# Vanguard VGRO VBAL VCNS



## Danny

They just started a new fund. VGRO. Its an ETF made up of other vanguard etf. Was looking at the breakdown and looks interesting. Curious what other people think??? I trty to keep a couch potato mix of about 80 equity to 20% fixed income and rebalance one or twice a year. This one looks like it does it all for you. Thoughts???? Also they hace VCNS with a 40 60 mix and VBAL with a 60 40 mix.


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## OnlyMyOpinion

Danny, 
Thanks very much for the heads up on these brand new Vanguard asset allocation etfs. 
I see the FI side is CAN hedged, but not the equity side. Choose from conservative (60%FI), to balanced (40%FI), to growth (20% FI). 
Not sure the mixes are quite what I would build but I like the one fund concept. 

Here are the new products: https://www.vanguardcanada.ca/documents/investing-made-simple_en.pdf









https://www.vanguardcanada.ca/advisors/home.htm?cmpgn=PS0117CABAPDS0006


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## james4beach

With these funds-of-funds, you'll be paying 0.22%+ in management expenses instead of about 0.15%+ (say + because MER includes additional tax so the MER is more than 0.22%).

So it looks like around 7 or 10 basis points more in fees, which you're paying for them to effectively manage 3 ETF holdings. My guess is that their managers will attempt to justify their role as a manager by overcomplicating the holdings, so you will probably get an ETF soup inside. That's more or less what happens with the robo advisors, where it's a similar story. You pay a few more basis points in fees for a very simple task (should be: hold 3 ETFs) but they overcomplicate it and hold many ETFs instead.

Vanguard's offering will, however, undercut the robo advisors. I think the existing Canadian robo advisors charge around 40 basis points more than ETFs, where these Vanguard ones are bringing that down to around 10 basis points more than ETFs.

Looks interesting but I'd wait at least 3 or 5 years before taking it seriously. We have to see how they perform vs the couch potato mix you could own today: VCN,VXC,VAB

Also keep in mind that iShares has dropped their own MERs so the Vanguard ones are less competitive now versus an iShares mix like: XIC,XAW,XBB

As of today, I'd much rather own one of those three-ETF portfolios than venture into a fund-of-funds that's brand new, has no trading volume, wide bid/ask spreads, and no assets under management.


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## cainvest

I know people who will like these funds, simple one click investing and you're done.

j4b: I don't think VCN,VXC,VAB combination gives you quite the same as the above funds.


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## james4beach

cainvest said:


> I know people who will like these funds, simple one click investing and you're done.
> 
> j4b: I don't think VCN,VXC,VAB combination gives you quite the same as the above funds.


What are they doing differently? I thought these 3 funds would cover Canada, the world, and fixed income.


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## OnlyMyOpinion

james4beach said:


> ... Looks interesting but I'd wait at least 3 or 5 years before taking it seriously. We have to see how they perform vs the couch potato mix you could own today: VCN,VXC,VAB... As of today, I'd much rather own one of those three-ETF portfolios than venture into a fund-of-funds that's brand new, has no trading volume, wide bid/ask spreads, and no assets under management.


I can certainly understand your perspective James. These aren't a 'black box' though, the 7 etfs within them have some past performance that a person could weigh if they were inclined. It will be interesting to see over time how VBAL compares to something like actively managed global balanced MAW104. 
I think these will be popular with people who don't want to have to rebalance and want something on 'autopilot'. Young & busy, aging & diminished, or planning for a disinterested surviving spouse.

Oops: missed aging & busy :triumphant:


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## fplan

Thank you vanguard. These products are for people like me. I have good knowledge on trading and products/stock market etc but I am not disciplined enough to rebalance/contribute or follow a set plan.. this way I can just buy one ETF and leave balancing to the manager by paying a small fee ( MER).. my only complain is that Canadian equity got same allocation as us/int equity.. I will have to add XAW also to increase US/int equity holding ..but still way better than having 3 or more ETFs.. also its easier to recommended to family and friends as well.

I want to wait for expert comments on advantages and disadvantages of these funds.. if all is well in about three months I will move funds from
e-series to one of these etfs..

*Jonathan Chevreau summed it up well *:

"In the case of a financially literate wife and a financially uninterested husband, if the wife were concerned about her dying first and wishing to put the collective portfolio on autopilot, the Balanced or Conservative version might also do the trick, short of just handing the whole lot over to a professional money manager."


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## GoldStone

james4beach said:


> What are they doing differently? I thought these 3 funds would cover Canada, the world, and fixed income.


1. For starters, they added US fixed income (CAD hedged) and Global fixed income (also CAD hedged). This is not a random choice. Vanguard published a number of research papers on the benefits of holding hedged foreign fixed income. For example:

Global fixed income: Considerations for U.S. investors

2. VXC doesn't have internal rebalancing controls. It holds all geographies (US, Europe, Pacific, EM) at their market cap weights. If one of those geographies develops an obscene bubble a-la Japan, VXC cannot trim and re-balance it. The new all-in-one ETFs have target allocations for each geography. Vanguard will be rebalancing them back to their target weights. This is not a bullet-proof protection against bubbles but it's better than nothing.


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## james4beach

Thanks for all this info. I agree that some global bonds are good to have and I'm familiar with Vanguard's argument for the hedged version. It's sensible, though I'm not completely on board with the (significant) cost of all those currency contracts used for hedging. That's a minor issue though.

Overall I agree this looks attractive and interesting. I'd just note here that there's a big difference between theory and practice, and portfolio design vs execution in real life. It would be good to at least see a bit of track record before rushing head long into a brand new ETF, even if it just holds other good quality ones within it. Even if their concept is solid, and the underlying funds are solid, it doesn't necessarily mean that the newly created fund (tracking their internal home grown index) will execute the whole concept well.

I'm sure it will work out fine though. Basically a couch potato in a single ETF.


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## GoldStone

james4beach said:


> Looks interesting but I'd wait at least 3 or 5 years before taking it seriously. We have to see how they perform vs the couch potato mix you could own today: VCN,VXC,VAB


This is akin to saying: _New Honda Accord looks interesting but I'd wait at least 3 or 5 years before taking it seriously._

You are buying a basket of vanilla Vanguard ETFs. There is no mystery as to what exactly you get. The new basket is similar but not identical to VCN,VXC,VAB. It can slightly outperform or slightly underperform over 3-5 years. That's a meaningless test.


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## GoldStone

james4beach said:


> I'm sure it will work out fine though. Basically a couch potato in a single ETF.


Agree.

(our posts crossed)


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## DigginDoc

fplan said:


> Thank you vanguard. These products are for people like me. I have good knowledge on trading and products/stock market etc but I am not disciplined enough to rebalance/contribute or follow a set plan.. this way I can just buy one ETF and leave balancing to the manager by paying a small fee ( MER).. my only complain is that Canadian equity got same allocation as us/int equity.. I will have to add XAW also to increase US/int equity holding ..but still way better than having 3 or more ETFs.. also its easier to recommended to family and friends as well.
> I want to wait for expert comments on advantages and disadvantages of these funds.. if all is well in about three months I will move funds from
> e-series to one of these etfs..
> 
> *Jonathan Chevreau summed it up well *:
> 
> "In the case of a financially literate wife and a financially uninterested husband, if the wife were concerned about her dying first and wishing to put the collective portfolio on autopilot, the Balanced or Conservative version might also do the trick, short of just handing the whole lot over to a professional money manager."


I will be looking into this scenario as well. I fall into the same general situation as yourself. Due to lack of knowledge and health issues, I am hoping to turn my non registered portfolio into a long term legacy. My GICs come due, starting in about 3 to 8 months. My wife will not be looking after it on receipt of everything, should I vacate the easy chair.
I was already deciding to go in this direction with my last purchase of Mawer104 as well as studying the CCP offerings.
Cheers 
Doc

My last thought. Does anybody have an opinion on how these would do in a non registered portfolio for a traded down retiree’s left over cash?
Thanks
Doc


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## james4beach

GoldStone said:


> This is akin to saying: _New Honda Accord looks interesting but I'd wait at least 3 or 5 years before taking it seriously._
> 
> You are buying a basket of vanilla Vanguard ETFs. There is no mystery as to what exactly you get. The new basket is similar but not identical to VCN,VXC,VAB. It can slightly outperform or slightly underperform over 3-5 years. That's a meaningless test.


No, I disagree that waiting is meaningless. Their ETF pages don't even show the holdings for these at the moment, it looks like you'll have to wait 45 days before you start seeing the holdings. In their PDF they show some aspirations for what they want to weight it with, but we don't know what they are actually doing and what they actually hold until they start publishing that data.

We also need to see their AUM are and if it's attracting investors. Why? Because small ETFs that can't attract assets end up shutting down / dissolving. Or don't get the attention of the managers. We have a crowded marketplace with a ton of ETFs and they don't all survive, and I'd only want to invest in something that I'm sure is going to stick around.

I think at the very least you should wait until the web site starts showing what the holdings actually are. And look for a decent fund size. An ETF with over $300 million in assets is probably going to remain viable. But if these things can't even attracted $100 million or so, their future is doubtful.

I expect they _will probably_ do well, and might even be a great replacement for MAW104 and Tangerine Balanced, but I like to see results before acting. There are a lot of promises here and it's easy to make promises. They need to successfully market and attract enough investment dollars.


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## Nerd Investor

Fair points, but Vanguard is pretty huge name, the news funds have already been announced/profiled in Money Sense and I'm sure this will be embraced by the Couch Potato community. I don't think they will have trouble attracting investors. I think this is a great solution for a lot of people.


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## latebuyer

I don't know why they are using global bonds instead of canadian bonds. I thought someone (canadian couch potato i think) said you shouldn't introduce currency risk into something that is supposed to be a safe investment.


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## GoldStone

latebuyer said:


> I don't know why they are using global bonds instead of canadian bonds. I thought someone (canadian couch potato i think) said you shouldn't introduce currency risk into something that is supposed to be a safe investment.


1. They use Canadians bonds, US bonds and Global bonds. There is no "instead".

2. They use currency hedging to remove currency risk of foreign bonds.


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## twa2w

Would also be good to know how much rebalancing strategy will affect returns vs a couch potato.
History seems to show a longer rebalance strategy( annual say) performs better than a shorter period like monthly.


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## GreatLaker

latebuyer said:


> I don't know why they are using global bonds instead of canadian bonds. I thought someone (canadian couch potato i think) said you shouldn't introduce currency risk into something that is supposed to be a safe investment.


CCP did not specifically recommend against global bonds. They did say that for an individual investor with a small portfolio the added complexity is not worth it.

http://canadiancouchpotato.com/2014/08/29/ask-the-spud-should-i-use-global-bonds/



> taking currency risk on the bond side is usually unwise. Because currencies are generally more volatile than bond prices, you’d be increasing your risk without raising your expected return. That’s a bad combination.





> should you rush to build a globally diversified fixed income portfolio? For most people, the answer is probably no. The benefits of holding non-Canadian stocks is enormous, as equity returns vary widely from country to country. But the diversification benefit of international bonds is likely to be much more modest.





> If you’ve got $100,000 and a 30% allocation to bonds, a global bond holding is probably not worth the added complexity and cost. But the argument for adding global bonds is much stronger for those with very large portfolios and a higher allocation to fixed income.


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## Danny

Can someone clarify something for me. If I was to select and purchase the fund(as an example) VGRO the management fee on this is .22%. This fund is comprised of VCN,VUN,VIU,VEE,VAB,VBU,VBG. If i look at each of those funds individually through vanguard there is a fee on each one. Does that mean I would be paying the fee on each of those and then a fee of .22% to manage the package fund? What do use think?


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## cainvest

Danny, you'd just pay the fees associated with VGRO.

In other words, you'll likely end up paying around 0.25% for this fund.


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## Ag Driver

Deleted


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## OnlyMyOpinion

It looks like it costs 0.05% to have the rebalancing of the 7 etf's done within VBAL compared to holding 7 etf's yourself and rebalancing them? 
That's $50/yr on $100,000.
I'm basing this on the 0.22% MER noted in the Jan.25, 2018 VBAL sheet: https://www.vanguardcanada.ca/advisors/mvc/loadImage?country=can&docId=12397
compared to, 
the 0.17% MER that Vanguard notes for the equivalent 'Traditional Core' etf portfolio in their Oct 2017 Quaterly Product Guide (see pdf page 25/guide page 23)
https://www.vanguardcanada.ca/documents/product-guide-en.pdf


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## dubmac

It will be interesting to see which fund performs better over the next while - VBAL or MAW104.
I'll be checking these two to see whether MAW104 can earn's it's 0.98% MER "salt".


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## Thal81

Ag Driver said:


> This also appear to be a better alternative to the eSeries if you are re-balancing annually?


A main draw of eSeries compared to those all-in-one balanced funds is being able to buy the different asset types in different accounts to optimize for income taxes. And being able to do so without the hassle of buying ETFs on a discount broker. That results in much bigger savings than owning lower MER balanced funds. 

Though if all I had was TFSA and RRSPs, then I would go all the way for one of those simple vanguard fund ;-)


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## GoldStone

dubmac said:


> It will be interesting to see which fund performs better over the next while - VBAL or MAW104.
> I'll be checking these two to see whether MAW104 can earn's it's 0.98% MER "salt".


Why wait?

Past performance, as of December 31, 2017



Code:


            MAW104    Benchmark
3 years      7.85%        8.20%         
5 years     11.07%       10.84%
10 years     7.59%        7.07%
15 years     8.28%        7.34%
20 years     7.56%        6.51%

I used a passive benchmark that closely resembles VBAL asset allocation:

25% Canadian Bond Index
15% US Bond Index
18% TSX Composite
22.6% US Total Market
15% EAFE Index
4.4% EM Index

Keep in mind, MAW104 is not always 60/40. I think I've seen them as high as 66% equities. Also, they have a 10% allocation to small caps. In other words, they take a bit more risk to earn their returns.

Also, MAW104 is only as good as the team that runs it. Who knows how good that team is going to be 10, 20, 30 years from now. OTOH, Vanguard is a known quantity. It will keep delivering market returns for as long as you are alive.


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## gibor365

VCNS, VBAL and VGRO look interesting, low MER and good AA... 
Curious what what be yield on those funds, would it be enough for RRIF min payments or not.


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## GoldStone

gibor365 said:


> VCNS, VBAL and VGRO look interesting, low MER and good AA...
> Curious what what be yield on those funds, would it be enough for RRIF min payments or not.


In all likelihood, no. You would have to sell some shares or withdraw in-kind.


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## Nerd Investor

These would be pretty useful to use as benchmarks against active management (whether self-directed or via an advisor).


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## fplan

the only drawback with tangerine is they dont offer RESP ..so vanguard is better in that aspect as well. index funds are good ,if we want add funds frequently .


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## latebuyer

For someone interested in maintaining their fixed income in gics, I think it is a shame they didn't introduce an all equity portfolio. I'm also not clear how it would work when you are retired and want to draw down fixed income. Would you have to sell some of the balanced fund, even if it is at a loss when markets are down?


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## leoc2

latebuyer said:


> For someone interested in maintaining their fixed income in gics, I think it is a shame they didn't introduce an all equity portfolio. I'm also not clear how it would work when you are retired and want to draw down fixed income. Would you have to sell some of the balanced fund, even if it is at a loss when markets are down?


Hugh? American side try VT and on Canadian side try VCX (with a pinch of VCN).


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## OnlyMyOpinion

latebuyer said:


> For someone interested in maintaining their fixed income in gics, I think it is a shame they didn't introduce an all equity portfolio. I'm also not clear how it would work when you are retired and want to draw down fixed income. Would you have to sell some of the balanced fund, even if it is at a loss when markets are down?


Perhaps a bit like our situation? We have a large FI component in strips so we went with VGRO which is only 20% FI rather than VBAL. 
With our separate FI we won't need to sell any VGRO for many years. Once our FI is used up then yes, we will have to start selling the etf.


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## gibor365

How come VGRO is 1.3% up today?!


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## GreatLaker

latebuyer said:


> For someone interested in maintaining their fixed income in gics, I think it is a shame they didn't introduce an all equity portfolio. I'm also not clear how it would work when you are retired and want to draw down fixed income. Would you have to sell some of the balanced fund, even if it is at a loss when markets are down?


That's pretty much how balanced funds work. They also don't allow tax-efficient asset allocation across accounts. They are for people that want simple, not sophisticated.


