Advisors and investors have a variety of concerns when it comes to growing wealth. Typically, they involve:
- Low bond yields, which bring the temptation to reduce fixed income exposure
- A bewildering choice of potential investment solutions
- Products being presented in different ways, making them hard to compare
This series of articles, “Solving your investment problems,” will explore those key concerns and suggest some of the best solutions for each one.
Part 2: Achieving comprehensive diversification
The problem: Achieving a more affordable comprehensively diverse portfolio.
One solution to consider: Asset allocation ETFs
Individual investors only have so much time to research global stocks and bonds. While it makes sense to stick to areas of the stock and bond markets where they may have an edge, it also makes sense to outsource those decisions in areas where they don’t have an advantage.
Buying only individual assets can also make it difficult for investors to achieve a truly diverse portfolio. It’s expensive to buy and sell individual stocks and you would need to buy dozens (or even hundreds) to achieve a safe level of diversification, in terms of location, industry and an appropriate split between equities and fixed income.
Plus, not all asset classes move in the same direction, so holding non-correlated assets can help protect your portfolio when markets are volatile. Rebalancing during times of volatility can lead to outperformance when markets recover. For individual investors and advisors with clients holding small portfolios, there are ETFs that provide asset allocation, wide product selection and rebalancing; all at low management fees.
Asset allocation ETFs: affordable, comprehensive diversification
One efficient solution is asset allocation ETFs. Over the last 90 days (up to March 10, 2021), $1.5 billion has flowed into this space1. Half of that amount was in the growth asset allocation, closely followed by balanced asset allocation funds.
Asset allocation ETFs are essentially “ETFs of ETFs”, that is, they’re a collection of sub-ETFs, sometimes containing as many as a dozen ETFs and in turn, hundreds of assets.
There are several compelling reasons why asset allocation ETFs are seeing such considerable inflows:
They collectively provide a whole portfolio's worth of assets, including equities and fixed income, in just one ETF. They usually offer exposure to North America, global developed and emerging markets
- They bring immediate, significant diversification of regions, assets and industries
- They’re regularly rebalanced to maintain target risk levels and asset allocations
- Low-cost options (they typically have low managements fees)
- Options are available to suit your investment style/risk preference, meaning you’re bound to find one to suit you
There are typically four types of asset allocation ETFs to suit different risk tolerances:
- Conservative: 40% equity and 60% fixed income
- Balanced: 60% equity and 40% fixed income
- Growth: 80% equity and 20% fixed income
- Fixed income: 100% fixed income – for investors managing the equity portion of their portfolio, this can provide 100% of their fixed income exposure
Mackenzie’s asset allocation ETFs
Mackenzie offers four asset allocation ETFs:
Mackenzie Conservative Allocation ETF (MCON)
Mackenzie Balanced Allocation ETF (MBAL)
Mackenzie Growth Allocation ETF (MGRW)
Mackenzie Global Fixed Income Asset Allocation ETF (MGAB)
The chart below shows the equites/fixed income ratio of each one: