January is a type of months savvy Canadian traders are likely to circle on the calendar, primarily since you’re additionally getting one other $7,000 of latest Tax-Free Financial savings Account (TFSA) contribution room. In case your money stream permits it, placing that TFSA room to work as early as attainable provides your cash extra time to compound.
The larger query is what to truly do with that $7,000. Whereas I can’t present monetary recommendation, I can share what I’d personally contemplate if I wished a easy, one-ticket resolution. My desire can be an all-in-one asset allocation exchange-traded fund (ETF).
However as an alternative of defaulting to the standard choices from Vanguard or iShares, one fund that stands out to me is the Constancy All-in-One Fairness ETF (NEOE:FEQT). Right here’s why it’s totally different and value having a look at.
What’s FEQT?
FEQT is a world equity-focused technique. Like most equity-heavy asset allocation ETFs, it provides you publicity to Canadian shares, U.S. shares, and worldwide developed markets in a single holding.
The place it differs from plain-vanilla choices is in how these shares are chosen. FEQT is constructed utilizing a factor-based method. Elements are traits of shares that educational analysis has proven could affect long-term returns and danger.
On this ETF, Constancy tilts the portfolio towards worth shares, which commerce at decrease costs relative to fundamentals; momentum shares, which have been performing effectively just lately; high quality shares, which are likely to have robust steadiness sheets and secure earnings; and low-volatility shares, which traditionally fluctuate lower than the broader market.
These issue tilts are utilized throughout U.S., Canadian, and worldwide equities. FEQT additionally features a modest allocation to international small-cap shares, which provides publicity to the dimensions issue. Traditionally, smaller firms have delivered greater long-term returns, albeit with extra volatility, which may complement large-cap-heavy portfolios.
On the floor, FEQT appears to be like like a typical international fairness ETF. Beneath the hood, it’s doing one thing extra nuanced than merely proudly owning the market passively.
The crypto kicker
One of the distinctive options of FEQT is its cryptocurrency publicity. Not like most asset allocation ETFs, Constancy features a roughly 3% allocation to Bitcoin by means of its personal proprietary Bitcoin ETF.
Constancy has been an early mover amongst giant asset managers in constructing digital asset infrastructure, together with self-custody capabilities. In FEQT, that reveals up as a small however significant allocation to Bitcoin, which will increase each danger and potential return.
Bitcoin is unstable, however even a modest allocation can materially impression efficiency over time. Over the previous three years, FEQT has benefited from this publicity, contributing to an annualized return of 21% over that interval, which has outpaced many conventional asset allocation ETFs.
The tradeoff is value. FEQT has a administration expense ratio of 0.43%, in comparison with about 0.20% for extra conventional all-in-one ETFs. You’re paying additional for issue tilts and crypto publicity. To date, that greater charge has been justified by efficiency, however traders must be comfy with the added volatility.
