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After a slight delay because of the Coronavirus and the bear market, MoneySense.ca has just published the 2020 edition of its annual feature, the ETF All-Stars. You can find the full report by clicking on the highlighted headline: Best ETFs for Canada 2020.
There you’ll find an overview of the changes this year as well as how our 8-person panel of ETF experts view the bear market. You can click on each tab (example Canadian equities, fixed income, etc.) to find the chart of the updated All-stars list. Each of the subheadings below contain hyperlinks to the underlying MoneySense content.
While our expert panel added a number of new ETFs this year – some in global fixed income, several low-volatility ETFs and two new families in the One-Decision Asset Allocation category – virtually all our last year’s picks returned, most unanimously. The only 2019 pick that was removed for the 2020 edition is ZPR, as preferred shares had another year of disappointing performance.
This seems to vindicate our long-term approach. Our list now consists of an elite 42 “All-Star” picks: a big jump up from 25 last year, plus 8 more individual “Desert Island” picks. So in total, we have 50 recommended ETFs, which should be a good start for readers in narrowing down the wealth of possible choices in this growing cornucopia of choice.
All four Canadian equity ETFs return: VCN, XIC, HXT and ZCN (See accompanying chart for full ETF names) plus we added BMO’s low-volatility Canadian equity ETF, ZLB. See discussion on Low-vol ETFs further down. Remember that Canadian stocks are also amply represented in the One-Decision Asset Allocation ETFs discussed below.
The panel opted to retain all four of our 2019 US equity ETF picks, while adding three low-volatility ETFs. Returning picks are the U.S. Total US Market XUU from iShares, and three low-cost plays on the S&P500 index: VFV and VSP from Vanguard, and BMO’s ZSP. Readers should also check the latest crop of desert island picks: several panelists went with specialty US equity ETFs, such as HXQ.U from Mark Yamada and, — new this year — Yves Rebetez selected NXTG as a 5G (fifth generation wireless) Nasdaq play. The PWL team of Felix and Passmore picked a US small-cap value play: Avantis U.S. Small Cap ETF (AVUV/NYSE Arca). And Dale Roberts chose the Vanguard Dividend Appreciation ETF (VIG/NYSE Arca).
International and Global equities
The panel retained our five international or global ETF All-stars from 2019: two from iShares (XAW and XEF) and three from Vanguard (VXC, VEE and VIU). But we also added the three low-volatility ETFs: ZLI, RWW/B and XMW. See the extended discussion of all these new low-volatility ETFs in the relevant section below.
More Global and US treasuries in Fixed Income
Six of our previous fixed-income All-Star picks return: ZAG, VSB, VAB, ZDB, BXF, and XSB (Again, refer to the accompanying charts for full ETF names). This year the panel decided to remove the BMO Laddered Preferred Share ETF (ZPR) after yet another disappointing year of performance for preferred shares.
However, we added two new ETFs with a global and/or US focus: VGAB, a new global bond ETF from Vanguard; and TLT, one of the few All-Stars not trading on a Canadian exchange: trading on the Nasdaq the iShares Barclays 20 Year + Treasury Bond ETF invests in long-term U.S. treasuries. While not an official pick, BMO offers long-term treasuries in Canadian dollars by way of ZTL.
Note that the Vanguard asset allocation ETFs already provide exposure to US and global bonds, hedged back to the Canadian dollar; the Vanguard Global Aggregate Bond Index ETF (CAD-Hedged), ticker VGAB, is simply a combination of VBG and VBU, both hedged back to the C$.
Launched Jan. 17, 2020, VGAB offers 15,000 government and corporate bonds across US and global markets. Slightly under 50% of the fund is US fixed income while the rest is made of investment grade bonds from global markets, including almost 4% in Canada. It also includes a roughly 3% allocation in investment grade bonds from developing countries. Here is panelist Dale Robert’s blog shortly after VGAB was unveiled.
TLT is the Nasdaq-listed iShares Barclays 20 Year + Treasury Bond ETF. “You don’t fix a ship in a hurricane but, US Treasuries have been known to be better risk managers (many say the best outside of inverse ETFs). There are US and Canadian dollar versions,” notes Roberts. Readers might also want to consider the mid-duration iShares Barclays US Dollar 7-10 year ETF: IEF, also on the Nasdaq, but not designated an All-Star. “Many portfolio managers I speak with and any simple research shows the benefit of US long and mid-term treasuries. I’m so glad I own them,” Roberts says, “Much better risk managers compared to Canadian bonds.”
Expanding our One-Decision Asset Allocation packages
The panel was unanimous in affirming last year’s choice of the pioneering Vanguard asset allocation ETFs but also decided to expand the All-Star status of these to the equivalent suites from BMO and iShares.
Robb Engen calls these One-Solution ETF solutions “game changers” and his own Desert Island pick was again the all-stocks VEQT.
BMO has three asset allocation ETFs, whose tickers mimic those of Vanguard’s. BMO Growth ETF (ZGRO) is like Vanguard’s VGRO, 80% in equities and 20% in fixed income. BMO Balanced ETF, ZBAL, is like VBAL with 60% in stocks and 40% in fixed income. And BMO Conservative ETF, ZCON, is like Vanguard’s VCNS, with 40% in stocks and 60% in fixed income, although the ticker is less similar than in the first two cases.
iShares’s lineup closely resembles Vanguard’s One-Decision Lineup of five asset allocation packages. The tickers are easy to remember as both BMO and iShares cleverly adopted the approach Vanguard took with their ticker symbols. Thus, the 60/40 balanced ETF VBAL from Vanguard is evoked in the ticker symbols of iShares’ XBAL and BMO’s ZBAL. Similarly the 80/20 stocks/bonds VGRO from Vanguard is reflected in XGRO and ZGRO. For the 40% stocks to 60% bonds of Vanguard’s VCNS, substitute XCNS and – a bit of a departure from the pattern – BMO’s ZCON. However, the pattern is broken in the very conservative VCIP (20% stocks to 80% bonds) with XINC, iShares Core Income Balanced ETF Portfolio.
For the second year in a row, we present the ‘Desert Island picks’, which are the top individual picks for each panelist: the idea being that if you were stranded on a desert island with no access to the Internet, you’d be comfortable with holding that pick for at least five years. Hopefully with a pleasant surprise on your return to civilization!
