Balanced exchange-traded funds provide a simple all-in-one investment for anyone willing to pay somewhat more to avoid managing allocations to different funds.
We screened names across the balanced fund categories to find those with Gold, Silver, and Bronze Medalist Ratings, meaning Morningstar analysts expect them to outperform their category index or median over the long term. We’ve highlighted the seven best balanced ETFs for Canadian investors according to Morningstar’s analyst ratings.
- BMO Growth ETF ZGRO
- Vanguard Growth ETF Portfolio VGRO
- BMO Balanced ETF ZBAL
- Vanguard Balanced ETF Portfolio VBAL
- BMO Conservative ETF ZCON
- Vanguard Conservative ETF Portfolio VCNS
- Vanguard Conservative Income ETF Portfolio VCIP
Screening for the Best Canadian Balanced ETFs
We screened for ETFs with Gold, Silver, or Bronze Medalist Ratings that are 100% assigned by Morningstar analysts, rather than indirectly or quantitatively assigned.
Balanced ETFs from Vanguard and BMO
All seven of the funds that made it through the screen come from two series of allocation funds from BMO and Vanguard, which offer portfolios with different levels of stock and bond allocations.
The Vanguard series has five funds: Conservative Income, Conservative, Balanced, Growth, and All-Equity, starting with a 20% stock allocation and rising in increments of 20 percentage points to 100%. Each holds seven Vanguard ETF index funds, except the All-Equity fund, which holds four. The Vanguard funds all have a management expense ratio of 0.24%. All five have Silver Medalist Ratings.
“Vanguard’s Allocation ETFs deliver compelling global portfolios that are efficiently managed and effectively constructed,” writes Michael Dobson, manager research analyst at Morningstar Canada. “Multiple groups combine to add value beyond the series’ significant cost advantage.”
The BMO series is made up of four funds: Conservative, Balanced, Growth, and All-Equity, which start with a 40% stock allocation and likewise rise by 20 percentage points with each step. Each fund in the series uses eight BMO index ETFs, except the all-equity fund, which holds six. The BMO funds all have a management expense ratio of 0.2% and carry a Bronze Morningstar Medalist Rating.
“BMO’s set of four allocation exchange-traded funds stands out for providing an effective coverage of global stocks and North American bonds at a low cost,” writes Dobson, “The series leverages the firm‘s prowess in ETF trading.” Both all-equity funds are excluded, as they are not balanced stock-and-bond funds.
Here’s a closer look at the best balanced ETFs for Canadian investors. A table with their recent performance is at the end of this article.
BMO Growth ETF
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: Five Stars
Vanguard Growth ETF Portfolio
- Morningstar Medalist Rating: Silver
- Morningstar Rating: Five Stars
These two funds have the second-highest equity allocation in their series, at 80%, with the remaining 20% in fixed income.
The BMO fund holds slightly larger stocks, with an average market cap of C$145 billion, above the global equity balance fund category average of C$118 billion, while the Vanguard fund’s average market cap is C$105 billion.
The BMO fund had 39% of its assets in US equity. Both funds had just under 20% of their assets in other international stocks while the BMO fund had 20% in Canadian equity and the Vanguard fund had 24%.
Both funds are in the top decile for their category based on their one-year total return and in the top quintile over their three-year total return.
BMO Balanced ETF
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: Four Stars
Vanguard Balanced ETF Portfolio
- Morningstar Medalist Rating: Silver
- Morningstar Rating: Four Stars
These two funds represent their series’ traditional 60% stock/40% bond strategies.
As of the end of January, the BMO fund had a larger average market cap of C$145 billion, compared with the Vanguard fund’s C$106 billion and the global neutral balanced category average of C$140.
Both funds held a bit more than a quarter of their assets in US stocks, while the Vanguard fund held 18% in Canadian stocks compared with 14% for the BMO fund. Both funds held 15% in other foreign stocks.
The remainder was allocated to bonds. The BMO fund had 66% of its assets in government bonds and 24% in corporate bonds, compared with 62% in government and 19% in corporate bonds for the Vanguard fund.
Both funds are in the top quintile of their category based on one- and three-year total returns, and the top quintile based on one-year trailing total returns.
BMO Conservative ETF
- Morningstar Medalist Rating: Bronze
- Morningstar Rating: Four Stars
Vanguard Conservative ETF Portfolio
- Morningstar Medalist Rating: Silver
- Morningstar Rating: Four Stars
The two conservative funds hold 60% in bonds and 40% in stocks—the lowest equity allocation of the BMO series and the second-lowest for the Vanguard series.
Both funds use underlying bond ETFs that track market-cap-weighted indexes of CAD-denominated investment-grade bonds. It’s harder to compare the two, because despite both being 40/60 allocation funds, the BMO fund is in the global fixed income balanced category, while the Vanguard fund is in the global neutral balanced category. By overall total return, the funds tie, with both delivering a five-year annualized return of 5.3% over the past five years as of May 16.
Vanguard Conservative Income ETF Portfolio
- Morningstar Medalist Rating: Silver
- Morningstar Rating: Two Stars
The final balanced fund, with a 20% stock/80% bond allocation, is the C$229 million Vanguard Conservative Income ETF Portfolio, which has no counterpart in the BMO series. As of May 16, over the past five years, it significantly underperformed the global fixed income balanced category, with its 2.2% return ranking it 92nd there. It also underperformed the category over the past one- and three-year trailing periods.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
