Vanguard All-Fairness ETF Portfolio (TSX:VEQT) is commonly praised as a one-stop, globally diversified fairness resolution. And whereas it’s a fantastic funding for the correct investor, I don’t suppose it qualifies as the neatest funding you can also make right this moment.
Whereas I can’t give customized recommendation, I can level out some clear deficiencies in VEQT which may maintain it again from being the last word selection. Once more, that is all my opinion, so YMMV.
Above-average Charges
VEQT prices a 0.24% administration expense ratio (MER). On the floor, that’s cheap for a totally managed, globally diversified exchange-traded fund (ETF). Nevertheless, competing asset-allocation ETFs now supply comparable publicity for 0.20% and even 0.18%. At that time, VEQT begins to look dear by comparability.
For a supplier that constructed its model on cost-cutting and making indexing cheaper for everybody, it’s stunning, if not a bit of embarrassing, that Vanguard hasn’t trimmed VEQT’s payment to match friends. The distinction could not look like a lot, however over many years, each foundation level provides up.
Canada bias
VEQT has a home-country bias, with roughly 30% of its portfolio allotted to Canadian shares. Vanguard says it does this to scale back forex threat and enhance tax effectivity, however for my part, 30% is extreme.
Canada represents solely about 3% of the worldwide fairness market. VEQT’s weighting is roughly 10 occasions that. Different asset-allocation ETFs often hold Canadian publicity within the 20%-25% vary. That is nonetheless chubby, however extra cheap.
If you have already got Canadian {dollars} in your financial savings, personal a house right here, and work for a Canadian employer, you’re already closely uncovered to this nation. Concentrating much more of your investments right here simply compounds that threat.
Increased threat
VEQT is made up totally of equities — greater than 12,000 shares worldwide. Whereas that degree of diversification means it’s not going to zero, it nonetheless carries full fairness market threat. Which means it will possibly (and has) fallen double digits in a yr, similar to through the 2020 COVID-19 crash or the 2022 bear market.
That’s fantastic for buyers with a excessive threat tolerance and many years to journey out volatility. However for retirees or anybody with a shorter time horizon, an all-stock portfolio is inappropriate. You want bonds or money to clean returns and shield capital.
The underside line
VEQT is a wonderful product for sure buyers. It’s low-cost (if not the most affordable), globally diversified, and simple to personal. However “smartest” depends upon your state of affairs. For cost-sensitive buyers, the payment is a mark towards it. For these already loaded with Canadian publicity, the home-country bias is one other. And for anybody who can’t abdomen deep drawdowns, an all-equity allocation simply isn’t a match.
