Summary: What is ZBAL?
ZBAL is a popular choice for Canadian investors looking for a simple, low-cost way to build a balanced 60/40 portfolio. With 60% equities and 40% fixed income, ZBAL offers global diversification, steady growth potential and automatic rebalancing and it has this while maintaining a low MER of 0.20%.
Introduction: What is a Balanced Portfolio?
A balanced portfolio is an investment strategy designed to achieve growth while managing risk through diversification. One of the most popular allocations is the 60/40 portfolio, which invests 60% in equities (stocks) for growth and 40% in fixed income (bonds) for stability. This approach is widely used by investors looking to achieve a balanced mix of risk and reward over the long term, and it’s also more common for older investors to shift to as they seek to protect more of their capital.
Deep Dive on ZBAL
As we highlighted, ZBAL is an all-in-one exchange-traded fund designed to provide investors with a balanced and diversified portfolio. Structured as a fund-of-funds (a fund investing in multiple other funds for diversification), ZBAL maintains a 60/40 split between equities and fixed income, offering exposure to a broad range of asset classes without the complexity of managing multiple investments. To learn more about ZBAL from BMO, you can visit their page by clicking here: ZBAL.
Here is a more detailed breakdown of some of the key features of ZBAL:
- Diversified Exposure Across Asset Classes
ZBAL allocates 60% of its portfolio to equities, encompassing Canadian, U.S., and international stocks, while the remaining 40% is dedicated to fixed income through Canadian and global bonds. This diversified approach captures the benefits of global economic growth while reducing risk through its exposure to bonds, making ZBAL a stable option for investors seeking both growth and income.
- Global Market Exposure
By including assets from various regions, ZBAL allows Canadian investors to participate in the growth of global markets. Its exposure to Canadian, U.S., and international markets enables it to perform well even if one region underperforms. This international diversification helps mitigate risk by spreading investments across multiple economies and sectors.
- Automatic Rebalancing
A significant advantage of ZBAL is its automatic rebalancing feature, which maintains the 60/40 allocation. This ensures that the portfolio remains aligned with its balanced investment strategy without requiring investors to manage the rebalancing themselves.
This might not seem like a significant feature, but have you ever tried rebalancing your own balanced portfolio? It can be a hassle!
ZBAL’s Fees
ZBAL’s Management Expense Ratio (MER) is around 0.20%, which is very competitive compared to the average mutual fund fees in Canada. This is also on par with other highly competitive balanced portfolio funds that focus on this same 60/40 allocation. The biggest competitor would be VBAL, with an MER of 0.24%. Important to note though that, despite both having a 60/40 allocation, the underlying investment exposure differs quite a bit. Want to compare ZBAL versus VBAL? Check out our article on this exact topic here.
As we always stress in our articles and on our social media platforms, a low MER means lower costs for you as the investor, which can make a significant difference over time by allowing more of the returns to remain invested.
ZBAL’s Performance
Turning to performance, ZBAL’s historical performance reflects the benefits of a balanced portfolio, with steady growth over time and a lower level of volatility compared to a fully equity-focused portfolio. Over the last five years, ZBAL has had an average annual return of approximately 8% at the time of publishing (and this is the compound annual growth rate – also known as “CAGR”).
The equity portion of ZBAL contributes to growth, while the fixed income portion provides stability, helping ZBAL perform well in various market conditions. Although past performance does not guarantee future results, ZBAL’s structure is designed to capture long-term growth while minimizing major downturns.
During periods of market volatility, ZBAL’s exposure to bonds helps stabilize the portfolio, reducing the high volatility typically associated with an equities-only account. However, it’s important to note that in low-interest-rate environments, the bond portion of ZBAL may generate lower returns. As interest rates continue to fall, bond yields are likely to decrease as well, which could impact ZBAL’s overall performance. On the other hand, equities tend to benefit from lower interest rates due to cheaper borrowing costs and higher present values of future cash flows, which might help balance out the portfolio’s returns.
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