10 Years Later: Vanguard’s Impact On Canadian ETF Investors
It’s hard to put into words the impact Vanguard has made on the investment industry and for individual investors. Perhaps Warren Buffett described it best when he paid tribute to the late Vanguard founder Jack Bogle in 2019:
“Jack did more for American investors as a whole than any individual I’ve known.”
Vanguard brought its famous low-cost investing products to Canada 10 years ago. To say they’ve made a positive impact north of the border would be a tremendous understatement.
Since 2011, Vanguard Canada has launched 37 ETFs that have attracted nearly $47 billion in assets under management (AUM). They’re the third largest ETF provider in Canada by AUM and have captured nearly 14% of the ETF market. This, despite offering fewer than 4% of the total number of ETF products on the market.
More impressively, since Vanguard’s entrance into the Canadian market, the average MER for its ETFs in Canada has gone down significantly– from 0.27% to 0.17%. And the average MER of all ETFs in Canada is now at 0.37%. This is known as the Vanguard effect – where competitors take notice of Vanguard’s low-cost approach and tend to reduce their fees accordingly.
Clearly Vanguard has been a catalyst for change and has helped transform the Canadian investment landscape for the better.
Vanguard Canada highlights
Vanguard’s most popular ETF is the Vanguard S&P 500 Index ETF (VFV), which has attracted more than $6.5 billion in assets. It’s the sixth largest ETF in Canada overall (as of December 31, 2021).
That’s followed closely by Vanguard’s US Total Market Index ETF (VUN), which has $5.3 billion in assets and is the 10th largest ETF, then Vanguard’s FTSE Canada All Cap Index ETF (VCN), with more than $4.7 billion in assets, and Vanguard’s Canadian Aggregate Bond Index ETF (VAB), with more than $3.6 billion in assets.
Vanguard launched a game-changing suite of asset allocation ETFs in 2018 (VCNS, VBAL, VGRO), followed by the addition of VCIP, VEQT, and later VRIF. These unique products have proven to be enormously popular among DIY investors, led by Vanguard’s Growth ETF Portfolio (VGRO), with nearly $3.3 billion in assets (as of December 31, 2021).
Imitation is the sincerest form of flattery, and Vanguard’s main competitors have all launched their own line-ups of asset allocation ETFs, giving Canadian investors even more choice when it comes to building simple, low cost, globally diversified portfolios.
Tim Huver, Vanguard Canada’s head of intermediary sales, told me that the firm is pleased with the interest in VRIF, Vanguard’s Retirement Income ETF. This fund invests in a balanced portfolio of 50% global stocks and bonds and targets a 5% annual return with a 4% annual distribution.
I asked Mr. Huver how VRIF has performed, and he said the fund returned 7.56% in 2021 and met its target payout of 4%. Vanguard increased the per unit distribution on VRIF by 3.65% for 2022.
With niche ETFs such as space innovation, clean energy, and cryptocurrency proliferating across the landscape, I asked Mr. Huver if Vanguard plans to launch any thematic or sector specific funds in the near future:
“We’re focused on providing core building blocks for investors at a low cost. There are no crypto ETFs on the horizon for Vanguard.”
Good to know.
Vanguard’s Impact On My Investing Journey
My own investing journey has been positively impacted by Vanguard’s entrance into the Canadian ETF market.
Prior to 2015, I invested in Canadian dividend paying stocks. ETFs started becoming more and more popular among DIY investors, but a globally diversified portfolio required an unwieldy number of ETFs. I recall some of the Canadian Couch Potato model portfolios including 8-12 individual products.
Then in mid-2014 Vanguard introduced its FTSE Global All Cap ex Canada Index ETF (VXC). This product gave investors exposure to U.S., international, and emerging market stocks with just a single ETF. It was the catalyst for me to switch from dividend investing to index investing.
In January 2015 I sold all my individual stocks and set up my two-ETF portfolio of VCN (Canada) and VXC. I called it my four-minute portfolio.
Four years later, Vanguard launched the all-equity VEQT. I sold my two-ETF portfolio and consolidated into VEQT. That’s exactly how I invest to this day, holding VEQT inside my RRSP, TFSA, LIRA, and Corporate Investing account.
