VBAL vs XBAL: Which ETF Portfolio Is the Better Buy for Canadian Investors?

Vanguard and BlackRock’s most popular 60/40 asset allocation ETFs go head to head.

| More on:
ETF chart stocks

Image source: Getty Images

Welcome to a weekly series where I break down and compare some of the most popular exchange-traded funds (ETFs) available to Canadian investors!

Canadian investors favouring the most hands-off, passive approach to investing can eschew a hand-picked portfolio of stocks and bonds for an all-in-one asset allocation ETF. Both Vanguard and BlackRock provide a set of tickers for these kinds of ETFs.

Today, we’ll be looking at the 60/40 stocks/bonds version, also known as the “balanced” ETF portfolio, suitable for investors with a lower risk tolerance. Up for consideration are Vanguard Balanced ETF Portfolio (TSX:VBAL) and iShares Core Balanced ETF Portfolio (TSX:XBAL).

VBAL vs XBAL: fees

The fee charged by an ETF is expressed as the management expense ratio (MER). This is the percentage that is deducted from the ETF’s net asset value (NAV) over time, calculated on an annual basis. For example, an MER of 0.50% means that for every $10,000 invested, the ETF charges a fee of $50 annually.

VBAL has an MER of 0.24%, compared to XBAL’s fee of 0.20%. The difference is minuscule (a difference of $4 on a $10,000 portfolio), but if we had to pick a winner, it would be XBAL.

VBAL vs XBAL: size

The size of an ETF is very important. Funds with small assets under management (AUM) may have poor liquidity, low trading volume, high bid-ask spreads, and more risk of being delisted due to lack of interest.

VBAL currently has AUM of $2.24 billion, whereas XBAL has AUM of $927 million. Although both are sufficient for a buy-and-hold investor, VBAL is clearly the more popular one.

VBAL vs XBAL: holdings

Both ETFs here are considered “funds of funds,” in that their underlying holdings are not stocks, but rather other ETFs. This makes sense in that XBAL and VBAL are intended to be all-in-one portfolios.

XBAL chooses to allocate approximately 27% to the U.S. stock market, 15% to the Canadian stock market, 15% to the developed international stock market, 3% to the emerging international stock market, 30% to the Canadian bond market, and 10% to the U.S. bond market.

VBAL chooses to allocate approximately 26% to U.S. stocks, 18% to Canadian stocks, 11% to developed international stocks, 5% to emerging international stocks, 24% to Canadian bonds, 7% to U.S. bonds market, and 9% to the global ex-U.S. bond market.

VBAL vs XBAL: historical performance

Both funds are quite new, so their performance history is rather limited. Nonetheless, a backtest is useful for assessing their tracking error and relative performance.

A cautionary statement before we dive in: past performance is no guarantee of future results, which can and will vary. The portfolio returns presented below are hypothetical and backtested. The returns do not reflect trading costs, transaction fees, or taxes, which can cause drag.

Here are the trailing returns from 2019 to present:

Here are the annual returns from 2019 to present:

Both ETFs have very similar performance. XBAL had slightly higher returns and volatility due to its higher concentration of U.S. stocks. Over the long run, I expect them to perform virtually identical.

The Foolish takeaway

If I had to choose one ETF to buy and hold, it would be XBAL. Despite the lower AUM, the 0.04% difference in MER could make a big difference over long periods of time with a large portfolio. Both funds have roughly the same holdings with good diversification. Still, if you’re partial to Vanguard, VBAL is a fantastic choice as well.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Stocks for Beginners

Stocks for Beginners

3 Top Stocks to Buy Now in a Once-in-a-Decade Opportunity

Don't wait. These three top stocks are the perfect additions to your portfolio and aren't likely to remain at these…

Read more »

retirees and finances
Dividend Stocks

How to Create a Million-Dollar TFSA in Two Decades

Your TFSA could create riches you didn't know were possible, but only if you commit again and again to your…

Read more »

Coworkers standing near a wall
Stocks for Beginners

2 Unassailable Earnings Growth Stocks for a Wobbly Economy

Aritzia and another top growth stock that could be hot performers through 2023 and beyond.

Read more »

Chalk outline of two arrows pointing in opposite directions
Stocks for Beginners

2023 Is a Terrible Time to Be a Saver: Here’s What to Do With Your Money Instead

You can hold short-term GICs for your liquidity needs but also consider investing your money in quality businesses for the…

Read more »

edit Sale sign, value, discount
Stocks for Beginners

3 Cheap Stocks I’d Buy in Bulk When a Recession Hits

Not only would I grab these cheap stocks during a recession, I would then hold them for the next decade…

Read more »

Female hand holding piggy bank. Save money and financial investment
Stocks for Beginners

Millennials: How to Take Full Advantage of That “RRSP” Thing

I get it; it's hard to invest for the future when the present is stressful, but there are present benefits…

Read more »

Man with no money. Businessman holding empty wallet
Stocks for Beginners

Canadians Investors: How to Know When We’ve Hit a Recession

A recession is coming in 2023, but what does that even mean? And how can investors protect themselves before it…

Read more »

man slides
Dividend Stocks

TFSA Investors: Where to Put That New $6,500 Contribution Room

These stocks may be trading high, but they still offer value for TFSA investors seeking out the best stocks to…

Read more »