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## OnlyMyOpinion

All three, VCNS, VBAL and VGRO show price spikes (and some subsequent decline) shortly before close of trading. Pure speculation on my part but I suspect this is related in some way to the new cash flowing into them in these early days, nav having to play catch up, etc. 
I'm certainly not expecting the $10k I made on paper today to stick through tomorrow. In fact I expect to be negative over the shorter term. 
Vanguard have suggested that for etf's in general, you shouldn't purchase right at the start or right at the end of the trading day.


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## OnlyMyOpinion

Canadian Couch Potato (Dan Bortolotti) writeup on the new Vanguard etf's:
http://canadiancouchpotato.com/2018/02/05/vanguards-one-fund-solution/

About time, but a caution to those already using a pre-authorized purchase program to invest - easy with tangerine, e-series or MF's, less so with etf's. Also, remember the tax inefficiency of bonds or the bond segment in an etf when held in an unregistered account.

More discussion about the market vs NAV spread on these new (and so still low volume) etf's:
http://cawidgets.morningstar.ca/ArticleTemplate/ArticleGL.aspx?culture=en-CA&SAL=false&id=847876


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## Danny

Purchased some VGRO today. I'm going to slowly move most of my other index funds into this one. I think its going to be a good one in the long run.


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## larry81

Vanguard new line of all-in-one ETF are top notch for people who want to keep things really simple.


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## james4beach

OnlyMyOpinion said:


> Also, remember the tax inefficiency of bonds or the bond segment in an etf when held in an unregistered account.


Absolutely, these funds are great for a tax sheltered accounts (RRSP, TFSA) but the bond portion will be inefficient if non-registered.

For non-registered, I would hold stocks and bonds separately and definitely use ZDB (traditional BMO ETF) or HBB (swap-based Horizons) for your bond exposure. Both of these will offer superior after tax returns for the bond component.


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## james4beach

Reading Dan's article, I see that the Vanguard ETFs have significant foreign bonds. They hedge them, but I am still concerned about the cost of hedging. When you have a portfolio of with many currencies, properly hedging that is difficult, and has a cost. You have to buy forex swaps for a large number of currencies, trade, and maintain those forex hedges while the fund grows and shrinks.

That's going to incur a cost and performance drag. Like I said before, just because they are indexing doesn't make their performance obvious or predetermined. There is *skill* required in doing all those FX derivative trades, and there are inefficiencies in those markets. I'll be curious to see if they are successful in their bond allocations and if they actually do better than a champion fund like XBB.


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## Jimmy

Those look great. Only issue is sometimes you may want to be over/under weight certain markets to take adv of opportunities but the rebalancing helps accomplish that. Same for being long/short on bonds. Right now you would be better in a St bond ETF or PF shares which are less punished or even benefit by rising interest rates.

Many of the core bond funds were brutalized in the sell off and in 2017. But in the long run, 10+ yrs you would be ok


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## GoldStone

james4beach said:


> Reading Dan's article, I see that the Vanguard ETFs have significant foreign bonds. They hedge them, but I am still concerned about the cost of hedging. When you have a portfolio of with many currencies, properly hedging that is difficult, and has a cost. You have to buy forex swaps for a large number of currencies, trade, and maintain those forex hedges while the fund grows and shrinks.
> 
> That's going to incur a cost and performance drag. Like I said before, just because they are indexing doesn't make their performance obvious or predetermined. There is *skill* required in doing all those FX derivative trades, and there are inefficiencies in those markets. I'll be curious to see if they are successful in their bond allocations and if they actually do better than a champion fund like XBB.


WisdomTree runs a number of hedged ETFs. They published an article two days ago on the cost of currency hedging:

Currency Hedging: Re-Examining Costs After 5 Rate Hikes

Here's a chart showing the cost of hedging vis-a-vis US dollar:










Note that Euro, Yen and Pound have a *negative* cost of hedging. These currencies represent three major bond markets. Take all the currencies shown on the chart... combine them according to market caps of various bond markets... it's quite possible that foreign bond hedging has a trivial overall cost as of right now.


ADDED: Fed Funds rate is 1.5%. BoC overnight rate is 1.25%. The difference is only 0.25%. Therefore, the cost of hedging vis-a-vis CAD should be not much higher.


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## james4beach

GoldStone said:


> it's quite possible that foreign bond hedging has a trivial overall cost as of right now.


In the theoretical ideal case, maybe. But the cost of hedging is more than what's just represented in these graphs. There are also the mechanics of making those actual FX derivative trades, all of which involve bid/ask spreads, have some inefficiencies, and have to be perfectly matched to the assets in the fund. None of this can be done perfectly and I as I understand it, they are over-the-counter derivatives without a centralized exchange or publicly visible quotes.


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## GoldStone

james4beach said:


> In the theoretical ideal case, maybe. But the cost of hedging is more than what's just represented in these graphs. There are also the mechanics of making those actual FX derivative trades, all of which involve bid/ask spreads, have some inefficiencies, and have to be perfectly matched to the assets in the fund. None of this can be done perfectly and I as I understand it, they are over-the-counter derivatives without a centralized exchange or publicly visible quotes.


"Currency transactions are one of the most frequent and largest investment activities in the financial world. The currency markets are liquid, and costs have declined significantly over the last 20 years. *Recent Vanguard research has estimated that the transaction cost to hedge an international bond portfolio is less than 0.20% a year* for investors hedging back to a liquid, developed-market currency, such as the U.S. dollar, euro, Japanese yen, U.K. pound sterling, Canadian dollar, Australian dollar, or Swiss franc."

Source of quote: page 2 here
https://personal.vanguard.com/pdf/ISGHC.pdf

VCNS has 15% allocation to US and Foreign bonds (VBAL and VGRO have less).

15% * 0.20% (at most) = 0.03% (at most)

Not so scary, eh?


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## james4beach

Yes, maybe they're much better at doing this than 10 years ago (with maturity of FX markets perhaps). Some of the iShares attempts to hedge foreign currencies added horrible drag a decade ago.


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## OnlyMyOpinion

Here is Justin Bender's writeup on Vangurd's new asset allocation etfs. Be sure to read the comments/replies as well for additionl insight:
http://www.canadianportfoliomanagerblog.com/vanguards-hip-new-asset-allocation-etfs/


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## Danny

Thanks for that link OnlyMyOpinion. What is your thoughts on these? Read a lot of your stuff here and on your web site and your a pretty good resource as well.


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## OnlyMyOpinion

Danny, When you mention web site, I'm thinking you are confusing me with our esteemed 'My Own Advisor'. I too enjoy reading Mark's site: https://www.myownadvisor.ca/

As to 'only my opinion', it is as Justin pointed out, that these funds can be a great 1-stop, hands-off solution to the couch potato. You will pay a bit for that convenience, and they are most optimal in an RRSP. And of course it depends where you are in your journey and your overall FP.
We happen to be a few years into early retirement and were looking to move some RRSP cash (from matured FI) into equities so bought ~$325k of VGRO last week. Hoping the next time we look at it is in 10 yrs, won't be spending it for 20yrs.


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## Danny

Yes my mistake.Was thinking of MyOwnAdvisor. I do have a question for all you smart people out there. I generally use couch potato strategy for my own investments. Lets use this new Vanguard VGRO for an example. I understand all the asset alloacations stuff but was always wandering how do they come up with a price for this ETF. As an example the ETF came out priced at around $23. Where do they come up with that number. Probably a stupid question but just curious????


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## cainvest

Danny said:


> I understand all the asset alloacations stuff but was always wandering how do they come up with a price for this ETF. As an example the ETF came out priced at around $23. Where do they come up with that number. Probably a stupid question but just curious????


https://www.ishares.com/us/education/market-value-etf-prices


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## GreatLaker

OnlyMyOpinion said:


> Danny, When you mention web site, I'm thinking you are confusing me with our esteemed 'My Own Advisor'. I too enjoy reading Mark's site: https://www.myownadvisor.ca/





Danny said:


> Yes my mistake.Was thinking of MyOwnAdvisor.


You should merge and call the new entity *OnlyMyOwnAdvisor'sOpinion* :semi-twins:


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## DigginDoc

I would like to say thanks to all the members of the forum for all the great information shared. I am 71 and not in great health at this time. We have traded down in the last 2 years. Bought a new townhouse, car, and a tv. 
We have a good pension as well as OAS, and CCP.for both of us. We are beyond rrsps and have stock filled tfsas. We don’t need to draw on either of them nor the non registered account with a few dividend stocks. My thoughts were on the VGRO etf for the low mer, and the auto rebalancing. My wife will call an advisor immediately if something happens to me. I was hoping I could make this a plan so the account could extend as a legacy for the kids and Gkids. Just sort of sit there diversified for a few years I hope with no need for an expensive advisor.
A question. Is the FWT still recoverable through tax return time? Is the 20% bond ETFs a big problem at tax time or not to be done in a non reg account. Justin suggests not to be done. Not having been financially knowledgeable in the past 
I am getting a bit confused. I have 350/400k coming due in 4 GICs in a few months to invest. I will also put together a GIC ladder with present accounts. No debts, municipal pension transferable with cola at 48,000 per year after taxes.
Thank you for any suggestions and replies.
Cheers 
Doc


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## kungfuthug

I currently hold VCN, XAW, VFV, VSB in both RRSP and TFSA. I am thinking of liquidating all but my VFV and purchasing VGRO for TFSA and VBAL for RRSP. I have some unknown concerns I hope someone can answer.

1. Are new ETF's ever sold at a premium? Is it safe to assume that the market price of the wrapper is essentially a sum of all its encompassing ETF's?
2. How will distributions be calculated? The sum of all the encompassing ETF's distributions?
3. Should I wait before I pull the trigger on doing this to see how the first quarter and round of distributions unfold?

Thanks


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## jargey3000

sounds like a no-brainer "all-in" for me!!!!
like the fella in the commercial sez..."set it......and FORGET IT!"


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## OnlyMyOpinion

As Dubmac noted in another thread, the unit price performance for VBAL has been very similar in the first month to that of MAW104, and also of VGRO:







Much, much too early to draw any conclusions. Presumably VGRO and VBAL will differentiate themselves over time due to their FI/EQ weighting differences. And presumably MAW104 will distinguish itself given its active value approach. VBAL shows a market cap of $89 million and VBAL $50 million (MAW104 is around $3 billion). Interesting that it appears there is more appetite for the higher equity tilt of VGRO.

We have owned MAW104 happily for years, but rather than place too many eggs in that basket, we bought about an equal amount of VGRO during its early Feb swoon with some cash we had. Knowing it's composition and intent, I'm comfortable owning a Vangaurd etf even if it is new.


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## james4beach

I still think these funds are interesting, but some caution is needed and I still think it's better to let them demonstrate some history before jumping in too eagerly. Vanguard gives this warning: "*VCNS, VBAL and VGRO are not managed relative to the composition of any widely recognized index*. They use internally derived benchmarks for reference purposes only."

Notice that Vanguard is not holding themselves to any index benchmark. So what are they benchmarking against, exactly? Might they change their strategy at some point, or change their benchmark? In my view an internally generated benchmark is just about useless as a benchmark.

I think iShares XTR is important and relevant here, because it's another ETF that has no index benchmark. This started as an income trust ETF. Later it became an income-oriented ETF, and now Blackrock just about puts whatever the heck they want into it. It has some junk bonds and other things, but you don't really know what it will have next year or 5 years from now. Performance comparisons and benchmarking become very difficult.

XTR comes from Blackrock, the same place that manages the excellent flag ship funds XIU and XIC. And XTR _holds_ index ETFs. There is absolutely no problem with XIU and XIC and Blackrock themselves are perfectly trustworthy. Even when the intentions are pure and honest, a clear benchmark is vital. Without a solid benchmark, you lose the correcting force which keeps managers in check.

Another way to look at this is that VGRO/VBAL and XTR are really active mutual funds. Why? Because the managers picked (really just made up) some benchmark for themselves. The fact they hold index ETFs doesn't matter too much, because the asset allocation is fluid over the long term. They might change the composition mandate, as XTR did. You can tell from their wording that they already are pretty loose about holding themselves to a benchmark.

And with active mutual funds, you must gather track record and then compare to relevant indexes. Personally I view the new Vanguard VGRO/VBAL as actively managed mutual funds, and I would never advise buying a new active mutual fund that has zero history and track record.

I think Vanguard made a mistake in the design of these. They should have hard-coded the exact asset allocation (index weights) right into the prospectus. But they did not ... instead they left it very fluid, at manager's discretion. You may know what you are buying today, but you have no idea what you're investing in for the long term. XTR suffers from exactly the same thing.


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## gibor365

I use VBAL and VGRO as a benchamark and comparing perfomance of my portfolio vs VBAL/VGRO. So far slightly beating both


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## cainvest

james4beach said:


> I think Vanguard made a mistake in the design of these. They should have hard-coded the exact asset allocation (index weights) right into the prospectus.


No guarantee but I'm pretty sure they'll follow the asset allocations they state pretty closely. Fixing it to "exact" numbers would likely cause excessive trading and would raise costs IMO. How many of us stick to exact portfolio asset allocations ourselves?

As far as index benchmarks go, why not just compare against other products in the same group? These are one-stop "portfolio in a box" funds and not really meant for those that will track indexes and/or benchmarks but rather seek a simple return % and risk profile.


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## AltaRed

I think Vanguard will stick pretty close to their relative asset allocations on a equity/fixed income basis, but may vary the equity allocations, and the fixed income allocations somewhat. Not unlike what Mawer does with MAW104/MAW105. While I agree with James that Vanguard does not have a track record on this, they've done work (paper study for example) on how much Cdn equity Canadians should hold (a range of course). I doubt Vanguard would have launched these products without studying Mawer et al and thus I don't think there is much risk involved.

My ex is now in VBAL for about half of her TFSA and I have MAW104 for about 75% of my TFSA. We will likely move to 100% coverage within the year. Since our TFSAs will be a legacy for our respective heirs and thus hopefully have a 20+ year horizon. it simply is not a big deal.


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## OnlyMyOpinion

james4beach said:


> I still think these funds are interesting, but some caution is needed and I still think it's better to let them demonstrate some history before jumping in too eagerly. Vanguard gives this warning: "*VCNS, VBAL and VGRO are not managed relative to the composition of any widely recognized index*. They use internally derived benchmarks for reference purposes only."
> Notice that Vanguard is not holding themselves to any index benchmark. So what are they benchmarking against, exactly?


Wow James, I nearly sold my VGRO yesterday in panic after reading your post. 
But then as others have noted, these new AA funds are simply rolling up target %'s of longer-existing Vanguard etf's that do have track records, and creating a generally accepted global balanced fund allocation. Morningstar characterizes VGRO as global equity balanced (and VBAL as global neutral). I'll defer to what they consider reasonable benchmarks.
Your comments seem a bit disingenuous, even alarmist for funds that finally provide a diversified couch potato portfolio in one easy and inexpensive etf.


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## AltaRed

FWIW, I am willing to give Vanguard, who has been in the investment business for a very long time, the judgement to, for example, vary the FI component between Cdn, US or Global bonds as they see fit depending on central bank activity and prevailing interest rates (note they hedge currency out on fixed income which is smart wrt fixed income). I'll also defer to them to tinker with the weighting of the various equity components for the same reason. As Mawer does as well. I'll gladly pay them 10 extra bp (versus 10-15bp for individual ETF selections) to make those 'expert' decisions.


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## james4beach

OnlyMyOpinion said:


> But then as others have noted, these new AA funds are simply rolling up target %'s of longer-existing Vanguard etf's that do have track records


Today they are. What will they be doing in a few years from now? I agree that the snapshot of what they hold today looks great, but how can you assume this will be their persistent strategy? Vanguard has not written anything to pin themselves down, not even as far as couch potato indexers hold themselves to.

If they plan to have a consistent strategy, surely they would have documented that -- right?

With Mawer's Balanced, we know there's a consistent strategy because they've demonstrated doing it. Vanguard has not demonstrated anything yet, and they did not even document in their prospectus or fact sheets that there is a consistent strategy for this.


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## AltaRed

We know the asset allocations will be fixed probably within 5 percentage points. They have to do that to differentiate the 3 products. What more do you need? Does there need to be ulterior motives? If you don't like the movement in diversification over time within those allocations, you then vote with your feet by selling out and moving on to another product.


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## james4beach

Well I am just suspicious that they don't have a benchmark or index to hold themselves to. IMO they should explicitly state this from the outset. If it's as simple and straightforward a composition as you said, then coming up with a valid benchmark index would be trivially simple. But they did not even list one.

I don't think they have ulterior motives, I think their intentions are great. But I'm saying that due to not having a benchmark and not having a rock solid allocation policy, it won't be difficult for these products to go off course, possibly becoming under performers.

