Investors and advisors often look for the holy grail of investing. Performance, diversification, high quality, low cost and accessibility within their preferred wrapper. While it’s true that you often can’t have it all, you can have all those components with a trusted asset manager that offers portfolio construction expertise and a record of consistent long-term investment returns.

Vanguard has over $10.9 trillion USD in assets under management and more than $1.7 trillion USD in AUM in balanced, target-date, and target-risk funds combined, highlighting the trust our clients place in us. We pride ourselves on our solutions being outwardly simple, but inwardly sophisticated that allow investors to use a single security, fund or model portfolio to invest in an asset allocation that aligned with their risk tolerance and investment objectives.

Benefits of a multi-asset solution

Vanguard Advisor’s Alpha framework changed the traditional value proposition of financial advice. This innovative concept highlighted how advisors could add more consistent or reliable value, or alpha, through asset allocation, a fund selection process focused on reasonable costs, financial planning, wealth management and behavioural coaching (see Figure 1) rather than advisors attempting to outperform their client’s benchmark portfolio. To understand the drivers of return in a historical context, we evaluated a 16-year period for balanced portfolios in Canada and found that over 85%¹ of the variability of returns in a portfolio can be explained by the policy return which is essentially the equity, bond and cash mix within a portfolio. It’s a well-known fact that asset allocation drives most of the variability of returns in portfolios. Focusing predominantly on outperforming the market can put the advisor at a meaningful disadvantage. Success may depend on factors outside the advisor’s control and there is risk that the eventual outcome will have wide deviations from the client’s benchmark.

Vanguard’s research points out that the biggest drivers of an advisor’s alpha stem from behavioral coaching and tax efficiency. A suitable asset allocation using broadly diversified funds and ETFs can be outsourced to a professional asset manager like Vanguard and the advisor can work on determining the client’s most suitable asset allocation versus chasing trailing performance leadership, which may come at a higher relative cost.

The research also conveys that it’s a myth that active management performs better in certain market environments such as from one bear market to the next. We looked at top quintile U.S. equity funds during the bursting of the technology bubble and then compared their performance to the global financial crisis. Only 23% remained in the top quintile and 44% fell to the bottom or fourth quintile or liquidated. We also found no meaningful difference in performance during recessions and expansions. When exploring periods of falling and rising inflation, we found that 47% of managers outperformed and an identical 47% underperformed².

Figure 1: The Advisor’s Alpha concept

The growth of low-cost multi-asset portfolios in Canada

Canadian investors are increasingly choosing exchange traded funds (ETFs) to implement their asset allocation strategies, due to the lower cost, transparency and liquidity of the vehicle. According to the Investment Funds Institute of Canada (IFIC), ETFs eclipsed $592 billion assets under management as of June 2025 and have grown at an annual rate of 20.8% since September 2009. During the same time frame, from September 2009, mutual funds have grown at a rate of 7.5% annually, rising to 2.34 trillion in June 2025. Some Canadian investors may prefer the mutual fund structure that provides client with benefits such as the enhanced ability to have a pre-authorized cash contribution plan (PACC), a systematic withdrawal plan (SWP) or a dividend reinvestment plan (DRIP). Some of these advantages could be available in certain ETFs, however they are more common with mutual funds. Currently, balanced portfolios account for $1.03 trillion in assets, 44% of the total mutual fund and ETF industry combined. 

Broadly, Canadians investors are looking for multiple solutions including traditional mutual funds, ETFs, portfolios of ETFs, a blend of ETFs and mutual funds and a mutual fund portfolio of ETFs. Vanguard believes in offering investors greater choice to pick the investment solution that works best for them.

Canadian investors are also selling out of commission-based share classes and moving into fee-based share classes with a notable shift from Canadian to global portfolios, in line with Vanguard’s portfolio solution offerings.

Vanguard Investments Canada pioneered low-cost asset allocation ETFs in Canada popularizing a series of one ticket solutions in an ETF wrapper in 2018. This helped investors by reducing investment costs and offering a fully diversified global portfolio. The Canadian asset allocation ETF industry has since grown to $47 billion. Our portfolios include international bonds which improve portfolio diversification by providing access to the largest part of the global fixed income market. We view prudent strategic asset allocation as a key foundation for long-term investing success remains strong.

