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.