I'm also surprised that so many of you have immediately jumped on board. This is really an actively managed mutual fund, no different than a big bank balanced fund (lower fees, sure). Most of the people on this board are very critical even when selecting ETFs, but people here seemed very uncritical of this ETF.


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## OnlyMyOpinion

james4beach said:


> Today they are. What will they be doing in a few years from now? I agree that the snapshot of what they hold today looks great, but how can you assume this will be their persistent strategy?...


What's to ensure they do in the the future what they say today? Nothing I suppose. That uncertainty could be attached to any company whose shares you own or any other etf or mutual fund.

The 88 page long form prospectus for these new etf's is available on Sedar but I'm not sure that will allay your concerns? 
More briefly in their pamphlet for VGRO they say, "Objective: Seeks to provide long-term capital growth by investing in equity and fixed income securities. Strategy: Invests primarily in equity and fixed income securities, either directly or indirectly through investment in seven underlying low-cost Vanguard index ETFs. Target allocation to underlying Etf's: VCN 24.0%, VUN 30.1%, VIU 20.0%, VEE 5.9%, VAB 11.7%, VBU 3.6%, VBG 4.7% = 100.0%.

Is Vanguard Canada a shady company that might abscond with, invest contrary to their stated objectives & strategy, or otherwise piss away my money among the $110 million currently invested in the fund? Perhaps, but I slept through VGRO's 1.4%, $5k loss on Friday, so I'm either a trusting soul or senile.

Added: James, aside from the concerns you have expressed, what criticisms should I have had of the fund before investing?
As to calling them actively managed mutual funds, I don't agree. Page 22 of the prospectus states: _The New Vanguard Asset Allocation ETFs invest in Underlying Funds and are managed through strategic asset allocation to underlying index ETFs and are not actively managed with respect to individual security selection._


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## AltaRed

It is a reach but James does have a bit of a point regarding active management... in that they will actively manage to the target allocations, i.e. parlance for re-balance in my opinion, but it is a matter of balancing 7 holdings, i.e. 7 "stocks". But by no means is it an actively managed mutual fund. That assertion is way over the top.

They don't say how they will re-balance or how far away from target allocations they will let one of more of the 7 holdings get too, but I would tend to worry more about 'too frequent' re-balancing versus excessive straying from the target allocations. These 'minor' omissions (lack of transparency) are not anything I will lose any sleep over BUT it would behoove all of us to watch and see how it plays out over the course of 2018.


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## larry81

You know what would be even better than VGRO-VBAL-VCNS ? A mutual fund version !

Would be 10x better than Tangerine and even robot advisor for your typical non savvy investor.


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## AltaRed

Why a mutual fund? I can't imagine a MF being better than an ETF except for small accounts that do not warrant a brokerage account.


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## gibor365

AltaRed said:


> Why a mutual fund? I can't imagine a MF being better than an ETF except for small accounts that do not warrant a brokerage account.


It would be better for people who wants to DCA small amounts every months or so , to avoid trading fees. But, I cannot imagine any MF in Canada can give you so low MER


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## larry81

AltaRed said:


> Why a mutual fund? I can't imagine a MF being better than an ETF except for small accounts that do not warrant a brokerage account.


MF have a few advantages over ETF

- No trading fee
- Can setup automatic contribution
- Cant daytrade
- No need for brokerage account

I would definitely move my wife assets from Tangerine to a vangurard VGRO MF !


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## Spudd

larry81 said:


> MF have a few advantages over ETF
> 
> - No trading fee
> - Can setup automatic contribution
> - Cant daytrade
> - No need for brokerage account
> 
> I would definitely move my wife assets from Tangerine to a vangurard VGRO MF !


Also MF usually provide more info for taxes re ACB, I think.


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## AltaRed

I don't disagree, but of course, one pays for all that through a higher MER than the ETF equivalent. TD e-series funds are the prime example of doing what is suggested. Just don't expect the likes of Vanguard or Blackrock to get into that business when the big banks are doing the opposite, falling all over themselves introducing low MER ETFs.


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## larry81

AltaRed said:


> I don't disagree, but of course, one pays for all that through a higher MER than the ETF equivalent. TD e-series funds are the prime example of doing what is suggested. Just don't expect the likes of Vanguard or Blackrock to get into that business when the big banks are doing the opposite, falling all over themselves introducing low MER ETFs.


Not sure, i personally expect Vanguard Canada to start offering MF in the next 18-24 months. A VGRO MF equivalent with 0.20 -0.25 MER would make a killing.


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## AltaRed

larry81 said:


> Not sure, i personally expect Vanguard Canada to start offering MF in the next 18-24 months. A VGRO MF equivalent with 0.20 -0.25 MER would make a killing.


https://www.vanguardcanada.ca/indiv...d/prelim-filing-four-mutual-funds.htm?lang=en


> The Vanguard mutual funds are each expected to have a maximum management fee of 0.50% for Series F. The funds will be managed by Vanguard and several subadvisors including Baillie Gifford Overseas Limited, Pzena Investment Management, LLC, Schroder Investment Management North America Inc., The Vanguard Group, Inc., and Wellington Management Canada LLC.


I had read somewhere these would only be available through advisors, hence Series F. I may be wrong


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## Thal81

Spudd said:


> Also MF usually provide more info for taxes re ACB, I think.


I had taxable events this year for selling TD mutual funds. To my disappointment, TD provided only a T5008, showing the sell value of funds, but not the ACB. Also the sells were all lumped in 1 line per fund, despite several events on different dates (with different ACB). Thankfully I'd been tracking everything on www.adjustedcostbase.ca, so I already knew how much capital gains I would have to pay. But yeah, I was disappoint by TD.


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## AltaRed

Are you saying TD Asset Management sent you your T5008 or was it TD Direct Investing?


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## gibor365

Vanguard in US has more than 120 MF with MER rangeing from 0.05 to 0.55! 
https://investor.vanguard.com/etf/list#/mutual-funds/asset-class/month-end-returns
Canadians probably like when they got screwed with fees


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## james4beach

It's unbelievable how high our mutual fund MERs are in Canada... I can't believe this industry still gets away with it.

I personally think VGRO/VBAL would be better as mutual funds. To me these funds-of-funds just don't fit well in the ETF space, but perhaps that's personal taste. I think that ETFs should be simple, index-based structures... basic building blocks.

When I say VGRO/VBAL are like actively managed funds, I mean that if you have 20 basic building block tools available to you (the various Vanguard ETFs they use) and the manager has the ability to adjust all these knobs on country allocations and exposure types... there are so many "degrees of freedom" that this really is not indexing any more. VGRO/VBAL are not passive strategies, over the long term. The fact that the underlying things are index ETFs doesn't really matter at that point. You can do so much with them, that it's just as dynamic and active a situation as a fund manager picking individual stocks.

Or to put it another way, the VGRO/VBAL manager has just as much freedom to change their composition as the Mawer Balanced manager does. So that's what I mean when I say VGRO/VBAL are like actively managed funds. They are not literally so, but in practice, they are -- especially since the manager has the freedom to change allocations, weightings, and swap in/out various funds.


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## OnlyMyOpinion

Not so. 
Being contrarian is one thing. Being wrong is another.


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## james4beach

OnlyMyOpinion said:


> Not so.
> Being contrarian is one thing. Being wrong is another.


So if someone has an allocation that morphs and is "strategically" adjusted over time, do you still call that passive indexing?


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## AltaRed

james4beach said:


> So if someone has an allocation that morphs and is "strategically" adjusted over time, do you still call that passive indexing?


James, the 3 Vanguard asset allocation ETFS have to stick pretty close to their equity/fixed income allocations to differentiate themselves. I suspect the 'active' part is more a case of weightings within those allocations, e.g. how much Cdn, how much US, how much ex-North America... and same with fixed income, e.g. short vs long, and how much is ex-Canada hedged. There is no reason to believe the managers are going to stray much and get caught on the downwind side of bad decisions. You are reading too much into this. From my perspective, Vanguard is just playing a bit here and there with percentages of their suite of ETFs. 

Time will tell what they do. My ex is going with VBAL in her TFSA and I am going with MAW104. We will see in 2 years where it all stands.


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## gibor365

> It's unbelievable how high our mutual fund MERs are in Canada..


One of the very few categories where Canada holds 1st place in the World


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## larry81

james4beach said:


> So if someone has an allocation that morphs and is "strategically" adjusted over time, do you still call that passive indexing?


for me, ajusting your asset allocation over time fit the passive investing strategy.

Adjusting equities allocation to '100 Minus Your Age' every decade or so is good generally a good practice


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## larry81

gibor365 said:


> One of the very few categories where Canada holds 1st place in the World


page 36 for the last report on Canada, Exhibit 10 at page 22 is also troubling

http://www.morningstar.com/content/...ce/GlobalFundInvestorExperienceReport2017.pdf


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## Thal81

AltaRed said:


> Are you saying TD Asset Management sent you your T5008 or was it TD Direct Investing?


TD Asset Management, for a non-registered mutual funds account.


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## jargey3000

Just skimming thru this (very interesting) thread...
Stoopid question....but, are these new ETFs aimed moreso at registered (RRSP, TFSA etc), OR non-registered accounts?


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## james4beach

jargey3000 said:


> Just skimming thru this (very interesting) thread...
> Stoopid question....but, are these new ETFs aimed moreso at registered (RRSP, TFSA etc), OR non-registered accounts?


That's a good question. I would guess they're aimed at tax shelters, because the fixed income component will probably be very inefficient in a taxable account. Someone implementing this kind of portfolio in a taxable account should use a tax efficient bond fund like ZDB or HBB.


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## AltaRed

james4beach said:


> That's a good question. I would guess they're aimed at tax shelters, because the fixed income component will probably be very inefficient in a taxable account. Someone implementing this kind of portfolio in a taxable account should use a tax efficient bond fund like ZDB or HBB.


I think "it depends". There are advantages and disadvantages to both. The MoneySense article on Best ETFs covers this to some degree. In registered accounts, the US withholding tax is lost on ex-Canada investments, but the changes in allocations likely avoid cap gains distributions that will occur with buying/selling underlying ETFs and much of the remaining distribution would be fully taxed interest or Other Income.


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## OnlyMyOpinion

jargey3000 said:


> ... are these new ETFs aimed moreso at registered (RRSP, TFSA etc), OR non-registered accounts?


I don't think they are aimed at a specific acc type. Tax implications will vary with individual circumstances. Sometimes simplicity can trump tax efficiency (e.g. a senior in decumulation).


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## jargey3000

OnlyMyOpinion said:


> (e.g. a senior in decumulation).


I resemble that remark, only!


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## james4beach

Maybe I sounded overly negative on these ETFs. I think they will probably do fine, and I bet they will do better than most balanced mutual funds out there. I'm just saying that I'd like to see some track record... at least one calendar year of performance. Then at least someone can verify its performance against the % weighted underlying index mix and confirm that yes, it's acting as expected.


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## AltaRed

james4beach said:


> Maybe I sounded overly negative on these ETFs. I think they will probably do fine, and I bet they will do better than most balanced mutual funds out there. I'm just saying that I'd like to see some track record... at least one calendar year of performance. Then at least someone can verify its performance against the % weighted underlying index mix and confirm that yes, it's acting as expected.


You are quite welcome to wait and see...  There is always some risk in the unknown (new) so it is personal call to make.


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## james4beach

VBAL vs Mawer Balanced vs Tangerine Balanced Portfolio is going to be one really interesting competition. These are all the same kind, right? Global 60/40 balanced funds.


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## dubmac

james4beach said:


> VBAL vs Mawer Balanced vs Tangerine Balanced Portfolio is going to be one really interesting competition. These are all the same kind, right? Global 60/40 balanced funds.


Why wait? Use this comparison tool to evaluate some of the characteristics/performance of each. https://www.vanguardcanada.ca/indiv...ctedFund1=F0CAN05MRR&selectedFund2=F000000S68

Quite interesting.
looking backwards, MAW104 has (I think) out-performed, perhaps because MAW104 has less Energy, less Utilities than the other 2. 
VBAL has more US Equity.
Some interesting info on Bonds and bond compositions in each as well.

FWIW - I think the yield on VBAL is 1.06% to date.
Tangerine has the highest average market cap - MAW104 the lowest. Not sure what this means, other than perhaps MAW104 mgrs find more value, perhaps...
Tangerine appears to have a high portfolio turnover rate - 15% (compared to MAW014's 0.23%).


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## gibor365

> FWIW - I think the yield on VBAL is 1.06% to date


 there was only 1 distribution, other 3 can be completely different


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## AltaRed

Agreed, the initial numbers mean little, and especially because the funds started within the quarter itself. I'd consider the numbers borderline useless.


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## gibor365

AltaRed said:


> Agreed, the initial numbers mean little, and especially because the funds started within the quarter itself. I'd consider the numbers borderline useless.


I think that annual distribution should be more or less distributions of 7 underlying ETFs accordingly to their weighting.... I didn't calculate it, but looks like it would be in 2-2.5% range


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## AltaRed

More or less yes, but when an ETF grows very rapidly, it will have some distribution drag (lag). That is a well understood phenomena.


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## dubmac

FWIW, MAW104 distribution for 2017 was $0.315 on a NAVPS value of $28.77 per share. averages to about 1.09%.


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## james4beach

How is VBAL different than CIBC Balanced Index Premium Class ? I know the VBAL management fee (estimated 0.25% MER) is lower (the CIBC one is 0.37%) but other than the fee difference, do you think VBAL is really any different?

The CIBC one also has the mandate of being a "balanced fund", as VBAL does. It also invests in index funds and actually is very efficient and diverse in these, using S&P 500 index futures, some TSX futures, iShares ETFs, and Horizons total return ETFs too.

I bring this up because I am still very curious why VBAL/VGRO have captured so much imagination and attention around here, when CIBC introduced this same concept of a fund 7 years ago, which has these advantages over VBAL:

1. as a mutual fund instead of ETF, there are no trade fees for additional purchases
2. it has 7 years of history, has proven 7.3% CAGR return
3. use a variety of indexes and futures from different issuers, not all from a single fund co
4. great international diversification and a proven record of holding this asset mix

As far as I can tell, VBAL's only advantage is the lower fee by 0.12% -- not much really.


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## AltaRed

The Vanguard name, courtesy of Jack Bogle, was the force behind bringing down MERS in the USA and 'forced' Canadian offerings to do the same when Vanguard came to Canada. 

For too many years, Canadian investors were ripped off by the mutual fund industry and thus it is time to 'stick it' to all those names that got rich on the back of investors. Is that a good enough reason to preferentially support Vanguard?


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## OnlyMyOpinion

james4beach said:


> How is VBAL different than CIBC Balanced Index Premium Class ? I know the VBAL management fee (estimated 0.25% MER) is lower (the CIBC one is 0.37%) but other than the fee difference, do you think VBAL is really any different?


According to Morningstar they are quite different in their investments. CIBC587 is weighted to Canadian equity and bonds, while VBAL has more xCan equity and bond exposure.


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## cainvest

How is the CIBC Balanced Index performance vs MAW104?


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## hfp75

dubmac said:


> It will be interesting to see which fund performs better over the next while - VBAL or MAW104.
> I'll be checking these two to see whether MAW104 can earn's it's 0.98% MER "salt".


what about blk610 ?


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## dubmac

you can some comparison here
https://www.vanguardcanada.ca/indiv...ctedFund2=F00000RW7C&selectedFund3=F0000101Q2.

PS: Check out the "simulate costs" option on the comparison tool. CIBC balanced pf you pay most.


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## james4beach

cainvest said:


> How is the CIBC Balanced Index performance vs MAW104?


CIBC Balanced Index has performed worse than MAW104 but this is likely due to their different weightings. MAW104 has about double the foreign stock exposure as CIBC's, so it will perform better looking backward.

Mawer Balanced: 20% Canada, 20% US, 25% various intl, 30% bonds, 5% cash
Vanguard VBAL: 18% Canada, 23% US, 19% various intl, 40% bonds (current allocation, subject to change any time)
CIBC Balanced Index: 35% Canada, 15% US, 7% EAFE, 35% bonds, 8% cash (explicit 'blended benchmark')

CIBC publishes performance vs their 'blended benchmark' (found in the Annual Management Report of Fund Performance). For the Premium Class with 0.37% MER, they're showing 5 year benchmark 8.2% annualized, and their performance was 7.7% annualized. That's showing 0.5% worse performance per year than the benchmark. That's slightly worse than just their MER... so really it's not bad overall.

