The combination of surging inflation and fears of recession affects not only stocks and real estate investment trusts (REITs) but also exchange-traded funds (ETFs). Selling was intense on June 13, 2022, and the TSX entered correction territory. All of the 11 primary sectors pulled back to widen the Index’s year-to-date loss to nearly 7%.
80/20 asset mix
VGRO is one of Vanguard’s high-quality investment products. Besides investing in equity and fixed-income securities, Vanguard can also invest, direct or indirectly, in one or more ETFs it manages. The strategy should provide long-term capital growth to investors.
According to Vanguard, VGRO strives to maintain a long-term strategic asset allocation. Under normal market conditions, the usual exposure is 80% equity and 20% fixed-income securities. The sub-advisor can reconstitute and rebalance the portfolio asset mix from time to time or if necessary.
For equity investments, VGRO skews toward the U.S. (43.2%) than Canada (30.6%). However, the percentage representation of Canadian fixed-income securities (57.9%) is more compared to America (18.1%). Regarding sector exposure, the top four are financial (19.4%), technology (16.4%), industrial (12.2%), and consumer discretionary (11.6%).
XGRO is broadly diversified and has the same exposure breakdown as VGRO (80% equity, 20% fixed-income). According to BlackRock Canada, the fund manager, investing in one or more of its ETFs should provide long-term capital growth to investors.
BlackRock monitors XGRO continuously and rebalances it automatically (quarterly), if necessary, to maintain the desired asset class target weights. Because of a lower cost fee structure (0.18%), the cut from investors’ earnings wouldn’t be much.
ETFs offer instant diversification and is far superior to mutual funds in terms of fees. Would-be investors in VGRO and XGRO can build a low-cost, broadly diversified portfolio and do away with picking individual stocks. However, not all ETFs are suitable investments today.
Look into the sector allocation, exposure breakdowns, and asset mix first before investing. For now, steer clear of tech stocks or tech-related ETFs. The sector reels from high inflation and rising interest rates. Meanwhile, energy ETFs mirror the performance of the red-hot sector in 2022.