Investing in a single-ticket ETF has simplified my life for the better. VEQT holds more than 13,000 global stocks and rebalances regularly to maintain its target asset mix.
I can honestly say I pay little to no attention to my portfolio or even to broader day-to-day market movements. Contrast that with my individual stock portfolio, which had me tracking the daily ups-and-downs and stressing over company-specific news. Or even with my two-ETF portfolio, which had me tinkering over the appropriate home country bias.
Readers and my fee-only financial planning clients have asked me why I chose Vanguard products over other comparable ETFs. The answer is that I’ve always admired Vanguard, from their founder Jack Bogle’s folksy wisdom to its ownership structure (the parent company Vanguard Group is effectively owned by its mutual fund investors), to the Vanguard effect on reducing mutual fund and ETF fees in whatever market they enter.
Yes, some competitor-launched ETFs may cost slightly less than Vanguard’s offerings. But Vanguard is not known for being the second lowest cost investment provider. Fees on core products will continue to decrease in the coming years as Vanguard continues to grow and their products scale.
Thanks to Vanguard Canada for the insight into its impact on the Canadian ETF market over the last decade. Their success means that their investors, including me, have also succeeded in reaching their investing goals.
It was about ten years ago when I fired my so called financial advisor and started self directing. I am so grateful for the Vanguard ETFs that were made available in the years following, as I cleaned up that mess of a portfolio. Vanguard’s products making self directing stress free!
Hi Brian, I agree 100%. And it is so much easier for new investors to get started on the right foot with simple solutions like robo advisors or asset allocation ETFs. Much better than when we first started!
Same here, best day of my investing career, when i got rid of my Mutual fund salesman. And my investments have never grown so fast, low fees make all the difference
Hi Angelo, low fees certainly make a difference – as does a decade long bull market 🙂
A lot of millenial investors like myself don’t realize how GOOD we have it these days. No one I know near my age holds any expensive mutual funds. Goes to show how ETFs are winning out and that is largely thanks to Vanguard paving the way.
@AnotherLoonie – For sure! It’s still a challenge getting some of my older clients to understand the lower cost options and move them away from their long-term bank mutual fund relationship. But once they see the impact of fees on their multi six-figure portfolios they eventually come around.
Hi Robb,
Great article – it’s hard to imagine a world without ETFs. While I hold VFV in my tax sheltered accounts, I’ve recently been attracted to Horizon’s swap ETFs due to their tax efficiency. However I don’t fully understand the fees. Below is the fee structure for HXS:
Management Fee: 0.10%
Swap Fee: No more than 0.30%
What does ‘no more than 0.30%’ mean? Should I assume the total fee is 0.4% (0.10% + 0.30%), or will it likely be less? If it’s 0.40%, do the tax benefits outweigh VFV’s lower fee of 0.08%? Has anyone done that math?
Thank you!
David
I am also curious about this as I hold some HBAL in a non-reg account. The fee structure is unclear to me which is partly why I only own “some” of this ETF.
Hi David, the total fees for Horizons’ all-in-one ETFs range from 0.29 – 0.34%. That’s versus 0.20% for BMO and iShares all-in-ones, and 0.25% for Vanguard’s.
This Canadian Couch Potato article takes a deep dive into the Horizons all-in-one ETFs to help you get some clarity around these investments and whether they’re a good fit for you:
https://canadiancouchpotato.com/2021/02/26/inside-the-horizons-one-ticket-etfs/
Hi David, I would interpret ‘no more than 0.30%’ exactly as it sounds. You can look up the total costs of every Horizons ETF by searching Horizons MERs and TERs:
https://www.horizonsetfs.com/horizons/media/pdfs/educational/2021_MERsTERs.pdf
It hasn’t been updated to Dec 31 2021, but it certainly looks like HXS will charge 0.10% MER + 0.30% TER.
The TER for Horizons’ all-in-one ETFs (HCON, HBAL, HGRO) seem to range from 0.15 – 0.18%.
As for the math, well that would certainly depend on your marginal tax rate, how much you have invested in a taxable account, and how much you expect to receive in investment income.
The typical case for investing in the Horizons swap-based ETF structure is when you’re in a high tax bracket and want to avoid earning investment income. You have to weigh that against the fact that most broad based equity ETFs tend to have a distribution yield around 2%. VFV’s is only 1.25%.