With VBAL, I still go back to my original concern: they do not have a benchmark. I looked at their prospectus (link to PDF) and they don't state a benchmark in there either. In fact they say "a strategic asset allocation policy" indicating that they will change the weights of various things, and only say approximately 60% will be equity and 40% fixed income.

CIBC on the other hand has explicitly stated a benchmark, which lets us evaluate how well they are tracking it. CIBC has made a true index-based fund with static allocations, much more like couch potato'ing than Vanguard's.

Vanguard has not stated a benchmark, so you will not be able to evaluate how efficiently they are tracking a benchmark. Again I will repeat that this is more of an active management strategy. They don't have static allocations, so weights and allocations is at the discretion of the fund manager. If their fund manager is good, they will keep you in sensible and consistent allocations. If their fund manager is bad, then they will do things like chase the last hot allocation and high returns and dump weak performing allocations right at their bottom.

In other words the design of the Vanguard VGRO/VBAL/VCNS is much more like MAW104. It leaves the investor exposed to the skills of the fund manager. Maybe the manager is good (MAW104) or maybe they are not.

Most fund managers do badly, and that's the whole reason people want to index. Why are you all so positive that the fund manager Vanguard chose will be good?

If you don't want to be at the whims of a fund manager, then you need a static indexing strategy, like Couch Potato, or CIBC Balanced Index Premium Class. It is *not a given* that VBAL/etc will perform well, or even as well as a benchmark index. If you're investing in VBAL/etc, you'd better hope that the fund manager is good, because they have a ton of discretion.

*Indexing is supposed to eliminate the dependence on a human manager. VGRO/VBAL/VCNS don't do this at all: they contain dynamic portfolios that the managers will adjust "strategically".*


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## AltaRed

That is a good summary James. Investors can make informed decisions based on that information. 

FWIW, I am okay with Vanguard management making (especially) geographic equity allocation decisions, just as I do with Mawer for the time being. They know more about global markets than I do. I've been in the investing game for 25 years and learned that I am best at holding ex-Canada more or less according to market cap. I have no need to make it more complicated especially when I look at Callan's periodic table of randomality.


----------



## OnlyMyOpinion

james4beach said:


> ... Vanguard VBAL: 18% Canada, 23% US, 19% various intl, 40% bonds.
> With VBAL, I still go back to my original concern: they do not have a benchmark... In fact they say "a strategic asset allocation policy" indicating that they will change the weights of various things, and only say approximately 60% will be equity and 40% fixed income.
> Vanguard has not stated a benchmark, so you will not be able to evaluate how efficiently they are tracking a benchmark. Again I will repeat that this is more of an active management strategy. They don't have static allocations, so weights and allocations is at the discretion of the fund manager. If their fund manager is good, they will keep you in sensible and consistent allocations. If their fund manager is bad, then they will do things like chase the last hot allocation and high returns and dump weak performing allocations right at their bottom.
> In other words the design of the Vanguard VGRO/VBAL/VCNS is much more like MAW104. It leaves the investor exposed to the skills of the fund manager. Maybe the manager is good (MAW104) or maybe they are not.
> Most fund managers do badly, and that's the whole reason people want to index. Why are you all so positive that the fund manager Vanguard chose will be good?
> If you don't want to be at the whims of a fund manager, then you need a static indexing strategy, like Couch Potato, or CIBC Balanced Index Premium Class. It is *not a given* that VBAL/etc will perform well, or even as well as a benchmark index. If you're investing in VBAL/etc, you'd better hope that the fund manager is good, because they have a ton of discretion.
> *Indexing is supposed to eliminate the dependence on a human manager. VGRO/VBAL/VCNS don't do this at all: they contain dynamic portfolios that the managers will adjust "strategically".*


I'm trying to decide if you are being obstinate or are truly dense.
VBAL *is* a static indexing stategy - as you stated, it is comprised of _"18% Canada, 23% US, 19% intl, 40% bonds"_. 
If you want a different stategic allocation you can shoose VCNS or VGRO. Otherwise the allocation is as stated. 
It will perform as well as any etf comprised of that allocation of the 7 underlying index etfs. 

Where do you get the idea that this is considered active management, or that they will be chasing "the last hot allocation"?
You can easily design a benchmark to measure VBAL against if you like. It would be comprised of indexes allocated at 18% Canada, 23% US, 19% intl, 40% bonds" Oh **** wait, that's the same as the etf. Carry on, I give up.


----------



## AltaRed

There is no stated commitment to the specific 18/23/19/40 ratio although they have to pretty much stick to the 40% bonds allocation. So James has a point, but so what? Much ado about almost nothing and James certainly is under no obligation to buy them.


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## cainvest

james4beach said:


> CIBC Balanced Index has performed worse than MAW104 but this is likely due to their different weightings. MAW104 has about double the foreign stock exposure as CIBC's, so it will perform better looking backward.
> 
> Mawer Balanced: 20% Canada, 20% US, 25% various intl, 30% bonds, 5% cash
> Vanguard VBAL: 18% Canada, 23% US, 19% various intl, 40% bonds (current allocation, subject to change any time)
> CIBC Balanced Index: 35% Canada, 15% US, 7% EAFE, 35% bonds, 8% cash (explicit 'blended benchmark')


So your major concern is Vanguard may adjust the equity weighting a bit over time. So if they shifted to say, 22% Canada, 20% US, 18% Intl would this cause you to be worried? Maybe it's just me but I'd be fine with that BUT I would be concerned if the stayed too far from the asset allocation of 60% equity, 40% bonds.

As a side note: One thing a did strike me as odd is their risk rating of VGRO which is "low to medium", same as VBAL. I can't see an ETF with an 80% equity holding using the word "low" when related to risk.


----------



## james4beach

cainvest said:


> So your major concern is Vanguard may adjust the equity weighting a bit over time. So if they shifted to say, 22% Canada, 20% US, 18% Intl would this cause you to be worried? Maybe it's just me but I'd be fine with that BUT I would be concerned if the stayed too far from the asset allocation of 60% equity, 40% bonds.


I'm sure they will stick to the 60/40 general allocations (in the case of VBAL) but my concern is that they may adjust their geographies/sectors in an "active management" or "market timing" fashion, the same pitfall any human decision maker faces. For example: imagine after another year they observe US performing much better than Canada. Close to US market peak and Canadian trough, they decide to boost the US allocation to 30% and drop Canada down to 10%, effectively buying the US at the top and selling Canada at the bottom. Then over the next few years they insist on holding those allocations, resulting in worse performance. This would be an effect of chasing the last hot sectors.

Even the best fund managers can make mistakes like this. Because they don't have a benchmark to follow/compare to, the manager is free to make any changes he wants. Only time will tell whether he makes sensible decisions.

If they only make minor adjustments, then no problem. But with no track record, no constraints in the prospectus, and no benchmark, I see at least a question mark here. Yes, the Vanguard-employed fund manager is probably OK at his job. Who is s/he by the way?


----------



## AltaRed

You are making an assumption that they can (might) go rogue with their allocation tilts. Maybe you should ask Vanguard about their algorithm in terms of variability parameters, who the money manager is, and under what conditions the money manager is taken out to the woodshed? From https://www.vanguardcanada.ca/indiv...from-vanguard/asset-allocation-etf-launch.htm


> For more information, please contact:
> 
> Matt Gierasimczuk
> Vanguard Canada Public Relations
> Phone: 416-263-7087
> [email protected]


----------



## james4beach

AltaRed said:


> You are making an assumption that they can (might) go rogue with their allocation tilts.


They don't have to go too far off to start under-performing couch potato'ing over the years. I'm not assuming they will go rogue, but rather that they will turn out to be just another average fund manager -- a safe bet, statistically.

If you don't want a fund manager tinkering with allocations "strategically", then you want something like Couch Potato ETFs, or CIBC Balanced Index Premium.


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## Nerd Investor

No one is truly passive IMHO, I think it's becoming a bit of a useless label. Even couch potato investors have to make asset allocation decisions.


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## AltaRed

james4beach said:


> If you don't want a fund manager tinkering with allocations "strategically", then you want something like Couch Potato ETFs, or CIBC Balanced Index Premium.


No one is forcing you to buy these things. I wouldn't use them as my personal core strategy but for the bulk of retail investors, they would be better off with something like this, or with robo-advisors, Tangerine or Mawer. 

As Nerd Investor suggests, even couch potato investors have to make asset allocation choices. The difference is in the former, you may have professionals (someone else at the wheel) making those choices, while in the latter, one has retail investors with a wide range of skills and experience making those choices.


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## james4beach

AltaRed said:


> No one is forcing you to buy these things. I wouldn't use them as my personal core strategy but for the bulk of retail investors, they would be better off with something like this, or with robo-advisors, Tangerine or Mawer.


I agree that these are a great alternative to typical high-fee mutual funds.



> As Nerd Investor suggests, even couch potato investors have to make asset allocation choices. The difference is in the former, you may have professionals (someone else at the wheel) making those choices, while in the latter, one has retail investors with a wide range of skills and experience making those choices.


That's very true. At the end of the day, _somebody_ has to decide the allocation and stay on top of it, over the years. Maybe it actually is better for the Vanguard manager to do this, rather than the typical retail investor.


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## hfp75

Vbal vs blk610

???


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## AltaRed

VBAL and BLK610 are pseudo-competitors though BLK610 is a balanced mutual fund http://quote.morningstar.ca/QuickTa...ew.aspx?t=F00000RW7C&region=CAN&culture=en-CA That is not the best comparison for BLK610. MAW104/MAW105 should be a closer match although that is not true either since BLK610 is essentially all Canadian.


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## OnlyMyOpinion

hfp75 said:


> Vbal vs blk610 ???


What are you wondering - if they are comparable in asset allocation, if their performance is comparable?
As AltaRed notes, blk610 is a Canadian fund while VBA and the other two recent V funds are global. 
Apples and oranges.
ADDED: This information is not correct - BLK610 is a glbal equity fund.


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## james4beach

Why are you saying that BLK610 is a Canadian fund? Morningstar shows that it's 21% Canada, 25% US, 15% international stocks. I think you might be misreading the Blackrock page, which says 56% Canada because the bond fund is Canadian. The more important part of the geographic breakdown is the equity component.

VBAL: 18% Canada, 23% US, 19% various intl stocks
CIBC Balanced Index: 35% Canada, 15% US, 7% EAFE

So yes, they are comparable. I'd say all three of these (BLK610, VBAL, CIBC Balanced Index) are comparable global funds as they have roughly the same geographic weights.


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## OnlyMyOpinion

James, Yes you are correct and my post was inaccurate. 
I'm not sure which BLK fund I was looking at to see only Cdn exposure.


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## cainvest

james4beach said:


> Why are you saying that BLK610 is a Canadian fund? Morningstar shows that it's 21% Canada, 25% US, 15% international stocks. I think you might be misreading the Blackrock page, which says 56% Canada because the bond fund is Canadian. The more important part of the geographic breakdown is the equity component.
> 
> VBAL: 18% Canada, 23% US, 19% various intl stocks
> CIBC Balanced Index: 35% Canada, 15% US, 7% EAFE
> 
> So yes, they are comparable. I'd say all three of these (BLK610, VBAL, CIBC Balanced Index) are comparable global funds as they have roughly the same geographic weights.


I wouldn't really consider CIBC a "global fund" with those equity numbers.


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## AltaRed

OnlyMyOpinion said:


> James, Yes you are correct and my post was inaccurate.
> I'm not sure which BLK fund I was looking at to see only Cdn exposure.


Agreed. I must have been looking in the wrong place to have assumed primarily Canadian. The equity component is diversified.


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## OnlyMyOpinion

AltaRed said:


> Agreed. I must have been looking in the wrong place to have assumed primarily Canadian. The equity component is diversified.


Well, I looked it up myself and I saw Canadian eq also. Not sure what I was looking at now (I am aware that the bond component has its own fields). 

Not an excuse, but I note that there are 21 various BLK funds listed on Morningstar. 
There are apparently over 9,500 MF's in the US and 17,791 in Canada? :eek2: (http://www.fundlibrary.com/funds/db.asp).
Not to miss the etf bandwagon, there are apparently over 5,000 etf's (globally). 
In contrast, the NYSE has about 2,800 companies listed and the TSX about 1,600 companies.

Like the talking heads out there, everyone wants just a bit of your money. In Feb 2018 that meant $1.5 trillion invested in Canadian MF's https://www.ific.ca/en/info/stats-and-facts/


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## der.dev

I've read all the posts so far in this thread, and I have to say, the disagreements generate a lot of useful information for onlookers like me!

But I have a more of a beginner question...

For a person that is:
- using sheltered account (RRSP)
- fairly technical (i.e. can figure out how to make transaction, keep track of transaction, etc.)
- not too lazy (i.e. can periodically do the necessary trades, say once per month)
- fairly disciplined (i.e. can be trusted to transfer/buy/sell and balance on time)
- fairly frugal (i.e. interested in lower MER when all else equal)

is there any significant advantage of, say, VBAL over doing it manually as shown in model Couch Potato ETF portfolios (e.g. ZAG+VCN+XAW) and benefit from the better MER?

Basically, if we take away questions of laziness and discipline required for a do-it-yourself situation, is there any advantage left to a VBAL/VGRO approach?


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## lonewolf :)

During times of high market volatility Vanguard fund might not track the underlying indexes well i.e., there was a huge discount to the S&P cash market in the S&P futures during the 1987 crash.


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## latebuyer

Are there any global funds (Canadian, US, International) that do not hold bonds? The only ones I know of are tangerine and a td managed etf fund (which I don't want to hold because of trailing commissions issue).

I found Blackrock but they look like they give a higher weighting to Canada.


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## james4beach

der.dev said:


> is there any significant advantage of, say, VBAL over doing it manually as shown in model Couch Potato ETF portfolios (e.g. ZAG+VCN+XAW) and benefit from the better MER?
> 
> Basically, if we take away questions of laziness and discipline required for a do-it-yourself situation, is there any advantage left to a VBAL/VGRO approach?


If we assume the investor is disciplined enough to regularly maintain their ZAG/VCN/XAW portfolio then no, I don't think there is any advantage to the VBAL approach. I generally think it's better to explicitly hold the 3 funds separately because then you can enforce a constant long term allocation target, whereas VBAL/VGRO can internally change their allocations at whim and will not necessarily keep consistent allocations over the long term.

The other advantage of holding these individually is that you can easily benchmark yourself against references, to verify you are indexing properly (clear benchmark) and that _the funds are working as expected_. If you hold VBAL/VGRO this benchmarking becomes more challenging, especially in the long term, and it's very difficult to check whether the funds are performing as per their ideal.

However -- there are many people who neglect their portfolios and fail to maintain them. This can result in cash drag and skewing away from allocation targets. If you're going with the individual fund couch potato approach, you really have to at least re-balance regularly and make sure new cash is deployed. You also have to absolutely stick to fixed, consistent country allocation targets -- not change them over the years in an attempt to be "strategic". All of this takes a lot of discipline.

Many people will fall into those traps, and VBAL/VGRO may be better in those situations.


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## AltaRed

latebuyer said:


> Are there any global funds (Canadian, US, International) that do not hold bonds? The only ones I know of are tangerine and a td managed etf fund (which I don't want to hold because of trailing commissions issue).


Global equity index ETFs by design should invest globally based on market cap, with 3-4% weighting in Canada. Blackrock XWD actually does that. 

I have not looked specifically to see if someone has a different combination, e.g. equal weighting, but I'd be surprised if there is not someone who actually does that.


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## larry81

Wow GRO is already at 200M AUM


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## james4beach

larry81 said:


> Wow GRO is already at 200M AUM


Yeah that looks like a pretty rapid growth in assets for this one.

However I am going to repeat my warnings from before, that Vanguard has not committed itself to a static asset allocation. And they are already overhauling the composition of their funds. Exactly as I warned about earlier, they are not pursuing static allocations but rather changing them at their whims. The tip-off was the absence of any benchmark. Therefore these funds will likely turn out to be quite "actively managed" over the long term, as Vanguard shifts their allocations "strategically".

Either their manager or computer model is telling them to strategically jump from X to Y, but over the long term, we know that such approaches fail on average. *In any case, it's not couch potato or index investing. It's active management.*

It's already happening. I started tracking the contents of the VBAL portfolio when it first appeared. VBAL was
23.4% - Canadian Aggregate Bond Index ETF
22.9% - US Total Market Index ETF
17.9% - FTSE Canada All Cap Index ETF
14.8% - FTSE Developed All Cap ex-North America
9.5% - Global ex-US Aggregate Bond CAD hedged
6.9% - US Aggregate Bond Index ETF CAD-hedged
4.6% - FTSE Emerging Markets All Cap Index ETF

So VBAL's original allocation for the first couple of months was 18% Canadian equities, 23% US, 19% international, 23% Canadian bonds, 16% foreign bonds -- great, perfect. Lock it in and keep it forever, right? Not so fast...

