Please read the ETF’s prospectus, which contains detailed investment information, before investing. ETFs are not guaranteed. Their values change frequently, and investors may experience a gain or a loss. Past performance may not be repeated.
Regulatory restrictions prohibit the presentation of performance data for funds with a history of less than one year.
While the ETFs are typically managed to the neutral mix constraints indicated, the funds may deviate from it.
Please read the ETF’s prospectus, which contains detailed investment information.
The investment risk level indicated is required to be determined in accordance with the Canadian Securities Administrators standardized risk classification methodology, which is based on the historical volatility of a fund, as measured by the ten-year annualized standard deviation of the returns of a fund or those of a reference index, in the case of a new fund.
The statements contained herein are based on information believed to be reliable and are provided for information purposes only. Where such information is based in whole or in part on information provided by third parties, Fidelity cannot guarantee that it is accurate, complete or current at all times. It does not provide investment, tax or legal advice, and is not an offer or solicitation to buy. Particular investment strategies should be evaluated according to an investor’s investment objectives and tolerance for risk. Fidelity Investments Canada ULC and its affiliates and related entities are not liable for any errors or omissions in the information or for any loss or damage suffered.
Certain statements in this commentary may contain forward-looking statements (“FLS”) that are predictive in nature and may include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar forward-looking expressions or negative versions thereof. FLS are based on current expectations and projections about future general economic, political and relevant market factors, such as interest, and assuming no changes to applicable tax or other laws or government regulation. Expectations and projections about future events are inherently subject to, among other things, risks and uncertainties, some of which may be unforeseeable and, accordingly, may prove to be incorrect at a future date. FLS are not guarantees of future performance, and actual events could differ materially from those expressed or implied in any FLS. A number of important factors can contribute to these digressions, including, but not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition and catastrophic events. You should avoid placing any undue reliance on FLS. Further, there is no specific intention of updating any FLS, whether as a result of new information, future events or otherwise.