VEQT vs. XEQT vs. HGRO Equity ETFs

VEQT vs. XEQT vs. HGRO Equity ETFs

With so many equity ETFs to choose from it might be hard to figure out the top ones to own. Today’s post helps solve that problem by looking at and comparing Vanguard’s VEQT vs. iShares XEQT vs. Horizons HGRO fund.

In doing so, I hope to help you determine which all-in-one equity ETF could be right for you including any upcoming Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) or taxable account contribution for that juicy long-term wealth building journey.

Let’s go!

What and why an all-in-one equity fund?

No doubt you’ve heard the following investing pearls of wisdom by now:

• Diversification is the only free lunch when it comes to investing.
• Don’t put your eggs in one basket.
• “Diversification is protection against ignorance.” – Warren Buffett.

The major tenet behind diversification is you can yield better long-term returns while reducing investment risk, by investing in many companies, in many sectors, from many countries around the world. This mantra usually applies to holding bonds in your portfolio as well but for long-term wealth building I think you should focus on holding equities for the decades ahead. 

I believe in this premise myself, and invest in low-cost, indexed ETFs for extra diversification.

You can see what I favour and view what I actually own on this page here:

My ETFs

I’ve invested in low-cost ETFs for over a decade beyond my individual stocks.

In many cases, these three all-in-one equity ETFs below could be a game-changer for you. 

Why?

Investing in just one all-in-one equity ETF is a hands-free, growth-oriented way to own a world of stocks. Essentially, you can put all your stocks eggs in just one basket!

The benefits of all-in-one equity ETFs are many:

• There is no re-balancing work between Canadian and U.S. and international stocks or ETFs.
• There is built-in global equity diversification.
• There are very low ongoing money management fees to own the fund with time.
• It works for TFSAs, RRSPs, RESPs, and many more wealth-building accounts.
• You can do it on your own, without an advisor, by managing your own brokerage account. More on that in a bit.

We’ll get into it below, but a reminder these are 100% equity funds. That’s one drawback.

What I mean is, you must expect some volatility now and then owning any of these products. Stock markets correct or crash or do a host of other wild and fluctuating things in the short-term. Expect it. As an equity investor you need to be prepared this can and will absolutely happen from time-to-time. But long-term, the stock market is largely very boring and predictable machine. It goes up.

As per Morningstar – This chart shows that over this period of almost 150 years, $1 (in 1870 U.S. dollars) invested in a hypothetical U.S. stock market index in 1871 would have grown to $18,500 by the end of June 2020.

If you are genuinely concerned about any constant stock market yo-yo ride, that’s OK.

Check out this post below. You can see some of the best low-cost all-in-one funds that include some bonds here.

The Best all-in-one Exchange Traded Funds

For most ETFs in my best-of list, they have bonds. Owning some bonds in your all-one-fund could be smart since it will act like a parachute when equity markets tank.

VEQT vs. XEQT vs. HGRO

Let’s look at the tale of the tape and some matters than could be relevant to you!

ETF	MER	# Holdings	Returns since inception	MOA Comments
Vanguard All-Equity ETF Portfolio (VEQT)	0.25%	12,000+	~7.5%	·         Inception January 2019 ·         Eligible for RRSP, RRIF, RESP, TFSA, DPSP, RDSP ·         >40% U.S. stocks ·         ~30% Canadian stocks
iShares Core Equity ETF Portfolio (XEQT)	0.20%	9,000+	~6.4%	·         Inception August 2019 ·         Eligible for RRSP, RRIF, RESP, TFSA, DPSP, RDSP ·         Almost 50% U.S. stocks ·         Just over 20% Canadian stocks
Horizons Growth TRI ETF Portfolio (HGRO)	0.19%*	A fund of 5 Horizons funds	~7.5%	·         *As per Horizons’ site not to exceed this management expense ratio – very comparable to funds above. ·         Inception September 2019 ·         Eligible for all registered and non-registered accounts ·         >30% large-cap stocks but also includes >20% Nasdaq-100 ETF for the “tech growth kicker” ·         <20% Canadian stocks

Information approximate and current at the time of this post. 

Investing in beyond Canada’s borders matters

With so many investors, myself included, guilty of having a home bias to Canadian stocks over the years, XEQT and certainly HGRO are slightly appealing over VEQT – although all three products are great all-in-one solutions to consider.

For one, it will also be interesting to see if Vanguard lowers their Canadian content over time. A good reminder that only 3-4% of the world’s equity markets can be found here in Canada. There are other considerations below.

Growth matters

Further to the chart I included above, growth matters, meaning if your investing timeline is like mine 10, 20 or more years, I would consider keeping most of that money in equities. Again, no bonds.

Sure, keep some cash, but consider some form of a cash wedge but I will personally avoid investing in bonds for the coming decades.

How much cash should you keep?

Taxation matters

For the most part, I keep Canadian dividend paying stocks in my taxable account since they will be an efficient form of taxation for me long-term.

You can read about the tax advantages in this post here.

That said, I’m still working. So, any taxation from taxable investing including those from Canadian dividend paying stocks is not always appealing!

Should your TFSA and RRSP (and RESPs for your kids’ education be maxed out already – good on you!) this is how you can consider tax efficient investing.

Should I invest in taxable accounts?

Here’s where things get interesting. With Horizons TRI funds, those ETFs bundled within HCON, HBAL and HGRO are part of a corporate class structure whereby any taxable distributions can be offset within the corporation – such that the ETF would not be expected to pay out any taxable distribution. Not paying out distributions for taxation purposes makes these funds tax-efficient. This could make great sense to hold HCON, HBAL or HGRO inside a taxable account for long-term investing.

From content I previously read on this subject:

Within the corporate class fund structure, when ETFs are held within one corporation, you can pool losses and gains and offset any income that would normally occur within a derivatives contracts strategy. My understanding is there has been a corporate class fund structure in place for years – there is no reason why ETFs could not be managed the same way long-term as well – and they are under current legislative rules. This structure should offer benefits for the foreseeable future to unitholders – such that because there are no anticipated taxable distributions, deferral of income and tax benefits will compound over time on any fixed income let alone U.S., Canadian and international equity fund assets.

On this note, I hope to have a Horizons representative come on My Own Advisor in the future so we can dive deeper into the subject of corporate class funds. In doing so, we can learn more about the designs of these products including what Horizons products could be right for you.

All-in-one equity summary

In just a few short years, the ETF landscape has transformed in Canada to offer a host of exciting, pre-packaged all-in-one products for investors.

One of the biggest challenges for investors used to be what funds to pick, where to hold those funds and how much to invest in each fund after quarterly rebalancing efforts were completed.

These all-in-one equity ETF solutions have simplified the investing approach for investors with a long time horizon and for those with the stomach to ride out short-term market volatility for long-term gains. The future of low-cost ETF equity investing is getting better and better – with VEQT, XEQT and HGRO.

For retail investors like you and me, that’s a win.

Honourable mentions to this post:

Check out BMO’s MSCI All Country World High Quality Index ETF (ZGQ).

Mawer has a Global Equity Fund (MAW120).

Additional reading:

What happens when investing takes over the world?

Save, Invest and Prosper with VEQT or XEQT or HGRO

Make sure you look at the top of my Deals page to take advantage any discount brokerage promo codes I have running. I keep that page updated for all readers.

What’s your take on these all-in-one equity ETFs? Would you own any of these above or just those all-in-one ETFs with a small bond component? Got a question for Horizons when I can get them on the site? Fire away and see you in the comments section.

Mark