*Today however it's completely different*. They are now 36% Canadian equities, 46% Canadian bonds, 18% international bonds. This doesn't even make sense... it's not even 60/40. The allocations are _way_ off. The same thing has happened with VGRO.

The VGRO & VBAL holding detail further shows they are now up to the standard TSX 37% financial exposure, which makes sense given that they've totally shifted 100% into Canadian equities, with the top holdings being the usual RY, TD, etc.

Do you guys finally see what I've been warning about with these? Just 4 months into existence, they have already completely changed the allocations. They have no benchmark, and never pledged to maintain consistent geographic allocations. These may turn out to be great actively managed funds, but they are clearly not passive index funds.

They either don't know what they're doing, or are publishing seriously wrong data on their web site.


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## james4beach

GoldStone said:


> You are buying a basket of vanilla Vanguard ETFs. There is no mystery as to what exactly you get. The new basket is similar but not identical to VCN,VXC,VAB. It can slightly outperform or slightly underperform over 3-5 years. That's a meaningless test.


There is lots of mystery in what you're getting -- they never defined it. Many of you just assumed they will keep their original holdings. What they hold today is totally unlike VCN,VXC,VAB and it's only been 4 months. Maybe in a couple months they will go 100% into emerging markets, or 100% into US, just as they went 100% into Canada this month.


----------



## AltaRed

james4beach said:


> They either don't know what they're doing, or are publishing seriously wrong data on their web site.


There is something wrong on their website. https://www.vanguardcanada.ca/indiv.../etf/portId=9578/assetCode=balanced/?overview The 60/40 pie chart does not agree in any shape or form with the list of 3 Vanguard ETFs.

It is troubling the data is not remotely consistent.


----------



## OnlyMyOpinion

james4beach said:


> ...They either don't know what they're doing, or are publishing seriously wrong data on their web site.


James, are you speaking with factual allocation information here, or are you speculating and setting off alarmist bells without really knowing?

I agree that something is askew. I find contradictory information between their website and their fact sheet. The website looks wrong. But I don't immediately assume this means they are making judgements and actively managing etf allocations. Especially when they were clear that was not the intention of these etfs.

I will call them tomorrow to try to find out what is going on and will report back.

In the meantime, I think you are doing readers a great disservice unless you are basing your alarming conclusions on actual facts.


----------



## Jimmy

The asset allocations seem to be the same per Morningstar as from the start from teh VBAL fact sheet. Click on 'Holdings' in the "Portfolio' section

On Morningstar for June 15, 2018 , it shows the same allocations. CDn Equity 18%, US 23% etc same as from their fact sheet of April 30. It shows Cdn equity at 36% in the 'summary' but that could include the CDN ETF and the CDn Etf of the Intl stocks . Same for the CDn bonds at 46% maybe US or Intl bonds are actually in a Cdn ETF and counted as Cdn bonds ? 

I don't think they can actively manage the fund at a MER of .22% either even if they wanted to play around w the allocations.

http://quote.morningstar.ca/QuickTa...ew.aspx?t=F0000101Q2&region=CAN&culture=en-CA


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## james4beach

OnlyMyOpinion said:


> But I don't immediately assume this means they are making judgements and actively managing etf allocations. *Especially when they were clear that was not the intention of these etfs*.


Where on earth have you gotten this idea? The prospectus absolutely says they can change their allocations at any time depending on what the manager wants to do. They never wrote geographic targets or benchmarks. Legally, they clearly stated that their intention is to adjust allocations as they see fit.

There are basically 3 important sources of information when it comes to ETFs.

(1) their audited annual financial statements, and semi-annual financial statements. You really should wait to see these before ever investing in an ETF, because this truly shows what their portfolio held at the semi annual snapshots. Unfortunately it doesn't show what they hold _between_ snapshots.

(2) the daily fund data published on the web sites. This does not have the same reliability as financial statements, but the ETF industry has prided itself on transparency of their holdings. It's a major factor that sets them apart from mutual funds, and we expect big players like iShares, Vanguard, BMO to absolutely publish correct information here.

(3) the prospectus, *the* legal document. This is where they spell out what they will hold.



Jimmy said:


> The asset allocations seem to be the same per Morningstar as from the start


That's dated April 30, so it could have changed since then.

I've written before how (3) the prospectus does not nail down a specific asset allocation, other than the bond/stock breakdown. There are no country specific weights, no benchmark, and in fact they explicitly spell out how they may change the allocations at any time. (1) is not available yet. (2) is available and shows they have overhauled their allocations. My statements aren't alarmist, I'm seeing consistency in what Vanguard is doing and using the best data available to an investor.

Best case scenario: the Vanguard web site is wrong and they haven't changed their allocations, maybe. Only the financial statements will clarify this. The fact sheets are useless, look at the "as of" dates on them.


----------



## Jimmy

james4beach said:


> I'm not being alarmist, I'm going off the data they publish. There are basically 3 important sources of information when it comes to ETFs.
> 
> (1) their audited annual financial statements, and semi-annual financial statements. You really should wait to see these before ever investing in an ETF, because this truly shows what their portfolio held at the semi annual snapshots. Unfortunately it doesn't show what they hold _between_ snapshots.
> 
> (2) the daily fund data published on the web sites. This does not have the same reliability as financial statements, but the ETF industry has prided itself on transparency of their holdings. It's a major factor that sets them apart from mutual funds, and we expect big players like iShares, Vanguard, BMO to absolutely publish correct information here.
> 
> (3) the prospectus, another legal document. This is where they spell out what they will hold.
> 
> 
> 
> That's dated April 30, so it could have changed since then.
> 
> I've written before how (3) the prospectus does not nail down a specific asset allocation, other than the bond/stock breakdown. There are no country specific weights, no benchmark, and in fact they explicitly spell out how they may change the allocations at any time. (1) is not available yet. (2) is available and shows they have overhauled their allocations. My statements aren't alarmist, I'm seeing consistency in what Vanguard is doing and using the best data available to an investor.


The morningstar data is dated June 15 but they could just be using the original allocations and showing the returns for each ETF. Click on the "holdings' tab. Just below the graph of the ETF holdings.

I see what you mean though from the VBAL site As of close 31 May 2018

Vanguard Canadian Aggregate Bond Index ETF	45.7%
Vanguard FTSE Canada All Cap Index ETF	36.0%
Vanguard Global ex-US Aggregate Bond ETF CAD Hedged	18.3%

None of that makes any sense. Maybe an error


----------



## OnlyMyOpinion

Here are the latest *facts* on the Vanguard asset allocation funds from the gospel of James:



james4beach said:


> ...they are already overhauling the composition of their funds.
> ...they are changing them (_allocations)_ at their whims.
> ...these funds will likely turn out to be quite "actively managed" over the long term, as Vanguard shifts their allocations "strategically".
> ...their manager or computer model is telling them to strategically jump from X to Y
> ...it's not couch potato or index investing. It's active management
> ... Just 4 months into existence, they have already completely changed the allocations. They have no benchmark, and never pledged to maintain consistent geographic allocations.
> ...These may turn out to be great actively managed funds, but they are clearly not passive index funds.


This is not alarmist, this is truth. 
Please ignore portions of the prospectus and client materials provided to financial advisors which contradict these facts.


----------



## james4beach

OnlyMyOpinion said:


> Please ignore portions of the prospectus and client materials provided to financial advisors which contradict these facts.


Maybe you can point us to the documentation that spells out their target geographic exposures. I have never seen anything like that regarding VGRO/etc and I'm not aware of any pledge they made to keep certain % exposures to countries.

All they had was a fact sheet and web page which showed the current allocations at the start. That's not the same thing as long term allocation targets.


----------



## AltaRed

I am assuming you are talking about this Fact Sheet? https://www.vanguardcanada.ca/documents/investing-made-simple_en.pdf

Here is what is said in the Investment Objectives of the 75 page Prospectus for the Balanced ETF:

_The Vanguard Balanced ETF Portfolio seeks to achieve its investment objective by primarily investing in equity and fixed-income securities. The Vanguard ETF may do so either directly or indirectly through investment in one or more Underlying Funds. In seeking to achieve the Vanguard ETF’s investment objective (under normal market conditions), the Sub-advisor will strive to maintain a long-term strategic asset allocation of equity (approximately 60%) and fixed income (approximately 40%) securities. The portfolio asset mix may be reconstituted and rebalanced from time to time at the discretion of the Sub-advisor. The portfolios of the Underlying Funds are expected to be index funds that provide exposure to broad based equity and fixed income markets_

If you want to talk to the Sub-Advisor, the prospectus says the Sub-Advisor is The Vanguard Group in Valley Forge, and for the Asset Allocation ETFs is Michael Perre who began his career with the Sub-advisor in 1990 and he has managed investment portfolios since 1999. He earned a B.A. in finance from Saint Joseph’s University and an M.B.A. from Villanova University.

Here is what is said in the Risk Management section of the prospectus for the Balanced ETF:

_The Vanguard Balanced ETF Portfolio’s risk classification is based on the fund’s returns and the return of a composite benchmark comprised of underlying indexes that provide exposure to broad based equity and fixed income markets based on a long-term strategic asset allocation policy that aims to maintain overall exposure of approximately 60% equity and 40% fixed income. In accordance with NI 81-102, comparable benchmarks were used given the absence of 10 years of historical data for the underlying investments and/or the indexes they track. The S&P/TSX Composite Index (18%) and the Barclays Canadian 300M Index (24%) were used as proxies for domestic equity and fixed income respectively. The MSCI ACWI IMI Index (42%) and the Barclays Global Aggregate ex CAD Index (hedged to CAD) (16%) were used as proxies for non-Canadian equity and fixed income exposure. The S&P/TSX Composite Index is a market-capitalization weighted index which contains securities of the largest companies on the TSX. The Barclays Canadian 300M Index provides exposure to investment-grade securities issued in Canada including government, government-related and corporate products. The MSCI ACWI IMI Index provides exposure to large, mid, and small-capitalization securities across 23 developed markets and 24 emerging markets countries. The Barclays Global Aggregate ex CAD Index (hedged to CAD) is a market-capitalization weighted index that represents a wide spectrum of the global investment-grade, fixed rate and fixed income markets outside of Canada.
_


----------



## james4beach

^ right, so they only claim to follow the 60/40 (or the other allocations for other funds) and use a general benchmarked against some generic results. The final paragraph is only a statement about the risk classification, not performance or benchmark.

However, I do have some good news that makes it look like Vanguard's current 100% Canadian allocation on their web site is a mistake. I looked at performance between June 13 and June 15. Over this time, VBAL was up 0.80%.

Next I looked at two different asset allocations. The first was the last allocation I recorded as of March 30, which was: 23.8% VAB, 22.4% VUN, 17.8% VCN, 14.8% VIU, 9.6% VBG, 7.0% VBU, 4.6% VEE. Call this the "original" allocation... this is the one we hope they are sticking to over the years.

Next I looked at the current allocation they post on the web site, which is 45.70% VAB, 36.00% VCN, 18.30% VBG. Call this the "suspect" allocation.

Calculating based on underlying ETF performance, the "original" allocation gives 0.80% and the "suspect" allocation gives 0.54%. As the actual VBAL performance was 0.80% *I think it looks like they are in fact using the original allocation, and not the suspect allocation.* -- good news. This now looks to me like a mistake on their web site and inaccurate holding summary.


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## AltaRed

Which I think most of us assumed all along! I have some faith that Vanguard does not have ulterior motives, i.e. that they will stick close to their 60/40 benchmark allocations. I do expect them to play with geographic allocations a bit from time to time. That is why they get 22 bp rather than 10bp. As I said before, I hold MAW104, my wife has VBAL and my ex-wife has VBAL. We will see how performance compares over a year or two.


----------



## OnlyMyOpinion

As I noted in #134, I called Vanguard Canada today to discuss the discrepancy of the posted VBAL "Allocation to underlying Vanguard funds" on their website "Overview" tab versus the advertised allocations.

He said first of all that they are limited by regulation as to what they can say on the phone (risk of misunderstanding or implied promises I suppose).But he said the website information was wrong and he thought it had been fixed. It sounds like it draws from a Morningstar database?
He said that although there is a lag, the Fund Facts pdf is a better source of underlying holdings. These are not actively managed funds outside of rebalancing to the allocations they were designed for.

You will note that the Jan 9, 2018 prospectus is for 7 new Vanguard funds, 4 of these are characterized as 'rules-based active' managed 'equity factor' funds (VLQ, VVO, VMO, VVL) while 3 are characterized as 'asset allocation' funds (VCNS, VBAL, VGRO) which are not actively managed (pg 5). The prospectus notes the 'EF' funds carry higher risk (medium) and this risk is noted as a 'rules-based strategy risk' (pages 6, 8, 9, and chart page 13). The 'AA' funds do not carry this active management risk.

Also, you will note the benchmark noted at the top of the Overview webpage is an internal compostie benchmark. This is the one that AltaRed referred to from the prospectus yesterday in post #140. For VBAL: _a composite benchmark comprised of underlying indexes that provide exposure to broad based equity and fixed income markets based on a long-term strategic asset allocation policy that aims to maintain overall exposure of approximately 60% equity and 40% fixed income... comparable benchmarks were used given the absence of 10 years of historical data for the *underlying investments and/or the indexes they track*: The S&P/TSX Composite Index (18%) and the Barclays Canadian 300M Index (24%) were used as proxies for domestic equity and fixed income respectively. The MSCI ACWI IMI Index (42%) and the Barclays Global Aggregate ex CAD Index (hedged to CAD) (16%) were used as proxies for non-Canadian equity and fixed income exposure._

He also siad that the 'Allocation to underlying Vanguard funds' section of the Overview website is showing the top holdiings. The website doesn't note this. I believe it did a week or so ago, but there was still confusion then as well (see my CMF post here).

He didn't say what % these top holdings represented, but I believe it to be around 50%. The currently posted 45.7% Cdn FI, 36% Cdn eq, and 18.3% ex-US FI become 23%, 18%, and 9% respectively if they represent 50% of holdings. Now, that is exactly the allocation that VBAL was designed for (and matches the internal benchmark provided in the prospectus). 

So it might be that is no nefarious, undocumented, active managment and investment tilting occuring within this and the other asset allocation etf's?


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## AltaRed

Thanks for the investigation. Vanguard clearly needs to get the website fixed so that the representations have clarity!

P.S. I did see the differences in the prospectus for the 4 EF funds and the 3 AA funds as you describe in post #143.


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## james4beach

I'm glad to hear it's just a web site mistake right now.

But I still read the design and intent of the asset allocation funds differently. The wording of that "risk classification... composite benchmark" section does not nail them down to a geographic allocation. My parsing of their literature is that they are saying that for the purpose of historical performance comparison, they have used this generic allocation mix which is the basis for the performance and risk they are describing.

That text is not a pledge to maintain those allocations. The parts of their prospectus normally used to specify exact targets, does not give targets beyond the broad 60/40 stuff. It specifically says that the manager has the freedom to change the allocation strategically. The way they have worded this gives the manager the freedom to change allocations whenever they want.

It may turn out that they decide to really stick to their initial allocations (I hope they do), but this is not guaranteed by the fund's design. What it comes down to is some faith. If you have faith that Vanguard will do something better than the prospectus promises to do, then absolutely no problem with VBAL, VGRO etc.

The fund facts does indeed show a "current portfolio" but this is neither a long term plan, nor is it a document that carries any weight compared to the prospectus or financial statements.


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## AltaRed

Yes, James, we have heard you many times. Perhaps time to let it go?


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## james4beach

AltaRed said:


> Yes, James, we have heard you many times. Perhaps time to let it go?


I'd let it go if people started adding comments of caution whenever they endorsed these. But VBAL/VGRO have come up in several threads, usually without any mention that they have no performance history yet. I've never before seen the CMF membership so rapidly endorse a brand new, untested product. In fact, people here are usually good at being critical of new products and their claims.

I realize that you and OmO understand my point very well, but my concern is about newer investors just coming to CMF.

I will stop arguing my point in this thread, but as the funds are mentioned in other places, I will add the warning/caveat if nobody mentions it. I've even endorsed VBAL myself in the Good balanced funds thread.


