What’s under the hood? A look at what goes into all-in-one ETFs—and how they work

ETFs already have a reputation for being a simple, more cost-effective way to obtain a diversified portfolio. They are usually passively managed, which keeps fees low, and investors can choose from a range of options, such as conservative, balanced or growth products.

ETFs have surged in popularity among DIY investors. Canadians poured a record $53 billion into ETFs in 2021, according to the Canadian ETF Association. While the performance of ETFs is often similar to that of mutual funds, ETFs are easier to buy and sell, and they have lower fees.

All-in-one ETFs go one step further. Essentially, they are collections of low-cost ETFs. Investors don’t have to select, track or manage them—the pros take care of that. All-in-one ETFs can be passively or actively managed, and fund managers will rebalance your portfolio back to the strategic allocation when necessary.

How all-in-one ETFs work

All-in-one ETFs consist of a group of globally diversified funds that are balanced to minimize risk.

Fidelity’s All-in-One ETFs program has four options, with a mix of equity factor, fixed income and crypto ETFs. Its All-in-One Balanced ETF (FBAL) has a mix of approximately 59% equity, 39% fixed income and 2% cryptocurrencies. With an approximate indirect management fee of 0.35%, FBAL is aimed at the investor who wants long-term growth.

Fidelity’s All-in-One Growth ETF (FGRO) has a higher equity weighting, with approximately 82% equity, 15% fixed income, and 3% cryptocurrencies. With an indirect management fee of approximately 0.37%, it’s better suited for the investor with a greater appetite for risk and a longer time horizon. Both FBAL and FGRO were launched in 2021 and have a one-year history.

Two new funds, All-in-One Conservative ETF (FCNS) and All-in-One Equity ETF (FEQT), joined the program in 2022. The more conservative of the two, FCNS, offers a global multi-asset strategy with a neutral mix of approximately 40% equity factor ETFs, 59% systematic and actively managed fixed income ETFs and 1% cryptocurrency ETFs. FEQT has a neutral mix of approximately 97% equity factors ETFs and 3% cryptocurrency ETFs.

Why is there a higher fee?

Passively managed portfolios are just that: passive. They usually “track” or mimic a stock index, using it as a benchmark and aiming to duplicate its performance. But Fidelity’s All-in-One ETFs are designed with built-in strategic asset allocation and consistent portfolio rebalancing, says Himesh Patel, an ETF Strategist for Fidelity Investments Canada. “We do the work behind the scenes for you and rebalance annually. It’s also rebalanced if the neutral mix drifts by a certain amount.” Fidelity’s All-in-One ETFs have slightly higher fees than other all-in-one products—only 10 to 15 basis points, to be exact.

Why? It all comes down to management. “When you look at what’s in the market today in terms of these all-in-one ETFs, a lot of them are passively managed tracking broad equity and fixed income indices,” says Patel. These products track the TSX, S&P 500 or other major benchmarks. “Our value proposition when we entered the market was: We’re active in design, passive in execution.”

What’s different about these portfolios is that on the equity side, the Fidelity All-in-One ETFs provide exposure to known investment style factors that have been academically researched to show they have tended to outperform broad market indices over time. Fidelity All-in-One ETFs target low-volatility, high-quality, value and momentum stocks across regions and sectors.

“We’re targeting those known style factors on the equity side that can lead to potential outperformance,” Patel says.

The fixed-income ETFs inside the Fidelity All-in-One ETFs blend systematic and active management. “The idea is with the factor equities and active fixed income, the Fidelity All-in-One ETFs aim to outperform over time, putting investors ahead,” says Patel.

In addition, Fidelity announced the addition of cryptocurrencies to its All-in-One ETFs in January. This small allocation to cryptocurrencies could provide additional diversification benefits and offer potential for improved long-term risk-adjusted returns.

The result is that investors end up with all-in-one portfolios that have the potential to outperform through strategic asset allocation and consistent portfolio rebalancing. So for a lower fee (investors only pay for the ETFs held in their portfolio, with no additional fees for asset allocation or rebalancing), investors have the opportunity to make the most of their money and reach their savings goals faster.

For important information regarding Fidelity All-in-One ETFs, click here.

Read more on investing:

• Building a “core and explore” portfolio with an all-in-one ETF
• Five ways to worry less about your investments with an all-in-one ETF
• Using ETFs to get the most out of your TFSA contribution room