An Extensive Review of Vanguard’s All-In-One Growth ETF VGRO

ByDan Kent Published On:

When it comes to investing, simplicity and diversification are often key strategies that many new and experienced investors deploy.

VGRO, or the Vanguard Growth ETF Portfolio, is one of the ways investors utilize this strategy by offering an asset allocation ETF that caters to investors looking for growth but with lower volatility than something like VEQT, Vanguard’s all-equity ETF.

An investment in VGRO gives you exposure to a wide array of global markets, which can reduce risk through diversification.

With a target allocation leaning heavily towards equities—around 80%—VGRO is designed for long-term capital growth, all while offering a bit of lower volatility with its 20% allocation to fixed-income securities.

Let’s dive into this VGRO ETF review so that you can better understand what it provides and whether or not it should be something you consider.

Vanguard Growth ETF Portfolio (VGRO) overview

VGRO is designed to provide you with long-term capital growth by investing in a diversified portfolio that includes both equity and fixed-income securities. 

Its allocation is set to target around 80% in stocks and 20% in bonds to offer strong growth via the equity portion but reduced volatility via its fixed income allocation.

VGRO fees and expenses

VGRO offers a competitive management expense ratio (MER) of just 0.24%.

However, this fee is more than similar competitors such as XGRO and ZGRO, which offer management fees of 0.2% and 0.18%, respectively.

Fees are not the best end when it comes to funds. Ultimately, performance in relation to fees should determine whether or not it’s worth being paid. We’re going to dive into performance a bit later on in this article.

VGRO top holdings

In terms of composition, VGRO is made up of several underlying Vanguard Index ETFs.

  • VUN.TO   Vanguard US Total Market ETF
  • VCN.TO   Vanguard FTSE Canada All Cap Index ETF
  • VIU.TO   Vanguard FTSE Developed All Cap Ex North America Index ETF
  • VAB.TO   Vanguard Canadian Aggregate Bond Index ETF
  • VEE.TO   Vanguard FTSE Emerging Markets All Cap ETF
  • VBG.NO   Vanguard Global ex-US Aggt Bond ETF
  • VBU.NO   Vanguard US Aggregate Bond ETF

The fund is heavily weighted towards VUN and VCN, making up more than 60% of total assets. These Vanguard ETFs give you exposure to the USA and Canada. 

So, you’ll get exposure to high-flying tech stocks like Microsoft, Apple, and Nvidia and blue-chip Canadian stocks like Royal Bank, Shopify, and Enbridge.

Even though it’s a global all-in-one ETF, it’s still heavily weighted towards the United States and Canada.

VGRO assets under management

VGRO is the largest all-in-one fund out of its major competitors, iShares and BMO. It has assets under management of around $4.8B at the time of writing, whereas XGRO has an AUM of just $2B, and ZGRO has an AUM of only $250M~.

Vanguard is a very big name when it comes to exchange-traded funds, and its brand and reputation are likely why the fund is one of the largest of its kind.

Distributions

VGRO pays a quarterly distribution and, one that will generally vary based on the type of income the fund generates. Its distribution yield is typically anywhere from 2% to 2.3%.

For income investors, this may not seem all that attractive. However, even with the fixed income element inside of the portfolio, this fund is very much aimed at achieving the highest possible total returns with its asset mix.

The fixed income element of the fund certainly does increase the distribution; however, VEQT, the all-equity Vanguard ETF, typically pays around 1.7%.

Keep in mind, because VGRO has Canadian-domiciled ETFs that hold US stocks and ETFs directly, you’ll be exposed to a small withholding tax on the distributions, even in a TFSA or RRSP.

How does the Vanguard Growth ETF Portfolio (VGRO) work?

The Vanguard Growth ETF Portfolio (VGRO) is designed to provide you with a balance of long-term capital growth and lower volatility.

Asset allocation

VGRO targets a static allocation that consists of approximately 80% equity and 20% fixed income.

The equity portion is focused on providing you with growth potential, while the fixed-income investments are there to add a layer of stability and income.

Diversification

Your investment in VGRO is automatically diversified across various market sectors and economies. The equity holdings are located in the following sectors at the time of update:

  • Basic Materials: 6.21%
  • Consumer Cyclical: 9.37%
  • Financial Services: 20%
  • Real Estate: 2.89%
  • Communication Services: 5.93%
  • Energy: 7.91%
  • Industrials: 12.16%
  • Technology: 18.68%
  • Consumer Defensive: 5.61%
  • Healthcare: 8.16%
  • Utilities: 2.79%

In terms of the fixed income portion of the portfolio, around 70% of it is in either AAA or AA bonds, and the total portfolio consists of around 70% government bonds, 21% corporate bonds, and the remaining 9% through a wide variety of derivatives and municipal bonds.