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## AltaRed

Perhaps newbies/neophytes overlook such issues but I think most who have been around for at least a little while understand that 'balanced' doesn't imply index, and the words 'asset allocation' also don't necessarily imply index either. I personally think the allocation will be pretty rigid but it is not a given. These ETFs have gotten a lot of press and cheerleading because, for the most part, they give you, at 22 bp, what a robo-advisor would charge 50-75 bp for, and what MAW104 charges something like 94? bp for, never mind all those other conventional balanced mutual funds all over 100 bp. I am willing to give Vanguard the benefit of the doubt in the context of that group of products.


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## rsal59

Could James or some one else explain ( like you explain it for a child with no investment experience) what are the cons of keeping VBAL with only 22bp MER (and assuming as he claimes it is actively managed) in a couch potato portfolio.


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## AltaRed

There isn't anything wrong with keeping VBAL in a couch potato portfolio. It could be a 'one fund' portfolio (all by itself) where Vanguard does the re-balancing for you. That is a significant plus for those having difficulty with the discipline of re-balancing.

The issue James keeps harping on is Vanguard has not specifically said it will maintain all 7 ETFs in VBAL at the same ratios over time, although it will maintain a 60/40 equity/fixed income ratio (within certain minor deviations). I don't think any of us should be worrying about that. Neither do any of the other balanced funds. The other strike against it is that VBAL is new trading only since the end of January. There is not much history to it.

That all said, I wouldn't hesitate having a healthy dose of VBAL (or VGRO) in my portfolio. Vanguard is not a stupid company.


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## james4beach

rsal59 said:


> Could James or some one else explain ( like you explain it for a child with no investment experience) what are the cons of keeping VBAL with only 22bp MER (and assuming as he claimes it is actively managed) in a couch potato portfolio.


The con is that you don't know how Vanguard's chosen manager will manage this portfolio long term. This is true with all mutual funds too, but there are balanced mutual funds out there which have already demonstrated good management and good returns over 15 to 20 years. The potential danger of choosing VBAL is that instead of picking a fund that has already demonstrated solid management, you are picking a brand new one with the hope that it will turn out to be well managed.

It may or may not turn out to be well managed. So the only "con" I would say, is uncertainty about how well it turns out to be managed. The fee savings on MER won't mean anything if the fund is badly managed and chooses bad allocations, because that can hurt returns dramatically over time.

It's not a given that Vanguard will manage it well. Blackrock/iShares isn't a stupid company either, they are a pioneer in ETFs, but they royally screwed up the XTR fund which at one time was also a balanced fund. It's been a chronic underperformer and has constantly changed its allocations.


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## AltaRed

XTR is not a good comparison since the fundamentals of income trusts were bogus to begin with. Shame on Blackrock for even creating the original XTR but then it has been 'fadish' to develop boutique ETFs. Consider more recent stuff like a cannabis ETF as well.

A global 'balanced' ETF is a different animal entirely. No question the Vanguard AA ETFs have risk of under performance if they stubbornly stick to their geographic allocations in the face of obvious evidence to the contrary, but so does any other actively managed balanced fund which is subject to the whims of the fund manager. VBAL should be no different than any other 'neutral global balanced fund' except it has an opportunity to do better with a lower MER (same argument as a passive index vs actively managed product). Some years it should over perform and some years it is likely to under perform, all mostly due to pure luck. The debate really ends there.


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## james4beach

XTR was restructured in late 2010 into a generic balanced fund after the failure of income trusts. So this is after the end of the income trust mess. It became a "monthly income fund", i.e. a balanced fund targeted to seniors (similar to the various other bank funds out there).

Since 2011, it was a balanced fund with quite typical 50/50 asset allocation. While it just held index funds and started off OK, they started changing the holdings over the years and adding in strange things like junk bonds and more exotic equity funds. That's when it went off the rails.

See this old CCP post from 2012:
https://canadiancouchpotato.com/2012/03/26/did-your-etf-just-get-riskier/



> The fund’s web page makes it clear that “BlackRock Canada will review, and may adjust, XTR’s strategic asset allocation from time to time, as market conditions change.” However, in practice, the fund’s asset mix has remained virtually unchanged since its launch in August 2010.


This is awfully similar to Vanguard's VBAL. Both XTR and VBAL started off with stable, sane allocations. Both XTR and VBAL reserved the right to change their allocation as they wish. Both have a low MER compared to other options of the day, seemingly an "instant win" just from fee savings.

With XTR, in a little over a year, they started going off the rails with their allocations. Again these are professionals at a very reputable firm. Why would Vanguard be immune to the same danger?


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## james4beach

And from that article, I think this part applies equally well to VBAL/VGRO/VCNS:



> *All of this highlights the problem with investing in ETFs that do not track an index*. Granted, XTR’s asset mix is not subject to the whims of a fund manager and her worthless forecasts: it’s based on a series of quantitative screens “designed to identify and optimally diversify portfolio exposure” within prescribed limits. But this is still tactical asset allocation, a strategy commonly employed by active managers, and one that is of dubious value to investors.
> . . .
> While these “ETFs of ETFs” offer one-stop diversification at low cost, investors need to check in once per quarter to make sure they are still comfortable with the risk levels. Or, better yet, consider building your own ETF portfolio using a long-term asset allocation that doesn’t rely on guesswork.


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## AltaRed

Sorry, but each of the 3 Vanguard AA ETFs have a declared equity/fixed income allocation. That is what differentiates the 3 from each other and why those percentages will not vary by more than a few percentage points* on a rolling average basis. I don't really care that much how they allocate within equity or fixed income.

I tire of constant harping about spooks behind every tree.

* There can always be reasons to get outside 60/40 for example in the very short term. A sudden cataclysmic 30% drop in equity markets over a month or two would knock the 60/40 out of whack and it may not be prudent for liquidity (or other) reasons to quickly restore 60/40 within a few days or weeks. Gotta give the manager some slack to do prudent things.


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## Jerm

AltaRed said:


> Sorry, but each of the 3 Vanguard AA ETFs have a declared equity/fixed income allocation. That is what differentiates the 3 from each other and why those percentages will not vary by more than a few percentage points* on a rolling average basis. I don't really care that much how they allocate within equity or fixed income.
> 
> I tire of constant harping about spooks behind every tree.
> 
> * There can always be reasons to get outside 60/40 for example in the very short term. A sudden cataclysmic 30% drop in equity markets over a month or two would knock the 60/40 out of whack and it may not be prudent for liquidity (or other) reasons to quickly restore 60/40 within a few days or weeks. Gotta give the manager some slack to do prudent things.


+1 

Given Vanguard's track record I think its a fairly safe assumption that they're not going to go rogue and do something absolutely ridiculous with these funds. I also think that odds are that the slack given to the fund manager is likely to prove more beneficial for Joe investor than not. Ie his discretion as a professional is more likely to prove beneficial than your discretion as a novice.


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## OnlyMyOpinion

To summarize, it seems to me that with VBAL for example:

i) An investor should consider whether its underlying *index* etf’s and their weightings, fit their financial plan :
18% VCN (Cdn all cap index)
23% VUN (US total market index)
15% VIU (developed ex-NA all cap index)
4% VEE (FSTE emerg mky all cap index)
24% VAB (Cdn bond index
7% VBU (CDA-hedged US bond index)
9% VBG (CDA-hedged ex-US bond index, incl 6% CDA))

ii) An investor should consider whether Vanguard might for some reason stray materially from these underlying funds and their weightings – given that this is not an active fund, and given that it was advertised and bought by clients for its stated composition. 
Like its individual index components, Vanguard has made no undertaking as to future performance or returns of this fund - they have no reason to try to outperform the sum of the fund’s allocated components. It is what it is. Buyer beware.

iii) An investor should consider James’ warning and conclusions that the fund is being managed entirely contrary to its 'apparent' intent - as summarized in my earlier post #138.

iv) An investor should read the Client Materials brochure 'Investing Made Simple' made available by Vanguard to financial advisors - recognizing that in addition to describing the funds, it is 'promoting' them as a product worthy of your investing consideration.

v) An investor should read the several articles written about the funds by some of Canada’s leading financial pundits. There is some discussion of tax effectiveness/account placement in a few of the links which may also be a consideration. Again, recognizing that writing articles for people to read is generally the lifeblood of these folks:
Dan Bartoli (Canadian Couch Potato) 
Justin Bender (PWL Capital)
And another from PWL
Rob Carrick (Globe & Mail)
And more recently at Globe Investor
Jonathan Chevreau (MoneySense Magazine)
And also this MoneySense article

vi) Finally, if points (ii) and (iii) come to be true, an investor should be prepared to have egg on their face in the good company of many of Canada's pundits and to the great detriment of Vanguard's reputation.

As always, risk vs reward.


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## james4beach

AltaRed: "Harping" eh? That's a lot of judgement. I just advise caution: don't jump to invest in this. Let it run for a few years and confirm that its allocations are stable and that it's performing well. There's no downside to waiting a bit.

Again, I've never before seen a brand new mutual fund pop up, and so many CMF'ers start endorsing it so fast without thorough criticism. As for those pundits who are endorsing it: is it possible some of them might have financial relationships with Vanguard, some incentive to sell the fund?

The pundits also failed to see some of the pitfalls. Dan Bartoli for example makes the mistake of assuming that the initial allocations are part of the fund's mandate or stated long-term strategy, and "won't change" -- which is not true. Those allocations can change any time, very much unlike the couch potato portfolio. He would know this if he read the prospectus.


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## AltaRed

OnlyMyOpinion said:


> vi) Finally, if points (ii) and (iii) come to be true, an investor should be prepared to have egg on their face in the good company of many of Canada's pundits and to the great detriment of Vanguard's reputation.
> 
> As always, risk vs reward.


Indeed, but we often forget that choice of specific product is the last thing an investor should consider in Portfolio Design. We spend a lot of time, perhaps disproportionately, debating products than we do asset allocation, diversification, active vs passive, etc. When it is all said and done, I'd call picking one balanced fund/ETF over another mostly 2nd decimal place noise. Hence the experiment.*

* Both my wife and my ex-wife have made their initial purchases of VBAL based on my recommendation. If all goes as planned, it will be a 4-5 year phase-in for their RRSP and TFSA respectively. If it goes off the rails because Vanguard goes rogue, then the plan will obviously not continue.


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## james4beach

There's a fund which beat Vanguard to this concept 4 years ago:

BMO Balanced ETF Portfolio D Series. It has a higher MER 0.90%, has demonstrated 4 years of history, and has $2.4 billion assets. It holds BMO ETFs internally, a very solid portfolio. The fund allocations are identical to VBAL so it absolutely can be directly compared.

To be worthwhile, VBAL will have to beat this fund's performance. If someone asks me today which one I'd recommend, I would definitely suggest BMO Balanced ETF Portfolio as it is already up & running, is a huge fund, and is outperforming benchmarks. Maybe VBAL will do even better; only time will tell. The mutual fund also allows small incremental purchases, which can't be done with VBAL.


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## Speculator

james4beach said:


> Again, I've never before seen a brand new mutual fund pop up, and so many CMF'ers start endorsing it so fast without thorough criticism. As for those pundits who are endorsing it: is it possible some of them might have financial relationships with Vanguard, some incentive to sell the fund? The pundits also failed to see some of the pitfalls. the prospectus.


What amazes me also is the failure to recognize that this is just a product (an etf) and not a portfolio replacement. When I suggested to wait for a 5 year performance report on these funds on another blog, I was rinsed pretty heavy. I also stated that one asset should not compose your whole portfolio. I was then accused of not understanding the definition of an asset. Sheesh!


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## OnlyMyOpinion

Actually, the attraction of these new etf's is their role in providing a one-product portfolio solution. 
VBAL for example can replace a diverse, equity/fixed income couch potato portfolio of 3 or more etf's, and eliminates the need to have to rebalance periodically.
As new funds, I get the concern that a person might have with their short history re/ performance and adherence to target allocations (I don't share that concern).
I also get that a person may be concerned about having all of their assets in one etf. In fact I would not be selling everything to buy one AA etf. But I suspect most purchasers will be using available funds and will gradually migrate invested funds over time as investments mature, are sold, etc. That would mean that future money is being invested as more performance data has become available as well.


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## james4beach

OnlyMyOpinion said:


> Actually, the attraction of these new etf's is their role in providing a one-product portfolio solution.


I get that, and these are really important benefits. But again, why didn't people go crazy about BMO Balanced ETF Portfolio D Series ? It does *exactly* the same things as VBAL. It even holds ETFs internally. I searched these forums and did not find a single mention of it. It's been around for 4 years with amazing performance.

And yet VBAL comes along, exact same concept, and people can't stop talking about it. The difference in MER between these two is 0.65% which is not really significant when you factor in that the BMO mutual fund has already been proven to work, plus has no trading costs.

The sensible thing to do if this passive ETF wrapper approach appeals to you is to invest in BMO Balanced ETF Portfolio now (the fund has billions of $ in for god sake), then after a few years when Vanguard demonstrates good performance, switch to them. The asset allocations are identical so the switch would be seamless. But people around here wanted to buy it now, without even seeing a single year of performance!

I suspect the reasons are: (1) ETF and 'indexing' frenzy... people have just gone nuts in the last couple years about passive indexing (e.g. Buffet's bet) so when Vanguard marketed this as "index investing" people went nuts for it (2) some of those blogs out there might be getting paid by Vanguard


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## Parkuser

In the long term, what is the advantage of ETF of ETFs? Suppose I have an ETF consisting of 3 ETFs. If all four ETFs have a low MER of 1% then the ETF of ETFs has an effective MER of 2%. Would this be correct?


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## Spudd

Parkuser said:


> In the long term, what is the advantage of ETF of ETFs? Suppose I have an ETF consisting of 3 ETFs. If all four ETFs have a low MER of 1% then the ETF of ETFs has an effective MER of 2%. Would this be correct?


No, the wrapper ETF will state what its MER is, and that's the MER you pay. The MER of the underlying funds is built into it. In this example, the ETF of ETFs would have an MER of 1%. In real life, the MER of the wrapper ETF will usually be a bit higher than that of the constituents.


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## james4beach

Right, the MER quoted for the wrapper fund will include all expenses paid to all funds held within it. Usually there are fee rebates used internally to make this happen.

For me, the core issue isn't the fees. The low fees are fantastic. Rather, my issue is the misrepresentation of funds-of-funds as purely passive indexing, and the assumption (stated repeatedly this thread) that the managers don't have to demonstrate their abilities before we buy in.

An ETF that tracks *one* index is purely passive, no big caveats. However with a fund of funds (like VBAL) you're now into portfolio design and management, and the devil is in the details. Even if you hold a portfolio of pure index ETFs, it is not a sure thing that the resulting performance matches or even beats the benchmarks. This is why we watch fund performance and compare it to benchmarks and peers. The VBAL/VGRO fund managers have to similarly demonstrate their results before we know they are managing their funds well.

BMO Balanced ETF Portfolio _has_ proven that they can manage their portfolio well. VBAL has not demonstrated anything yet.


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## james4beach

If you want another person's take on the criticism I raise, see this article from Canadian Couch Potato:
https://canadiancouchpotato.com/2017/03/23/how-td-put-the-managed-in-etf-portfolios/comment-page-1/

CCP writes about the issue I'm talking about, and the same problem exists in VBAL/VGRO



> TD _[james4beach: also Vanguard]_ calls these funds “all-in-one index solutions,” but I think they’re better described as actively managed solutions that use index ETFs as their building blocks. *The managers are making tactical asset allocation decisions that will cause the funds’ performance to vary considerably from a true index fund*. It might work out well for TD and the funds’ investors, but there is no reason to believe that anyone can consistently add value this way.


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## OnlyMyOpinion

james4beach said:


> If you want another person's take on the criticism I raise, see this article from Canadian Couch Potato:
> https://canadiancouchpotato.com/2017/03/23/how-td-put-the-managed-in-etf-portfolios/comment-page-1/
> CCP writes about the issue I'm talking about, and the same problem exists in VBAL/VGRO


Well, not so. The TD Managed Portfolio funds are more akin to Vanguard’s four rules-based, active managed, equity factor funds.