Your tax savings should be enough to offset the higher fees, and you need to be aware that there is also regulatory risk because the feds could disallow a swap-based structure in the future.
Hi David
One thing to keep in mind re the Horizon swap based ETFs is that the federal government could at some point take an “interest” in them and disallow this tax advantage. The federal government tends to take a dim view of deferred income mechanisms in general, and has in fact already in the relatively recent past made changes that affected the structuring of these ETFs. Robb also points this out in his comment where he mentions the regulatory risk of these ETFs.
FWIW, I own some HXT and HXS in a non-registered account and had to do some CRA paperwork (section 85 rollover) when the ETFs were restructured due to CRA changes that targeted the tax deferred mechanism the ETFs were employing.
Can you please advise a strategy of ETFs for someone who doesn’t want to hold ANY blackrock or vanguard products in their portfolio? Thanks!
Hi Mariea, you have lots of options to choose from:
BMO: ZCON, ZBAL, ZGRO
TD: TOCC, TOCM, TOCA
Horizons: HCON, HBAL, HGRO
Mackenzie: MCON, MBAL, MGRW
Fidelity: FCNS, FBAL, FGRO, FEQT
I really don’t want to support these people in any way shape or form. As much as that is logically possible. I will seek alternatives, thanks for the list!
https://moneyinc.com/shocking-amount-of-money-vanguard-and-blackrock-control/
Big Pharma and mainstream media are largely owned by two asset management firms: BlackRock and Vanguard
Drug companies are driving COVID-19 responses — all of which, so far, have endangered rather than optimized public health — and mainstream media have been willing accomplices in spreading their propaganda, a false official narrative that leads the public astray and fosters fear based on lies
Vanguard and BlackRock are the top two owners of Time Warner, Comcast, Disney and News Corp, four of the six media companies that control more than 90% of the U.S. media landscape
BlackRock and Vanguard form a secret monopoly that own just about everything else you can think of too. In all, they have ownership in 1,600 American firms, which in 2015 had combined revenues of $9.1 trillion. When you add in the third-largest global owner, State Street, their combined ownership encompasses nearly 90% of all S&P 500 firms
Vanguard is the largest shareholder of BlackRock. Vanguard itself, on the other hand, has a unique structure that makes its ownership more difficult to discern, but many of the oldest, richest families in the world can be linked to Vanguard funds
Hi Mariea, I’m afraid you’ve gone down a rabbit-hole of conspiracies and misinformation. It’s quite the leap to say that BlackRock and Vanguard are part of some secret cabal set on controlling the media and pandemic response. That’s simply not the case.
I implore you to walk (no, run) away from conspiracy theories like this and seek out more credible sources.
Mariea, can you tell me why you dont want to hold blackrock or vanguard? is it just a person preference/decision? what did you base your decision on?
Thanks,
Rick
BMO offers a full range of ETFs, including asset allocation ETFs (e.g. ZGRO), but why wouldn’t you want BlackRock or Vanguard?
I just finished the book Trillions. Thank goodness for Vanguard, Jack Bogle, and all of the people that made ETFs possible. If anyone asks me about investing, I point them to the Vanguard risk assessment questionnaire and the asset allocation funds.
I believe in the US, Vanguard also sells low MER mutual funds. I wonder why they don’t do that here. Perhaps with the change coming in summer whereby discount brokerages won’t be able to collect trailer fees from mutual funds they sell that will change?
Hello Rob,
I am a regular reader of you Blog. I find your articles very informative, thank you for publishing all this great information.
I was wondering why is your portfolio in 100% equity and no bonds/fixed income etc. I am sure you have mentioned this somewhere on your blog but I am unable to locate this info. I was curious to know your perspective about this topic.
Thanks
Hi Prashant, thanks for the kind words. I wrote about this about four years ago: https://boomerandecho.com/why-no-bonds-portfolio/
My situation has changed since then (I quit my public sector job), but I still invest in 100% global equities for many of the same reasons highlighted in that post.
Stocks have the highest expected returns over the long-term and I’m confident in my ability to “stay in my seat” when markets fall from time to time.
Most investors aren’t wired this way and should hold some bonds in their portfolio to smooth out the volatility, to help them rebalance when stocks crash, and to ultimately help them stay invested during bumpy periods in the market.