Geographical exposure is around 75% to North America, 13% to Europe, and 11% to Asia. Around 40% of the fund is exposed to the United States and 35% to Canada.

How does VGRO rebalance?

VGRO is rebalanced regularly to maintain its target asset mix. If it deviates too far from its 80/20 mix, it goes through a rebalancing of the fund back to that allocation.

This ensures that the portfolio stays aligned with its intended risk profile and investment strategy.

You’ll often see this when equities rise in relation to fixed income or when fixed income increases in relation to equities.

Who is VGRO for?

Those with a moderate tolerance for risk

If you’re comfortable with moderate levels of risk and are looking for growth, VGRO may fit your profile.

This all-in-one growth ETF portfolio maintains a diverse mix of about 80% equity and 20% fixed income. So, it’s not as aggressive as something like VEQT, which is 100% equity, but it’s also not as conservative as a 60/40 ETF like VBAL.

Equity investments carry higher risk. Generally, the higher exposure to equities one has, the more volatile the returns on their portfolio will be.

Those with a long-term investment horizon

Long-term investing yields better results, and VGRO is structured with this strategy in mind.

The Vanguard Growth ETF Portfolio is designed for investors with a time horizon spanning several years or even decades. The market is simply unpredictable over the short term, and it’s best you purchase these ETFs with the intention of holding indefinitely.

By investing in VGRO, you gain exposure to a broad market without the need to frequently rebalance your portfolio, which can be particularly advantageous if you’re looking ahead and aiming for compound growth over time.

How has VGRO performed?

Performance relative to other all-in-one ETFs

When we look at the performance of VGRO versus its main competitors in ZGRO and XGRO, its performance has lagged, but by an almost negligible amount.

Annualized, at the time of writing, the fund has trailed its competitors by around 0.25% since 2019. This is likely for a few reasons.

For one, the higher fee. Even though it’s a minor difference, it’s a difference nonetheless and will impact returns.

Secondly, its exposure to Canada. The fund has the highest exposure to Canada out of these three ETFs. The Canadian markets, primarily because of their lack of tech exposure and a large number of companies being interest rate sensitive, have lagged behind the US markets.

Whether or not this will remain the case in the future is impossible to predict. But, these two factors are undoubtedly the main drag on a 25 basis point lag in performance.

What are Some Alternatives to VGRO?

In considering alternatives to VGRO, several ETFs offer similar benefits of diversification and asset allocation. Below is a brief overview:

  • XGRO: Like VGRO, XGRO provides a balanced mix of equity and fixed-income assets and is offered by one of the largest asset managers on the planet, Blackrock. However, XGRO has a slightly different composition, primarily via lower exposure to the Canadian markets.
  • ZGRO: ZGRO is BMO’s all-in-one 80/20 ETF. Much like XGRO, the fund has lower exposure to Canada, which has helped it in terms of returns over the last bit. It also has the lowest fees of the bunch, coming in at only 0.18%.

Alternatively, you could look at all equity ETFs like VEQT, XEQT, ZEQT or 60/40 ETFs like VBAL, XBAL, ZBAL, etc.

However, it ultimately just depends on your risk tolerance.

My overall opinion on VGRO

Vanguard is an outstanding fund manager. However, I do believe that VGRO falls short here in relation to its main competitors. Don’t get me wrong. However, we’re comparing three outstanding funds in this situation.

It has the highest fee out of the bunch and too much exposure to the Canadian markets. Despite the Canadian markets making up a low single-digit percentage of global GDP, this fund contains over 35% exposure to Canada. Similar all-in-one ETFs are typically in the high 20% to low 30% range.

I believe this is to cater somewhat to its target market, Canadian investors who have a bit of a hometown bias when it comes to stocks.

On the flip side, for someone who sees the Canadian market as the more attractive one moving forward, you’ll likely look to VGRO more than its alternatives. The performance of the US economy and US stocks in the past has no bearing on its performance moving forward.

So, for that reason, if you’re bullish on Canada, this has the highest exposure of the three. If your online brokerage account offers free commissions on all-in-one funds like these, it makes the investment process even simpler and puts more money in your account.

I know a lot of beginner investors at a platform like Wealthsimple Trade who simply buy a set amount of shares every single week via their fractional trading system. It is making investing ridiculously easy.