We have discussed the Vanguard prospectus ad finitim. Nowhere in it do you see statements comparable to those in the TD prospectus such as _"The portfolio adviser actively rebalances and considers, when determining the Portfolio’s asset allocation among mutual funds, factors which include the market environment, the underlying funds’ investment objectives and strategies, past performance and historical volatility in the context of a diversified holding of mutual funds suitable for the Portfolio."_

That is why in your link, Mar 23, 2017, Dan writes:_*When passive gets active*- The problem is, while each Managed ETF Portfolio lays out a target mix of stocks and bonds, the mix of Canadian, US and international stocks is not specified. According to the prospectus, “Depending on the outlook for the markets, the weighting for any asset class may deviate from the neutral weighting” by as much as 10 percentage points either way. In other words, the managers have leeway to make active calls, overweighting and underweighting asset classes based on their forecasts."_

And that is why when discussing the new Vanguard etf's Feb. 5, 2018, Dan says: _*Vanguard’s One-Fund Solution *- Kudos to Vanguard for sticking to the core asset classes in these funds, for using traditional cap-weighted indexes, and for setting a long-term asset mix that won’t change based on economic forecasts. They could have tossed in their new factor-based ETFs, or dividend-focused funds, or given the manager a wide berth to tweak the allocations, but they didn’t."_


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## james4beach

OnlyMyOpinion said:


> Well, not so. The TD Managed Portfolio funds are more akin to Vanguard’s four rules-based, active managed, equity factor funds.
> 
> We have discussed the Vanguard prospectus ad finitim. Nowhere in it do you see statements comparable to those in the TD prospectus such as _"The portfolio adviser actively rebalances and considers, when determining the Portfolio’s asset allocation among mutual funds, factors which include the market environment, the underlying funds’ investment objectives and strategies, past performance and historical volatility in the context of a diversified holding of mutual funds suitable for the Portfolio."_


I agree with you that the Vanguard VBAL/etc prospectus does not have language that mirrors that TD text, such as "actively rebalances... factors which include the market environment". There's nothing that glaring in the Vanguard text.

On the other hand, the Vanguard text is quite vague. It leaves the door open for changing allocations, instead of stating the intended breakdown. As a comparison, look at Tangerine Balanced Portfolio. This is a fund designed the right way (IMO) and says:



> (Tangerine Balanced Portfolio prospectus): The Fund will follow a strategic asset allocation strategy, with the target allocations among the four asset classes being as follows: Canadian bonds 40% / Canadian equities 20% / U.S. equities 20% / International equities 20% . . . Each of the four asset classes seeks to replicate as closely as possible the performance of a recognized securities index.


This is what I would have expected from Vanguard, for a truly passive strategy. Nailing down the exact allocations as the fund's policy is the passive way to invest. But Vanguard doesn't have any language like this, and is vague about their allocations other than the broad stock/bond breakdown.


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## latebuyer

James did you look at the fund facts for the bmo etf funds. If you look at the fund facts it lists 10 etfs just in the top 10 holdings, not all plain vanilla, even a hedged EAFE fund was listed. I was excited because they had an all equity etf fund. Plus when they talk about tactical asset allocation it hardly sounds like the asset allocation would stay the same. You seriously think this is better than the vanguard fund?


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## james4beach

You're right, the BMO ETF Portfolio things mention "tactical", which is not a good word to see. They haven't done it the right way either. But at least they've shown several years of performance now, and are beating the Morningstar index.

I am interested to see how the VBAL performance develops over time, and whether they keep a stable mix of the plain vanilla funds. It could turn out to be a very good product, if they keep the composition stable over the years.


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## hfp75

james4beach said:


> But again, why didn't people go crazy about BMO Balanced ETF Portfolio D Series ? It does *exactly* the same things as VBAL. It even holds ETFs internally. I searched these forums and did not find a single mention of it. It's been around for 4 years with amazing performance.


BlackRock has a Balanced Portfolio also, but Mawers Balanced funds still beat them all as far as I can tell... 

Dont buy an ETF cause you like the name, or cause ETFs are popular... look at performance and the content inside.....


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## jargey3000

getting back to the 3 Vanguard funds....is it a fair question to ask which of the 3 funds would be best suited to a TFSA? to an RRSP? to a non-reg account? Comments?


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## Spudd

jargey3000 said:


> getting back to the 3 Vanguard funds....is it a fair question to ask which of the 3 funds would be best suited to a TFSA? to an RRSP? to a non-reg account? Comments?


I don't think any of them are particularly more suited to any type of account. I guess you could say VGRO is better for non-reg than VCNS because it will have more dividend income and less interest income (so be more tax favorable), but bonds are paying so little interest these days, it's probably a toss-up.


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## james4beach

Since VBAL has been around for a few months now, I thought I'd check to see how it's doing versus a comparable couch potato mix. I'm using stockcharts.com for this comparison (which shows total returns), starting a few days after VBAL inception. Time period is 2018-02-01 to 2018-10-25

VBAL performance: -2.2%
Couch potato model portfolio (40% ZAG, 20% VCN, 40% XAW) performance: -2.6%

This is good, the performance is very similar so far with VBAL beating the couch potato mix. They have about the same country exposures.

I like how VBAL is doing so far, but I think the big question is whether Vanguard will keep consistent country allocations over the years in a consistent methodology, or whether they will start hopping between different ETFs under the hood.


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## latebuyer

There's a podcast at Canadian couch potato on these etfs with a speaker from vanguard

https://canadiancouchpotato.com/2018/11/10/podcast-20-one-stop-etf-shopping/

He says that the allocation to canada will probably be reduced over the years.


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## Onagoth

latebuyer said:


> There's a podcast at Canadian couch potato on these etfs with a speaker from vanguard
> 
> https://canadiancouchpotato.com/2018/11/10/podcast-20-one-stop-etf-shopping/
> 
> He says that the allocation to canada will probably be reduced over the years.


Interesting...since that is the biggest reason why I don't own any.

My preferred allocation is 10% can, 40% us, 40% intl, 10% EM. I'm not wedded to the exact allocation, but 30% to Canada was too much.


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## latebuyer

The american bias also shows in the international allocation as i don't believe 30% is the percentage by market capitalization for international.


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## AltaRed

latebuyer said:


> The american bias also shows in the international allocation as i don't believe 30% is the percentage by market capitalization for international.


VBAL is not intended to be based entirely on market capitalization. It starts with a home country bias that Vanguard has examined in a number of white papers it has published.... and goes from there, keeping only the 60/40 equity/fixed allocation.


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## OnlyMyOpinion

Here are VBAL's top 10 positions, representing 10.6% of it's 60% equity:

Holding name------------------% of market value
Royal Bank of Canada(RY)---------1.24176%
Toronto-Dominion Bank(TD)--------1.20741%
Apple Inc.(AAPL)-------------------0.80767%
Bank of Nova Scotia(BNS)-----------0.78071%
Canadian National Railway Co.(CNR)--0.74134%
Microsoft Corp.(MSFT)--------------0.69531%
Suncor Energy Inc.(SU)-------------0.64691%
Enbridge Inc.(ENB)------------------0.62580%
Bank of Montreal(BMO)--------------0.56940%
Amazon.com Inc.(AMZN)------------0.56243%

As AR will often point out, don't confuse a Canadian-domiciled company with a company limited to Canadian business exposure. 
These are multinational companies with a significant portion of their revenue and growth beyond Canada's borders. 
They're not dumb.

Thanks for the link Latebuyer. Hopefully James now feels comfortable calling these passive asset allocation funds rather than active.


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## latebuyer

I disagree they aren't actively managed. The vanguard representative in the podcast clearly states the allocation to canada will reduce later in time. Presumably they will look at how US and international perform and base it on that. If it doesn't have a static allocation that makes it active.


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## OnlyMyOpinion

Well then you have selective hearing, and haven't researched the funds. You missed the discussion in that link about these being passive funds.
And the podcast said Canadian allocation may be reduced sometime in the future. Far from certain and I wouldn't hold my breath. Such a 'mandate' change wouldn't constitute active management.
Anyone for whom these funds are otherwise a 'good fit' who is overly concerned about Canadian bias is missing the whole point of owning them.


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## james4beach

When I say "active" I'm referring to the discretion of a manager to determine allocation levels to different countries and sectors.

The fund's mandate (prospectus) is indeed active management. They make no commitment beyond 60/40, and state that exact allocations are at the manager's discretion. I would call them "passive" if they committed to precise % geographic allocations. They have not done this.

I've been watching their allocations since inception and so far they have been passive over 9 months. So far so good. My guess is that at some point in the next few years, they will make a shift in the geographic allocations, or shift between sectors, which will be an active decision. The first test of this will be early next year after end of year rebalancing, which will be an opportunity for them to change their allocations.

Even if they start changing allocations, I doubt they will be tremendously active. I just think it's inaccurate to call them passive funds, because that's not how they're designed.


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## Onagoth

OnlyMyOpinion said:


> Here are VBAL's top 10 positions, representing 10.6% of it's 60% equity:
> 
> Holding name------------------% of market value
> Royal Bank of Canada(RY)---------1.24176%
> Toronto-Dominion Bank(TD)--------1.20741%
> Apple Inc.(AAPL)-------------------0.80767%
> Bank of Nova Scotia(BNS)-----------0.78071%
> Canadian National Railway Co.(CNR)--0.74134%
> Microsoft Corp.(MSFT)--------------0.69531%
> Suncor Energy Inc.(SU)-------------0.64691%
> Enbridge Inc.(ENB)------------------0.62580%
> Bank of Montreal(BMO)--------------0.56940%
> Amazon.com Inc.(AMZN)------------0.56243%
> 
> As AR will often point out, don't confuse a Canadian-domiciled company with a company limited to Canadian business exposure.
> These are multinational companies with a significant portion of their revenue and growth beyond Canada's borders.
> They're not dumb.
> 
> Thanks for the link Latebuyer. Hopefully James now feels comfortable calling these passive asset allocation funds rather than active.


That's an important distinction...but when it comes to geographical allocations in a passively invested portfolio, it seems to be near impossible (without significant effort) to determine the geographical concentration of each company in that "canadian" etf that one might hold.

When I opt for a 10% Canadian allocation, I buy ZCN. I know full well that there will be companies in there that are multinational. I don't count that. I also don't do that same analysis with my US ETF (ZSP and VUN). I Think that level of detail would drive me bonkers.

It is an interesting thought though....when dealing with large cap stocks, does geographical allocation matter? Maybe we should be buying small/mid cap ETFs based on geography, and then with large cap names just buy a diversified basket of the biggest/best companies knowing that you're likely to get international exposure.


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## AltaRed

james4beach said:


> When I say "active" I'm referring to the discretion of a manager to determine allocation levels to different countries and sectors.
> 
> The fund's mandate (prospectus) is indeed active management. They make no commitment beyond 60/40, and state that exact allocations are at the manager's discretion. I would call them "passive" if they committed to precise % geographic allocations. They have not done this.
> 
> I've been watching their allocations since inception and so far they have been passive over 9 months. So far so good. My guess is that at some point in the next few years, they will make a shift in the geographic allocations, or shift between sectors, which will be an active decision. The first test of this will be early next year after end of year rebalancing, which will be an opportunity for them to change their allocations.
> 
> Even if they start changing allocations, I doubt they will be tremendously active. I just think it's inaccurate to call them passive funds, because that's not how they're designed.


I am perfectly fine with the folks at Vanguard making geographic bets on each of the equity and fixed allocations because I am pretty sure they are more 'expert' with their crystal ball than I will ever be with higher odds of making the right move than I would be. I am also pretty sure they will not be bouncing their equity allocations around like the ball in a pinball game. Thus, I am agnostic about ANY argument/debate about these ETFs being called active or passive because I don't have much in the way of geographic opinions. I keep coming back to this table (adjusted to Canadian currency) http://www.ndir.com/cgi-bin/PeriodicTableofAnnualReturns.cgi Anyone who says they can accurately predict what next year's order will be is smoking something.


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## OnlyMyOpinion

Some competition from Blackrock on this front, XBAL and XGRO.
Discussion by Justin Bender.
Full credit due to gsp_ for pointing out this news.

Breaking News, Familiar Ground: iShares Asset Allocation ETFs
and
Vanguard and iShares AA portfolio comparison


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## hfp75

Interesting that Horisons Portfolios were excluded from the assessment.


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## AltaRed

hfp75 said:


> Interesting that Horisons Portfolios were excluded from the assessment.


Perhaps because they are different animals, i.e. swap based products? 

I personally loathe financially engineered products. It may only be a matter of time before tax law is revised to 'get' them like income trusts were, and then corporate class mutual funds.


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## OnlyMyOpinion

hfp75 said:


> Interesting that Horisons Portfolios were excluded from the assessment.


Are you referring to the Horizons passive total index return etf's? 
Aren't they individual market etfs rather than a single-product balanced global etf like these Vanguard and iShare products?
The fact that they are 'synthetic' etf's that use a total return swap to provide a tax-deferred return should probably also distinguish them from the Vanguard and iShares AA etf's?

Btw, does hfp have any significance - such as 'horizons fund portfolio'? :hororr: :encouragement:


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## AltaRed

I think HCON and HBAL are global asset allocation ETFs albeit I have never spent time examining them. https://www.horizonsetfs.com/One-Ticket-Solutions


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## OnlyMyOpinion

Of course, thanks. I have no idea where/how you found that page. I browsed all over their site and never found it. One might consider it poorly designed? Maybe that's why they weren't mentioned - no one has heard of them :eek2:
I see HBAL assets at $8.2MM and VBAL $328.7MM.


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## fplan

OnlyMyOpinion said:


> Of course, thanks. I have no idea where/how you found that page. I browsed all over their site and never found it. One might consider it poorly designed? Maybe that's why they weren't mentioned - no one has heard of them :eek2:
> I see HBAL assets at $8.2MM and VBAL $328.7MM.


If tangerine offers RESP and reduces their fees to around 0.75 , then these asset allocation ETFs will face stiff competition..


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## AltaRed

fplan said:


> If tangerine offers RESP and reduces their fees to around 0.75 , then these asset allocation ETFs will face stiff competition..


MAW104/105 with an MER of 0.92/0.9% are essentially there and have existed since 1988. Seems like the market (MF and ETF) is well served already.


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## fplan

AltaRed said:


> MAW104/105 with an MER of 0.92/0.9% are essentially there and have existed since 1988. Seems like the market (MF and ETF) is well served already.


MAW104/105 is actively managed MF. its performance entirely depends on the fund mangers ability . Where as Tangerine funds are designed to track different indexes closely.


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## AltaRed

Of course, but your post was focused on MER. Why buy a Tangerine index based Balanced, or Balanced Growth, etc, etc, portfolio at 1.07% MER if the AA ETFs do it at 22-25bp? Or even actively managed Mawer at 0.9-0.92% MER with a long and sound track record? Robo-advisors are also in the same patch as Tangerine with their porfolios. 

My point is Tangerine has no distinct advantage (or dis-advantage) over any of these players at current MER levels and even if they were to reduce MER to 0.75%, they will be hard pressed to distinguish themselves. It is a crowded field. My view is all of these options are somewhat equivalent and it is good investors have these choices.


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## OnlyMyOpinion

A September article by Jonathan Chevreau about Vanguard: The hidden $1.3 trillion player in active management:

Vanguard executives said the US$5 trillion of money it manages worldwide includes $1.3 trillion in active management...

Daniel W. Wallick, presented financial advisors with a framework for constructing portfolios that combine active and passive approaches to investing. The heart of Vanguard’s approach remains broad cap-weighted indexes (or so-called Beta), which is what Vanguard says it means when it uses the term “indexing.”

I was myself curious about how the three popular Vanguard Asset Allocation ETFs announced early in 2018 (VGRO, VBAL, VCNS) can be integrated with the various other active strategies described in the presentation. I was told there are significant differences between, for example, VBAL (the asset allocation ETF that is 60% stocks to 40% fixed income) and the Vanguard Global Balanced Fund. 

The VBAL ETF includes more than 20,000 securities (stocks and fixed income) around the world, while the (actively managed) Global Balanced Fund is more concentrated: it holds just 83 equities and 350 fixed-income investments...

the Vanguard Global Balanced Fund is managed by sub advisor Wellington Management Canadian ULC but with separate equity and fixed income teams. The asset mix is 65% equities to 35% fixed income. The management fee for series F is a maximum 0.5%, which is roughly double the 0.22% of VBAL.


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## hfp75

OnlyMyOpinion said:


> the Vanguard Global Balanced Fund is managed by sub advisor Wellington Management Canadian ULC but with separate equity and fixed income teams. The asset mix is 65% equities to 35% fixed income. The management fee for series F is a maximum 0.5%, which is roughly double the 0.22% of VBAL.



Apparently 1/3 of the FI is BBB - which if actively managed might be 'OK' BUT if the BBB world gets in to trouble then there could be a price to pay there.


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## OnlyMyOpinion

I agree. That is perhaps another reason to consider VBAL over the actively managed VIC100 (Global Balanced fund). 
As you point out, it is 26% BBB whereas VBAL is only 9% BBB and holds a much larger number of issuers (diversity). Not too meaningful, but VIC100 shows a 3mo of -4.7% while VBAL is -5.1% according to Morningstar.


