XGRO is one of BlackRock's popular one-fund ETF with $1.2B of assets under management (AUM). XGRO is their “Growth ETF Portfolio''. With a blend of 80% equity and 20% bonds, it offers long-term portfolio growth with medium risk level.
In this article, we’ll review XGRO and discuss its pros and cons.
What are one-fund ETFs?
Also called self-rebalancing or asset allocation ETFs, one-fund ETFs are comprehensive portfolios that are rebalanced automatically to maintain their allocation and risk/return goals. They come in various blends of allocations, ranging from long-term options with 100% equity to conservative portfolios of mostly bonds.
What is XGRO?
XGRO is BlackRock’s Growth ETF Portfolio. It consists of about 80% equities and 20% bonds. In practice, XGRO is a portfolio ETF comprised of other BlackRock ETFs with the following allocation:
As of February 2, 2021
|Ticker||Security Name||Asset Class||Percentage|
|ITOT||ISHARES CORE S&P TOTAL U.S. STOCK||US Stock||37.96%|
|XEF||ISHARES MSCI EAFE IMI INDEX||Developed Markets Stocks||19.94%|
|XIC||ISHARES S&P/TSX CAPPED COMPOSITE||Canadian Stocks||19.43%|
|XBB||XBB ISHS CORE CAD UNIV BND IDX ETF (CA)||Canadian Bonds||11.43%|
|IEMG||ISHARES CORE MSCI EMERGING MARKETS||Emerging Market Stocks||4.39%|
|XSH||iShares Core CAD ST Cor Bd Index||Short-Term Canadian Corporate Bonds||2.89%|
|USIG||ISHARES BROAD USD INVESTMENT G||US Corporate Bonds||1.87%|
|GOVT||ISHARES US TREASURY BOND ETF||US Government Bonds||1.83%|
|USD||USD CASH||Cash or Cash Derivatives||0.21%|
|CAD||CAD CASH||Cash or Cash Derivatives||0.07%|
XGRO is geographically diverse with its top 95% of net assets with the following allocation:
XGRO Geographical Allocation
As of February 2, 2021
Even though BlackRock reports performance since 2007 for XGRO, the current structure of the fund is relatively new. The fund changed their mandate entirely in December 2018, so performance before that date doesn’t mean much to current investors.
XGRO showed a return of 17.96% in 2019 and an average annual return of 11.42% in 2020.
XGRO's distribution yield is currently 1.83%. Since XGRO is a mix of stocks and bonds, this includes both stock dividends and bond interest payments.
XGRO has a 0.20% Management Expense Ratio (MER).
XGRO’s main plus, as other one-fund ETFs, is its simplicity. There’s very limited portfolio management with these funds. You just continuously buy more of the fund and your portfolio stays balanced.
XGRO is also well diversified, which limits investment risks. XGRO is also one of the cheapest options for all-in-one solutions, especially compared to mutual funds and robo-advisors.
XGRO seems like the perfect option, right? Well, there are also things you should consider before making the jump. The main one is that it may be better for some investors to hold the underlying ETFs of XGRO rather than XGRO itself. Here’s why:
1. It’s much cheaper
As mentioned earlier, XGRO has a MER of 0.20%. Here’s the breakdown of your MER if you were to hold the same allocation of ETFs as XGRO individually:
As of February 2, 2021
|ITOT||ISHARES CORE S&P TOTAL U.S. STOCK||37.96%||0.03%|
|XEF||ISHARES MSCI EAFE IMI INDEX||19.94%||0.22%|
|XIC||ISHARES S&P/TSX CAPPED COMPOSITE||19.43%||0.06%|
|XBB||XBB ISHS CORE CAD UNIV BND IDX ETF (CA)||11.43%||0.10%|
|IEMG||ISHARES CORE MSCI EMERGING MARKETS||4.39%||0.11%|
|XSH||iShares Core CAD ST Cor Bd Index||2.89%||0.10%|
|USIG||ISHARES BROAD USD INVESTMENT G||1.87%||0.06%|
|GOVT||ISHARES US TREASURY BOND ETF||1.83%||0.15%|
0.09% or 0.20% MER? That seems fair to pay a little extra to not have to think about your portfolio too much? The problem is that on a $100,000 portfolio it already represents a $110 difference per year. You have to think of it as a percentage of your growing portfolio. It can add up over time, especially knowing that it’s money you also won’t be able to reinvest into your portfolio, losing on the compounding interest year after year.
2. Rebalancing is not that hard
Rebalancing your portfolio with spreadsheets can be a hassle. There are tons of resources out there to help you rebalance your portfolio.
With Passiv, you don’t even need to use spreadsheets to keep your portfolio balanced. It’s easy to set your target portfolio and Passiv will recommend the trades needed to rebalance your portfolio. After review, you can place these trades directly into your brokerage account at the click of a button.
3. One-fund ETFs don’t offer any room for customization
One-fund ETFs have no customizability in allocation. You have to be fine with what the fund management is invested in.
For example, XGRO is massively biased towards Canada. As mentioned previously, Canada represents almost 34% of the fund while Canada only represents about 4% of global GDP. In Canada, it’s usually fine by investors for various reasons (stable market, knowledge of market, good historical returns, limits currency risk, tax advantages) but some investors do not want to expose themselves to this bias. If you wanted to reduce the allocation of Canadian securities (XIC, XBB and XHS), that would be impossible investing in XGRO.
However, holding each ETF separately, the allocation could be changed to reflect your financial philosophy and you’d be able optimize your weighted average MER.
4. One-fund ETFs are not the most tax-efficient option
While XGRO is a Canadian traded asset, it holds foreign funds as underlying assets. These foreign funds are charged withholding taxes on dividends when held outside of a RRSP, which are passed on to the investor (you), in the form of a reduced return. If you have a small portfolio, you can just hold VGRO in your RRSP or decide that the reduced return doesn't impact your small portfolio much.
When your portfolio gets larger, it may become more efficient to hold each underlying asset in the account that makes your portfolio the most tax-efficient. For example, you can decide to hold foreign holdings in your RRSP and domestic holdings in your TFSA, RESP, or margin accounts (assuming that you maxed out your contribution room).
With Passiv's asset class prioritization feature, you can choose in which account your assets are traded, so you can build and keep balanced your own tax-efficient ETF.
5. Changing your allocation is much more difficult and/or costly with one-fund ETFs.
In general, it’s recommended that the closer you get to retirement, the more bonds you should hold in relation to stocks in your portfolio.
How would you change your portfolio allocation over your lifetime with one-fund ETFs?
Let’s pretend you are invested in XGRO 100%, and now want to be more conservative and have a 100% in XBAL? You would either:
- Sell all your XGRO and use the cash to buy XBAL instead.
- Calculate how much of an even more conservative one-fund ETF (like XINC) to buy in order to get to an allocation similar to XBAL with both XGRO and XINC.
These don’t seem like very good options, right? The first one would cost you in trading fees and potentially in capital gain taxes. The second is more complicated than rebalancing, which was what you were trying to avoid.
All of BlackRock’s one-fund ETFS hold the same securities, each of these funds with different allocations. If you hold each ETF separately in your portfolio, it is much easier to adjust the allocation. This is especially true if you use Passiv, as it lets you adjust your target allocation in a few simple steps.
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XGRO is good if you’re just starting and are not sure how to manage your portfolio yet. It’s a simple, well-diversified, relatively low cost option.
If you want more control over your investments, your fees, or are looking for a portfolio that can grow with you over your lifetime, it is a good idea to consider holding XGRO’s underlying ETFs instead.