Vanguard All-Equity ETF Portfolio (VEQT) in Canada

Fund Objective and Structure

The Vanguard All-Equity ETF Portfolio has a clear mandate to seek long-term capital growth for its investors. It achieves this objective by investing primarily in equity securities from around the world. The fund itself is structured as a fund-of-funds, meaning it holds a portfolio of other Vanguard exchange-traded funds. This design allows VEQT to provide broad, instant diversification through a single ticker symbol. The portfolio is managed by Vanguard Investments Canada Inc., and the ETF is available for purchase by investors across Canada through registered dealers and online brokerages.

Investors can buy and sell shares of VEQT on the Toronto Stock Exchange under the ticker symbol VEQT.TO. It is crucial to understand that, like all ETFs, VEQT trades at its current market price, not its net asset value. This means investors must execute trades through a brokerage firm in the secondary market. When doing so, investors may incur standard brokerage commissions, and the trading price may be higher or lower than the fund's underlying net asset value at the time of the transaction.

Portfolio Composition and Diversification

The VEQT portfolio is constructed to give investors exposure to a vast array of global equity markets. The fund achieves this by holding a collection of underlying Vanguard ETFs that track major stock indices. This provides instant exposure to thousands of stocks across Canada, the United States, and international developed and emerging markets. The allocation percentages for different security types are calculated based on the fund's strategic targets, though the displayed total may not equal 100 percent due to rounding or the temporary omission of cash and futures contracts.

The fund's weighted equity exposures are calculated to reflect the true market investment, excluding any temporary cash holdings or equity index futures used for efficient portfolio management. Some short-term fixed income securities are classified as cash and are also excluded from the primary equity exposure calculations. This methodology ensures the reported allocations accurately represent the long-term equity holdings. The fund's design inherently includes automatic rebalancing, where the portfolio manager adjusts holdings to maintain the target global asset allocation without requiring action from the investor.

Key features of the VEQT portfolio construction include the following elements.

• Provides exposure to thousands of stocks across Canada, the US, and international markets.
• Uses automatic rebalancing to maintain target allocations.
• Weighted equity exposures exclude temporary cash investments and equity index futures.
• Some short-term fixed income securities are classified as cash and excluded from weighted bond exposures.
• Total allocation percentages shown may not equal 100% due to rounding.
• Allocation percentages reflect the breakdown of security type.

Costs and Performance Metrics

The cost of owning VEQT is primarily captured by its management expense ratio. As of the most recent fund year end, the MER is 0.22 percent. This ratio includes any fee waivers or absorptions implemented by Vanguard Investments Canada Inc. The company has indicated it expects to continue this practice indefinitely but retains the discretion to discontinue waivers at any time. For recently launched funds, MER information may not be immediately available until after a full year of operation.

Performance data provides insight into the fund's historical returns. Year-to-date return data showed a figure of 15.21 percent. The one-year return was reported as 17.78 percent, while the three-year return was 23.58 percent. The fund also provides income to investors through distributions, which had a 12-month yield of 1.22 percent as of September. A portion of these distributions may be classified as a return of capital, which represents a repayment of the investor's original principal. Each January, Vanguard reports the actual breakdown of the prior year's distributions between return of capital and earnings from capital gains and dividends.

Important details regarding the fund's costs and distributions include the following points.

• Management Expense Ratio (MER) is 0.22% as of the most recent fund year end.
• The 12-month yield was 1.22% as at September.
• Year-to-date return was 15.21%.
• One-year return was 17.78%.
• Three-year return was 23.58%.
• Return of Capital represents a distribution amount paid back to investors.
• Vanguard reports the actual return of capital each January.

History and Availability in Canada

Vanguard's suite of asset allocation ETFs, which includes VEQT, was launched in the Canadian market in 2018 and 2019. These funds were created to offer simplified, all-in-one portfolio solutions for investors. The model portfolios constructed by Vanguard using these ETFs utilize actual historical fund returns in their analysis and projections. The introduction of these funds marked a significant development for Canadian DIY investors seeking professionally managed asset allocation in a single, tradable security.

There are two primary ways for Canadian investors to purchase units of VEQT. The first is through an online discount brokerage account, where investors can place trades directly. The second is through a licensed financial advisor, who can purchase the fund on behalf of their clients. The fund is distributed widely across the country through registered dealers. Beta and R-squared data, which are statistical measures of risk and correlation, are only calculated and displayed for funds that have at least three full years of performance history, a milestone VEQT has now passed.

The operational and historical context of VEQT includes several specific facts.

• The Vanguard asset allocation ETFs were launched in 2018 and 2019.
• Vanguard model portfolios use actual fund returns for their analysis.
• Beta and R-squared data display only for funds with 3 full years of history.
• There are two ways to buy Vanguard's funds in Canada: with an online brokerage or with a financial advisor.
• Vanguard ETFs trade at market price, not NAV.
• Investors buy or sell Vanguard ETFs in the secondary market with a brokerage firm.

Key Considerations and Risks

Investing in VEQT involves several important considerations beyond its potential for growth. As a fund composed entirely of equities, it carries a higher degree of risk and volatility compared to portfolios that include bonds or other fixed-income assets. Its value will fluctuate with global stock markets, and investors could lose money, especially over short periods. The all-equity nature means it is generally suited for investors with a long-term time horizon and a higher tolerance for market swings.

The fund's distributions are not guaranteed and will vary based on the dividends and capital gains generated by its underlying holdings. The classification of these distributions can affect an investor's tax situation, as return of capital is treated differently than dividend or capital gains income. Furthermore, while the MER is low, investors must also account for any trading commissions charged by their brokerage when buying or selling shares. It is also important to remember that past performance, as shown by the return figures, does not guarantee future results.

Frequently asked questions

Sources and further reading

1. (VEQT) Vanguard All-Equity ETF Portfolio vanguard.ca

This article explains how things work and is not financial, tax or legal advice. Rules, limits and rates change, so check the current figures with the Canada Revenue Agency, your province or your financial institution before you act.