Rob Carrick’s 2022 ETF Buyer’s Guide: Best Asset Allocation Funds

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A basic rule of investing has been turned upside down in 2022: portfolios suffer because bonds perform as badly or worse than stocks.

You’ll find many examples of this investment anomaly in the sixth and final installment of The Globe and Mail’s 2022 ETF Buyer’s Guide, which covers asset allocation ETFs. Think of these exchange-traded funds as an instant portfolio of Canadian, US and international stocks, as well as bonds designed for a particular investment need.

Asset allocation ETFs are widely available in conservative, balanced, growth and all-equity versions, with the main difference being the percentage of the portfolio held in bonds. Bonds are seen as a portfolio stabilizer when equities dip – the more cautious you are as an investor, the more bonds you want.

But with interest rates rising this year, bond prices have fallen dramatically while Canadian equities, in particular, have held up. The net result is that asset allocation ETFs aimed at more conservative investors fell more in the first quarter of 2022 than more aggressive funds.

Over the long term, stocks have a much greater risk of scary declines than bonds. But in the spring of 2022, bond exposure is definitely a risk to watch. The ETF guide shows you the stock/bond composition of each fund, as well as recent and longer-term results. There are also notes on how individual holdings influence returns. For example, how exactly do these funds get their exposure to bonds?

The ETFs featured here are ‘funds of funds’, meaning they hold individual stock and bond ETFs from the same family of companies. Each fund has a guideline on how much of the portfolio to keep in each asset class and how often to rebalance at those levels. Funds were considered for this list if they had assets of $25 million or more and a track record of at least one year.

Conservative and all-equity asset allocation funds were excluded. Conservative funds typically have bond allocations – 60% or more – that make little sense in today’s market. All-equity funds may seem ideal because they don’t hold bonds, but long-term investors in these funds should expect heavy losses in the next stock market crash. Bonds, as rancid as they are right now, will help when that happens.

Here is a discussion of the terms used in this edition of the ETF Buyer’s Guide:

Assets: displayed to give you an idea of ​​the interest of other investors in a fund.

Management expense ratio: The MER is the primary cost of owning an ETF on an ongoing basis; published returns are shown after fees have been deducted. The MERs shown here include the cost of the underlying funds of a balanced ETF.

Trading expense ratio: The TER is the cost of trading commissions accrued by the managers of an ETF when making adjustments to the investment portfolio; add the TER to the MER to get the full picture of a fund’s cost.

Equity/bond breakdown: Shown from the latest portfolio update on ETF company websites. It is normal for the actual allocation to deviate a little from the targeted asset allocation – periodic rebalancing takes care of this.

Three main weightings: “Canadian General Bond” means a bond ETF that includes both government and corporate bonds; the “total stock market exposure” of certain ETFs refers to large, medium and small companies; the S&P 500 and S&P/TSX Composite tend to hold larger stocks.

Return: Total returns are shown – price changes plus dividends and bond interest.

Due to technical issues, the 3-year line charts for FBAL-NE and FGRO-NE could not appear in the entry for these two ETFs.

Notes: Market data as of April 26, 2022. Returns as of March 31, 2022. *Bond weighting may include a small amount of cash.

Due to technical issues, the 3-year line charts for FBAL-NE and FGRO-NE could not appear in the entry for these two ETFs.

Source: Rob Carrick; ETF company websites; globeinvestor.com; TMX Money

Click here to download an Excel version of the guide.

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