Canadians have long had a fondness for the Vanguard Growth ETF Portfolio (TSX:VGRO), and it’s not hard to see why. The exchange-traded fund (ETF) even has its own community, r/JustBuyVGRO, on Reddit.
VGRO offers a compelling package: a vast array of thousands of U.S., Canadian, and international stocks, all neatly bundled into a single ticker. This stock allocation accounts for about 80% of the portfolio, complemented by 20% in bonds.
With an expense ratio of only 0.24%, it represents a cost-effective solution for diversified investing. The simplicity of VGRO allows investors to adopt a “set-it-and-forget-it” approach, making investing virtually effortless and akin to being on autopilot.
Despite its popularity and apparent benefits, I believe VGRO is far from being the ideal investment solution for everyone. There are specific aspects of this ETF that might not align with every investor’s needs or objectives.
Here’s why I’m not 100% sold on VGRO and my ETF alternative from Vanguard to replace it.
What I don’t like about VGRO
VGRO allocates approximately 30% of its equity holdings to another Vanguard index ETF that provides exposure to the broad Canadian stock market.
While Vanguard’s research might suggest that this allocation is beneficial for historical volatility, tax efficiency, and currency risk management, the question arises: is this really the optimal approach?
Let’s consider the global stock market context. Canada’s weight in the global stock market is about 3%. For passive investors aiming to mirror the global market’s composition, a 30% allocation to Canadian stocks seems disproportionately high at nearly 10 times Canada’s actual market weight.
This approach could be seen as an outsized bet on the Canadian market, which might not align with the principle of global diversification that many passive investors seek.
While a certain degree of home country bias is understandable and can be justified up to a point—perhaps around 5% or even 10%—the 30% allocation to Canadian stocks in VGRO appears excessive.
In my opinion, this heavy weighting toward the Canadian market might not make sense for investors who are looking for a portfolio that more accurately reflects the global market’s distribution.
The better ETF to buy
I personally find Vanguard FTSE Global All Cap ex Canada Index ETF (TSX:VXC) to be a more appealing option for Canadian investors. VXC essentially offers what VGRO does but without the significant 30% allocation to Canadian stocks.
In fact, VXC entirely excludes Canadian stocks from its portfolio, focusing instead on a more globally diversified mix. It allocates around 60% to U.S. stocks, 30% to international stocks from developed markets, and 10% to emerging markets.
This composition makes VXC an excellent candidate for a core-and-explore investment strategy. For example, you could allocate a significant portion, say, 90%, of your investment portfolio to VXC.
This would give you broad exposure to global markets while excluding Canada, thus avoiding the home-country bias issue present in VGRO.
The remaining 10% of your portfolio could then be dedicated to select Canadian dividend stocks or other investment vehicles that align with your specific financial goals or interests.
This approach allows for a more balanced and globally diversified portfolio while still providing the opportunity to selectively invest in the Canadian market according to your preferences.