All our portfolios are reviewed, monitored and approved by our global Strategic Asset Allocation Committee, an executive oversight committee composed of investment experts sitting in key leadership roles across investment research, behavioral research, portfolio management, and portfolio construction. Within portfolio construction, our willingness to avoid change for the sake of change has driven positive outcomes for the past decade and based on our research, we believe it should continue to drive outcomes in the future. An annual review is conducted each year as the team considers new asset classes, currency exposure, home bias, regulatory and tax impact, investment costs, investor behaviours and implementation among others.

Our approach to rebalancing accounts for compromises that need to be made between keeping trading costs low and maintaining the optimal rebalancing thresholds regardless of whether the product is an ETF, a mutual fund or a model portfolio. Our rebalancing strategies also focus on harvesting equity risk premium, while allowing reasonable portfolio drifts.

Vanguard’s global research team has analyzed the optimal equity home bias for several global regions including the United States, Australia, Canada, U.K. and the Euro region. The optimal home bias has ranged from 25% to 60%. Our 30% home bias recommendation is tailored for Canadian investors and reviewed each year. An optimal home bias helps clients minimize the long-term volatility of their portfolio.

Figure 2: Optimal Canadian vs global equities allocation in a minimum-variance framework

Notes: Ten-year annualized expected volatility is based on the median of 10,000 VCMM simulations in steady state, equilibrium conditions, in Canadian dollars.

Vanguard’s approach to portfolio construction

Vanguard portfolio solutions are built on Vanguard’s investment principles (Figure 1) and employ passive building blocks.

Across the markets and geographies in which we operate, Vanguard has developed a set of investment principles over time that we think are important to long-term investment success. They include having clear and appropriate investment goals, developing a suitable asset allocation using broadly diversified funds, minimizing costs, and maintaining perspective and long-term discipline, as shown in Figure 1.

These principles have been employed by Vanguard to create single ticket multi-asset portfolios since its founding in 1975. Indeed, our oldest product in the United States, the Vanguard Wellington Fund, is a balanced portfolio (65% equity / 35% fixed income). Vanguard’s product solutions suite is globally consistent and locally relevant as we employ similar investment methodologies within our LifeStrategy Funds and Diversified Index ETFs in the U.S., U.K., and Australia.

Our investment philosophy is outwardly simple as we believe in the quote by Nobel Prize winning economist Harry Markowitz that “Diversification is the only free lunch in investing”. Portfolio construction best practices dictate that investors diversify their portfolios among the global equity and fixed income markets. Markowitz pioneered the concept of the efficient frontier, a set of portfolios that provide the highest level of return for a given level of risk. Markowitz’s research, called the Modern Portfolio Theory (MPT) demonstrated that the performance of an individual stock is not as important as the performance of an entire portfolio.

Vanguard’s asset allocation solutions achieve diversification through a limited number of market-capitalization weighted indexes. This is a simple-to-understand, yet sophisticated approach to diversification because it provides exposure to 94% of public market securities³. In fact, Vanguard’s solutions are the most diversified investment solutions in Canada.

The portfolios are tailored to the needs of long-term investors who prefer not to take on additional investment risk beyond the broader equity and bond markets. The fixed income and equity sleeves of our portfolios have been designed specifically for Canadian clients, incorporating a 30% home-bias allocation to Canadian securities that is grounded in deep research and considers reducing portfolio variance.

The primary aim of these single-fund solutions is to enhance the likelihood of investment success by offering low-cost options that fulfill the core portfolio construction requirements of many clients.

Our portfolios are outwardly simple but inwardly sophisticated.

¹ Vanguard calculations, using data from Morningstar, Inc

² Vanguard Investment Advisory Research Center calculations, using data from Morningstar, Inc

³ Global high yield bonds, local emerging market debt, convertible bonds, preferred shares and frontier markets represent around 6 % of the global public markets and are not included.