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## OnlyMyOpinion

Two new Asset Allocation funds from Vanguard to extend the spectrum to 80%/20% FI/Eq at one end and 100% Eq at the other.

*VCIP* and *VEQT*: https://www.newswire.ca/news-releas...-two-new-asset-allocation-etfs-842020716.html


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## hfp75

We saw vanguards 3 all in one funds last year, then ishares rebranded 2 of their funds into all in ones, then horizons brought in some all in ones too. Now vanguard is offering more diversity to their lineup. This year I wonder if ishares and horizons will follow suit.


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## james4beach

Sure, it's the current trend. "ETF" and "indexing" are popular buzzwords, and people are already convinced they need them. Countless experts say so.

To capture money leaving traditional mutual funds, they can create these new things... which are effectively mutual funds... and talk up their index ETF benefits. These are essentially stripped down mutual funds, distilled down to index representation. Which actually is really good since all mutual funds were closet indexers anyway, just with high fees.

You're going to end up with tons of these, but as with regular mutual funds, only time will tell which ones have good quality portfolio management. This is a detail that won't be appreciated until 5 or 10 years goes by. Even with "index ETFs" under the hood, there can be big differences in how well the portfolio is structured and managed.

At the end of the day, you're still paying for portfolio management and the skills of the manager, but at least you're paying only 0.2% in fees instead of 0.9%

They will probably drive the mutual fund industry out of business, leaving tens of thousands of useless fund managers, accountants, and salespeople unemployed.


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## Butter

VCN / XAW Combo is cheaper than Vangaurds 100%

Simply add ZAG or any bond, and you the 3 etf couch potato model which is cheaper and not that hard to manage.


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## newfoundlander61

I am sticking with MAW104 myself even with the higher fee.


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## hfp75

newfoundlander61 said:


> I am sticking with MAW104 myself even with the higher fee.


Maw104 is active management vs indexing.... there can be value in the extra mer if markets drop and mawer isn’t holding crappy companies that are part of indexes..... your drop can be softer.....


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## jargey3000

what? the markets can DROP??!!


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## hfp75

jargey3000 said:


> what? the markets can DROP??!!


Yah, but don’t worry they always come right back to an even higher point...


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## latebuyer

I just read this entire thread and am probably the only person who appreciated James point of view. When i hear excessive cheerleading about something as is the case with these funds i get suspicious. For what its worth Justin Bender prefers Vanguard to ishares as he thinks they stick closer to the index global allocation. I worked out on a 100,000 portfolio, .1% works out to $100. On larger portfolios that could really add up.


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## cainvest

james4beach said:


> They will probably drive the mutual fund industry out of business, leaving tens of thousands of useless fund managers, accountants, and salespeople unemployed.


Those fund managers will just move over to another "used car lot" and slap an ETF sticker over the word mutual.


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## jargey3000

latebuyer said:


> I just read this entire thread and am probably the only person who appreciated James point of view. .


latebuyer- could you please give me your synopsis of exactly what James' point of view is? thanks.


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## latebuyer

I just meant James argument that Vanguard may change their geographic allocations. You definitely have more control over it if you do your own. Still i prefer vanguards as it actually has a higher allocation to canada then ishares although it sounds like ishares are more committed to their allocation. Sorry to rehash old stuff just not sure if the benefit to these funds is enough for me to pull the plug on my current funds. I may be too cheap too.


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## AltaRed

Equity allocations should change over time too if the algorithms have some market cap weighting to them. I don't mind them using their professional judgement to tweak allocations because they clearly will spend more time at it than I ever would.


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## james4beach

AltaRed said:


> Equity allocations should change over time too if the algorithms have some market cap weighting to them. I don't mind them using their professional judgement to tweak allocations because they clearly will spend more time at it than I ever would.


I believe they are susceptible to the same human failings that all money managers are vulnerable to: chasing returns, fear of losing AUM due to underperformance, etc. The fact they are automated doesn't change anything. These algorithms are just codified copies of human decision making. Ultimately, these funds will chase returns unless they have a codified policy of keeping constant asset allocations to certain countries/categories. And none of them make that commitment to constant allocations.

Professional judgement to tweak allocations? We already know that humans do a bad job at this on average. Some humans are skilled, others are very bad. What makes you think that *these* funds have humans who are good at tweaking allocations? (or who implemented the algorithm, same thing)

I think the MER savings is excellent, and I like that very much. But other than the fee savings, I think these still need to prove some long term performance before convincing me they are any better than existing, established, well-run mutual funds.

Again we just have to look to iShares XTR, a similar idea that preceded VBAL and all these new entrants. This was a 60/40 style ETF composed of other ETFs. It contained index funds. In the 5 years it has followed this strategy, it's underperformed similarly allocated balanced funds by a whopping 1% to 2% annualized... tremendously bad performance.

That's despite the professional judgement to tweak allocations, and despite the index ETFs under the hood. It takes so much more than that to make a good fund.


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## AltaRed

Still likely better than the average retail investor's judgement in asset allocations. I'd suggest the average retail investor chases performance to a much greater degree and the under-performance to go with it. Think of the years retail investors cheerleaded BRIC, Emerging Markets, the Far East (mid/late '90s for those who have forgotten), etc. Investors piled into them when they were hot when they should have actually been trimming their positions.

I don't disagree with you that Vanguard humans are indeed behind the algorithms and will also be the ones to tweak allocations, and subject to human fallacy. I will take their judgement any day over 80% or more of the retail investors out there.

I think it is a disservice to beat up on people who are more likely to make better decisions than the average retail investor who generally needs to be protected from themselves.


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## james4beach

I totally agree that a professional fund manager will do better than the average retail investor. But I think it's better to go with an established fund (a known mutual fund with history) rather than a random new mutual fund, despite the higher MER.

And I'm not beating up on them. I'm presenting a counter view to the overwhelmingly positive endorsements, to bring some balance to it. IMO some of the highly regarded bloggers have been far too enthusiastic about these new funds and have not presented the possible downsides. I'm making these arguments so that the possible downsides are put out there, because the bloggers are failing to do that.


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## cainvest

james4beach said:


> And I'm not beating up on them. I'm presenting a counter view to the overwhelmingly positive endorsements, to bring some balance to it. IMO some of the highly regarded bloggers have been far too enthusiastic about these new funds and have not presented the possible downsides. I'm making these arguments so that the possible downsides are put out there, because the bloggers are failing to do that.


I believe most of the excitement is that we're finally getting funds with reasonable expense rates. An ETF providing the same basic function as the old mutual fund but at only a fraction of the MER, what's not to like here?


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## latebuyer

Good arguments on both sides. For sure bloggers haven't given a balanced view. My main concern with higher US allocation is what happens when our exchange rate improves. People forget the dollar was at par not too long ago. Things are certainly great now partially due to crappy dollar.


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## james4beach

cainvest said:


> I believe most of the excitement is that we're finally getting funds with reasonable expense rates. An ETF providing the same basic function as the old mutual fund but at only a fraction of the MER, what's not to like here?


Yes I agree this is great and it's a nice trend. But XTR was also a mutual fund with a 0.6% MER and it has performed worse (even after fees) than mutual funds with double or even triple its MER. Fee reduction is great, but not if the fund is poorly managed. The moment you depart from a straight index fund, management quality & skill enters the picture.

I'm sure we can agree that both the manager's skill and fee level are important. I just think one has to be wary of just choosing these things because of fees, while ignoring management quality. These ETFs have been marketed with the implication that manager's skill is not important or inconsequential, by throwing around the word "index ETF".


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## cainvest

james4beach said:


> Yes I agree this is great and it's a nice trend. But XTR was also a mutual fund with a 0.6% MER and it has performed worse (even after fees) than mutual funds with double or even triple its MER. Fee reduction is great, but not if the fund is poorly managed. The moment you depart from a straight index fund, management quality & skill enters the picture.
> 
> I'm sure we can agree that both the manager's skill and fee level are important. I just think one has to be wary of just choosing these things because of fees, while ignoring management quality. These ETFs have been marketed with the implication that manager's skill is not important or inconsequential, by throwing around the word "index ETF".


I agree a low fee isn't the end all be all and the fund's objective should be examined. A managers skill can definitely come into play on active funds that are not strictly formula driven. I do feel pretty comfortable with index bundles though, at least those from well known firms like Vanguard.

I'm not familiar with XTR ... what are you are comparing it to that did better with the same objective and asset distribution?


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## AltaRed

The continued mention of XTR could be considered data mining but I digress. 

XTR was, of course, developed and seen as an opportunity (in 2005) to capture the mantra from retail investors on income trusts. Could do no wrong until the gov't slammed the door on those semi-ponzi schemes and XTR had to re-invent itself.... which iShares did an extremely poor job of. It never did know what it wanted to be when it grew up (just take a look at its 9 holdings - WTF?). My view is XTR isn't comparable to anything and in hindsight should have likely been left along to simply contain the morphed holdings (morphed meaning the corporate successors to the predecessor income trusts) into just another dividend ETF. It would have had a terrible 2-3 years at the time of IT conversion, but would have been either healthier, OR wound up, as a result.


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## cainvest

james4beach said:


> These ETFs have been marketed with the implication that manager's skill is not important or inconsequential, by throwing around the word "index ETF".


Is your concern more pointed towards initial construction (geo/sectors) or that they'll keep their allocations close to what they had at inception?

From what I remember you were more concerned with the latter, that some of those funds maybe become more "actively" managed, hence the need for good people behind the fund.

Of course many know, I hope, that funds like MAW104 and VBAL are targeted to the same investor but are not the same underneath.


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## AltaRed

james4beach said:


> These ETFs have been marketed with the implication that manager's skill is not important or inconsequential, by throwing around the word "index ETF".


Not sure 'who' you mean when you say 'have been marketed'. Bloggers? Financial advisors? Journalists? To my knowledge, Vanguard, for example, has not marketed these as index ETFs. They say they are portfolios built from low cost index ETFs. See, for example, https://www.vanguardcanada.ca/individual/etfs/about-our-asset-allocation-etfs.htm?lang=en I would think all 3 of the providers would be careful of that....since there are no 3rd party passive indices for these in the first place.


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## james4beach

Following up to the earlier question regarding XTR. Originally this was an income trust fund but in 2011/2012 it became a Canadian balanced fund (income fund). This became a Canadian equity focused 60/40 or 50/50 fund that was structured as a balanced fund that generates income. It still is the same. So I mentioned the 5 year performance because it has been a balanced fund that entire period -- the income trust days are ancient history.

Performance over 5 years is all as a balanced fund and because distributions are assumed to be reinvested, it removes the income thing from the equation. My point is that for the 5 years XTR has been a balanced fund, it's been a poor balanced fund.

It's also possible that what went wrong for XTR was the income focus, and one might say that a generic balanced fund that doesn't get caught up on income and dividend investing would have done better. From that perspective VBAL should be better as they don't complicate things by focusing on income.


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## james4beach

Or if you don't like the income trust baggage of XTR, why don't we look at BMO's ZMI ? This is also a fund of funds and predates the recent crop such as VBAL.

ZMI is a 50/50 balanced fund with USA & Canada. Morningstar shows 5 year performance of 3.94%. We'd have to construct a relevant benchmark to evaluate that performance. Do you see what I mean though? ETFs containing index ETF have been around for a while.

I believe the ZMI allocations are very similar to the BMO Monthly Income mutual fund. That one returned 5.76% or significantly higher performance despite the higher MER. My point is, these are just mutual funds. In this case the mutual fund with the higher MER outperformed the low cost index ETF based one by a whopping 1.8% CAGR.


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## cainvest

james4beach said:


> ZMI is a 50/50 balanced fund with USA & Canada. Morningstar shows 5 year performance of 3.94%. We'd have to construct a relevant benchmark to evaluate that performance. Do you see what I mean though? ETFs containing index ETF have been around for a while.
> 
> I believe the ZMI allocations are very similar to the BMO Monthly Income mutual fund. That one returned 5.76% or significantly higher performance despite the higher MER. My point is, these are just mutual funds. In this case the mutual fund with the higher MER outperformed the low cost index ETF based one by a whopping 1.8% CAGR.


Ummm ... have you looked at the ZMI holdings, ya no less than 18 ETFs in there lol ... what a dog's breakfast!


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## AltaRed

There are a few rotten apples in every product line. Clearly those 'early' examples, including the predecessors of XBAL et al, were not well designed products. Time will tell on the new suites of asset allocation ETFs. I don't own any of them but I think they are right for 80+% of investors.


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## james4beach

I have high hopes for them as well but have seen too many ETFs go wrong over the years to get overly enthused so early. These things haven't even shown one full calendar year of results yet.

Wait I just found a more useful prior example:

AOR. This is a 60/40 US ishares fund, only 0.25% MER and has been around since 2009 with over $1 billion AUM. It holds regular index ETFs very much along the lines of VBAL. To me, this looks about the same as the ones popping up in Canada, but with a 9 year head start. That should give us plenty of data to look at the AOR performance versus competing options, which would be typical mutual funds and a couch potato portfolio.


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## cainvest

AOR vs Mawer 104 for 3, 5 and 10 years

AOR: 8.80	5.46	9.49
MAW: 6.68 7.48	10.59


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## latebuyer

So far Canadian index is beating US index. If this continues it could be an interesting year for returns. Bortolotti gave one reason for the construction of the canadian couch potato as regret minimization.


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## james4beach

I agree that regret minimization is a nice thing about the couch potato. You lock yourself into firm allocations and then get whatever returns come your way. No second guessing or trying to chase the hot market of the last decade (which is usually what people do).

For the trailing 1 year, Canadian equities are only slightly trailing S&P 500. Canadian equities are doing much better than global equities (XAW)... all in CAD.


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## AltaRed

Indeed. That is why one should be diversified across geographical regions and not second guess/jump around based on intuition. It is almost always wrong.


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## cainvest

It would appear that AOR and Mawer 104 have overall slightly better returns over the couch potato ETF for 60/40 with 4.5/6.1/7.7 for the 3,5 and 10 year. Question is, will VBAL results be as good in 9 more years?


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## OnlyMyOpinion

I'm going to predict that in nine years VBAL will do precisely as well as it's combined underlying index components - as intended.
Will it do better than actively managed MAW104? better than XBAL with slightly different underlying components? Better than our own individual stock picks? Or better than someone who got lucky on their purchase and sale timing?
Damned if I know. 
I do know I'm likely to do better with at least some of our assets invested in a diverse, low cost fund (VBAL) that I can hold and forget about for 10-20 years. 
In addition to MAW104, a fixed income wedge, and some Cdn dividend stocks, I don't think or worry about our investments anymore.


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## latebuyer

Dors VGRO drip at td direct investing? I've read some reports it doesn't drip.


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## latebuyer

Article by Bortolotti on asset allocation funds

https://www.theglobeandmail.com/inv...-etfs-will-help-you-build-a-well-diversified/

He sure is passionate about them


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## OnlyMyOpinion

latebuyer said:


> Dors VGRO drip at td direct investing? I've read some reports it doesn't drip.


Yes, if your account is not already flagged, you will have to call TDDI and tell them you want the account to 'DRIP'. Then any current or future eligible security (stock, etf, mf) will drip. Alternatively, you can tell them that you just want the VGRO ( for example) in the account to drip and other securities to continue to pay dividends/distributions as cash into the acc.


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## AltaRed

Re: Bortolotti, Because for 80% of retail investors, who are their own worst enemies, that is the very best thing they could do for themselves. Remember this is mainstream media selling articles.


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## OnlyMyOpinion

In addition to helping save people from 'themselves' in their investing habits, and allowing them to be fully invested in a diverse portfolio without losing 1.25% or more right off the top in mer, maybe these funds will allow people (and FA's) to focus more on financial planning rather than 'what should I buy'. 
For ecample, is my spending under control, how much could I / should I save, do I have the right insurance, a will, etc...?


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## AltaRed

OnlyMyOpinion said:


> In addition to helping save people from 'themselves' in their investing habits, and allowing them to be fully invested in a diverse portfolio without losing 1.25% or more right off the top in mer, maybe these funds will allow people (and FA's) to focus more on financial planning rather than 'what should I buy'.
> For ecample, is my spending under control, how much could I / should I save, do I have the right insurance, a will, etc...?


Excellent thought!


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## james4beach

Protecting people from themselves can be a good thing. Even couch potato'ers can make mistakes such as cash drag or failing to maintain bond exposure due to predictions about interest rates. I'm guilty of both of those things, hurting my performance even though I used the lowest fee ETFs around.

A diverse portfolio is great, and low fees are great.


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