On Feb. 5, Vanguard added a mutual fund equivalent of its popular allocation exchange-traded fund series. The move is significant, as it creates more ways for investors to access these solid balanced strategies. These mutual funds will hold their ETF equivalents, which all earn Medalist Ratings of Silver. Interestingly, the conservative income option currently has no mutual fund equivalent.
Simple and Low-Cost Funds
Details provided by Vanguard suggest a simple, low-cost structure. The mutual funds would own one of the allocation ETFs, so the management fee would be 0.22%. Note that other expenses slightly raise the management expense ratio. Even so, that would make the series among the cheapest options in Canada, competitive even against balanced exchange-traded funds.
Global and Low Touch
The Vanguard Allocation ETFs (and by extension, the mutual fund equivalents) provide investors with exposure to global stocks and bonds. The four risk options have seven passively managed building blocks, many of which earn strong Medalist Ratings. The overall asset mixes of the Vanguard Allocation ETFs are kept within 2 percentage points of their neutral targets.
However, the lack of active security selection and tight allocation guardrails does not preclude other groups from contributing here. Vanguard’s investment strategy group and strategic asset allocation committee have long held that an overweight to Canadian equity is optimal. Indeed, the funds have 30% of their equity sleeves in Canadian stocks, slightly higher than its global balanced peers (24% as of January 2025).
Implications for Fund Investors
The addition of the mutual fund structure gives investors more options, but it otherwise appears to hold no inherent advantage over the ETF. Vanguard says the mutual fund and ETF vehicles will have similar fees. Turnover in the mutual fund—a potential source of tax inefficiency relative to the ETF structure—should also be minimal because it only has one holding. The mutual fund’s cash position might cause a slight drag on performance, but again, it’s not expected to be meaningful.
Whatever the format, Vanguard’s allocation series remains a solid option for investors looking for cheap balanced strategies.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
