Do “all in one” or “asset allocation” ETFs fit into your portfolio?

Asset allocation exchange-traded funds (ETFs) have many names. They’re also known as “all in one” ETFs, “multi-asset” ETFs, “balanced” ETFs or “ETF portfolios”. Whatever you want to call them, they’ve become more popular with many Canadians in recent years because they offer a whole portfolio's worth of bonds and stocks in a single, simple and affordable product.

So how do they work, and are they right for your investment portfolio?

What is an all-in-one ETF?

As the name suggests, an asset allocation ETF is made up of several ETFs , providing a whole portfolio's worth of assets—global equities and fixed-income—in a single ETF. You get global exposure, typically including diversification across North American, developed international and emerging markets.

One of the key attractions of asset allocation ETFs is their relative low cost compared to mutual funds and other investments. They’re one of the lowest-cost ways to diversify your portfolio. If you tried to replicate all the assets held in an ETF, the trading costs to purchase all the underlying securities would be substantially more than what you pay to purchase the ETF itself. Not to mention the costs of ongoing rebalancing trades.

Another major advantage of these ETFs is that they are regularly rebalanced, helping to maintain target asset allocations, which can save investors a lot of time.

There are dozens of asset allocation ETFs available on Canadian and U.S. stock exchanges from companies including BlackRock, Vanguard, Desjardins, Bank of Montreal and Horizons.

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Who do they appeal to?

Given their rate of growth, it’s safe to say that asset allocation ETFs clearly appeal to many Canadians. According to the Canadian ETF Association, in January 2022, this type of ETF represented 3.7% (or $12.7 billion) of the total $343.3 billion in ETF assets in Canada. Two years earlier, in January 2020, asset allocation ETFs represented only 2.6% of ETF total assets and represented only $5.49 billion in assets.

Designed as a simple investing solution for the average Canadian, asset allocation ETFs were developed by ETF companies partly an alternative to automated robo advisor solutions that tend to appeal to index or passive investors. For those who aren’t interested in or are uncomfortable making stock picks, and who would rather leave the asset allocation and portfolio rebalancing to the experts.

By offering a diverse portfolio of stocks and bonds in one inexpensive product, asset allocation ETFs make building a diversified portfolio as easy as buying a single ETF. They can also potentially serve as a simple, low-cost core to a larger portfolio or as a performance benchmark.

However, before you buy, it's worth noting that since some ETFs contain a high proportion of fixed income assets, there may be more tax-efficient ways to invest if you are holding these products in taxable accounts.

If you’re looking to add an asset allocation ETF to your portfolio, Qtrade Direct Investing offers 100+ commission-free ETFs, several of which are in the asset allocation (or “multi-asset”) category. 

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Further reading:

Million Dollar Journey, “Best All-in-One ETFs in Canada 2022”, July 26, 2022.

Investment Executive, “Unsung heroes of Canadian portfolios”, October 21, 2021.

The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This material is for informational and educational purposes and it is not intended to provide specific advice including, without limitation, investment, financial, tax or similar matters.