Investing has often been an expensive and/or complicated endeavour for Canadians. The vast majority of investors put their money into mutual funds sold by their bank or investment firm – funds which typically charge 2% or more in fees and leave Canadians with less money for retirement. Then along came exchange-traded funds (ETFs), then robo-advisors, and then single-ticket asset allocation ETFs to help transform the investment landscape and drive down costs for the average investor.
What’s been missing is an elegant way for do-it-yourself investors to adjust their risk tolerance over time. It’s easy enough to say that you’ll go from the all-equity VEQT, to the 80/20 VGRO, and then to the 60/40 VBAL as you head into retirement. But when exactly do you pull the trigger and make the switch? Five years before retirement might be too soon. The year before retirement might be too late. Murphy’s Law says you’ll probably get the timing wrong, no matter what you decide. Not to mention the complexities of having a taxable account and triggering capital gains on your entire non-registered portfolio when you make the switch.
I’ve struggled with this type of market timing myself with my kids’ RESP account. I started investing in TD e-Series funds with the 1/3 in each of the Canadian, U.S., and International equity funds. My kids will turn 13 and 10 this year so it’s no longer appropriate to be in an all-equity portfolio. But that means I need to make active decisions on the timing and the allocation towards bonds or cash or GICs. As a passive investor it’s not something I’m comfortable with. I can only imagine how retirees feel as they near their retirement date.
Meanwhile, mutual funds have had the answer to this question for decades with something called a target date fund. Immensely popular in U.S., target date funds are typically only available inside workplace savings programs like a Group RRSP or defined contribution pension plan.
Here you’ll find low cost target date options like BlackRock’s excellent LifePath funds. Pick your retirement date, like the BlackRock LifePath Index 2040 Fund, contribute regular amounts off your paycheque throughout your career, and the target date fund will slowly and automatically adjust the equity allocation in your portfolio as you get closer to retirement. No tinkering required.
So what’s a regular investor to do if he or she doesn’t have access to a workplace savings program? Enter the Evermore Retirement ETFs.
Evermore Retirement ETFs: Canada’s First Target Date ETF
A new solution has been built for Canadian investors called Evermore Retirement ETFs. They’re Canada’s first target date ETF. Investors can choose from eight different retirement paths, starting with the Evermore Retirement 2025 ETF for investors on the cusp of retirement, and moving all the way out to the Evermore Retirement 2060 ETF for young investors with ~40 years of accumulation in front of them.
What got me excited about this suite of products is not just the target date solution, which is much needed in the Canadian landscape, but also that Evermore Retirement ETFs are built with best-in-class, low-cost ETFs from Vanguard, iShares, and BMO. Here’s what’s under the hood of Evermore’s Retirement 2035 ETF:
| Name | Symbol | Total % |
|---|---|---|
| iShares Core S&P/TSX Capped Composite | XIC | 19.20% |
| iShares Core S&P Total US Stock Market ETF | ITOT | 28.80% |
| iShares Core MSCI EAFE IMI Index ETF | XEF | 12.40% |
| BMO MSCI Emerging Markets Index ETF | ZEM | 3.00% |
| Vanguard Canadian Aggregate Bond Index ETF | VAB | 21.60% |
| Vanguard Total Bond Market ETF | BND | 10.80% |
| Vanguard Total International Bond ETF | BNDX | 3.60% |
| Cash | 0.70% | |
| TOTAL | 100% |
These Evermore products launched in February, so they’re brand new to Canadian investors and have only gathered a few million in assets to date. But the building blocks that make up their Retirement ETFs have a proven track record as excellent low cost, passive market tracking products.
They come with a management fee of 0.35%, and after accounting for fund expenses Evermore believes the total MER will be around 0.45%.
This product fills a much needed gap in the market by offering a target date solution for do it yourself investors. I see them fitting in-between a robo advisor and an asset allocation ETF.
- Evermore is cheaper than a robo advisor and uses products that more traditionally align with the efficient frontier of modern portfolio theory (as opposed to adding gold or low volatility like Wealthsimple does, or taking an active approach like Questwealth does).
- Evermore solves the one pain point that asset allocation ETFs fail to address – an appropriate glide path that makes your portfolio less risky as you approach retirement.
The Retirement Glide Path
Evermore’s Retirement ETFs start as with as much as 95% in equities for investors who are 30-40 years away from retirement. The equity component starts decreasing between 30 and 20 years away from retirement until it gets to 80% equities. There’s a steeper decline in equities from 20 to 10 years away from retirement. The 2035 Retirement ETF allocates 64% to equities, while the 2030 Retirement ETF allocates 53.7% to equities. The 2025 Retirement ETF still has 50% in equities.
The glide path continues until you’re five years into retirement when it reaches its minimum of 45% allocated to equities. Note this is considerably higher than many similar target date mutual fund glide paths, which often end up with just 30% of the portfolio in global stocks.
Another interesting change that Evermore makes to their Retirement Income ETFs when the investor is into their retirement years is that it pays out monthly distributions rather than quarterly distributions.
How do you get income from a target date fund? By taking a total return approach, you would spend from the monthly distributions and then sell the number of units needed to meet your income needs. Your portfolio will remain exactly balanced to your time horizon.
When it comes to geographic location, Evermore allocates 30% of its equities to Canadian stocks, 45% to U.S. stocks, 15% to International stocks, and 5% to emerging markets. This is a similar mix to Vanguard’s asset allocation ETFs.
For fixed income, Evermore allocates 60% to Canadian bonds, 30% to U.S. bonds, and 10% to international bonds.
Final Thoughts
Evermore has brought the sophistication of target date investing to everyday Canadian investors with their suite of Evermore Retirement ETFs. Now investors can build a low cost, globally diversified portfolio of ETFs with just a single product and not worry about the right time to rebalance or adjust their asset mix as they get closer to retirement (or in retirement).
Readers, you know I’m a big fan of the saying that investing has been solved with low cost index funds and ETFs. But there are still several ways to build that type of portfolio. Which one is right for you?
Optimizers will want to construct their own portfolio of individual ETFs, paying the lowest cost in exchange for the most effort. Simplifiers will gravitate towards one-ticket solutions like an asset allocation ETF that automatically rebalances.
Hands-off investors may choose to open a robo-advisor account and let the digital advisor manage their portfolio. And, those wary of leaving the big bank environment may opt for the bank’s portfolio of index funds – paying the highest cost for peace of mind and security.
Evermore’s Retirement ETFs add another excellent choice to the mix for investors who want a low cost, single-ticket solution that automatically adjusts the asset mix using a declining equity glide path over time.
They’ll give robo advisors a run for their money in terms of cost and portfolio construction. They also solve a key problem for investors who use asset allocation ETFs (like me!): When and how do I decrease my equity exposure as I get closer to retirement? At some point you need to decide (and time the market) to sell, say, VEQT and move to VGRO, and then sell VGRO and move to VBAL. These Evermore Retirement ETFs take that decision away from investors, which is a good thing in my opinion.
