Vanguard Canada Slashes Management Expense Ratios on Asset Allocation ETFs

The term “Vanguard effect” exists for a reason. It refers to the steady fee compression that ripples through the fund industry whenever Vanguard lowers costs.

The firm is structurally built for this. Unlike traditional asset managers, Vanguard operates under a cooperative-style model where shareholders of its mutual funds and ETFs collectively own the management company. There is no external profit motive, which means Vanguard is incentivized to pass economies of scale directly back to investors in the form of lower fees.

U.S. investors have seen this play out many times. Earlier this year, effective February 1, 2025, Vanguard reduced fees on 168 share classes across 87 funds. Those reductions are expected to save investors more than $350 million in 2025 alone.

Canadian investors are now seeing a similar move. Vanguard Canada recently cut fees on many of its most popular all-in-one asset allocation ETFs. The firm now reports an average management expense ratio of 0.16% across its Canadian product lineup.

Here’s a look at the asset allocation ETFs affected and what the lower fees mean for Canadian investors.

What Vanguard Canada’s Asset Allocation ETFs Actually Provide

Asset allocation ETFs are all-in-one portfolio solutions built to hold a mix of stocks and bonds in a single fund. Each version targets a specific balance of equity and fixed income, giving investors a complete, ready-made portfolio without needing to assemble individual ETFs themselves.

Construction varies by provider, but Vanguard’s lineup follows a consistent framework. On the equity side, the portfolios hold global stocks across U.S., international developed, and emerging markets, with a deliberate overweight to Canadian equities. That home-country bias helps reduce currency swings and improves tax efficiency for Canadian investors.

True to Vanguard’s philosophy, the equity sleeve uses passive index ETFs tied to broad, market-cap-weighted benchmarks, which keeps trading costs and turnover low.

The fixed income portion is built the same way. Each portfolio includes U.S., Canadian, and international investment-grade bonds spanning government and corporate issuers, with an overall intermediate-duration profile. Foreign bonds are currency-hedged to minimize volatility.

Vanguard offers versions at 100% equity, 80/20, 60/40, 40/60, and 20/80, letting investors choose based on risk tolerance and time horizon. For those unsure which mix fits best, Vanguard provides a short questionnaire to help match investors with the right portfolio.

The management expense ratios on the lineup—Vanguard All-Equity ETF Portfolio (VEQT), Vanguard Growth ETF Portfolio (VGRO), Vanguard Balanced ETF Portfolio (VBAL), Vanguard Conservative ETF Portfolio (VCNS), and Vanguard Conservative Income ETF Portfolio (VCIP)—were previously 0.22%.

The five-basis-point cut brings each to 0.17%, placing them among the lowest-cost all-in-one solutions in Canada. On a $100,000 investment, that’s $170 in annual fees instead of $220. It may not look dramatic at first glance, but fees compound over time, and every basis point matters.

Where Vanguard Canada Could Go Next

This is a welcome move by Vanguard and arguably overdue given how quickly asset allocation ETFs have grown over the past decade. It sends a clear message to competing asset managers, and I expect DIY investors to appreciate the lower costs immediately.

There’s still room for improvement, though. Cutting MERs on the asset allocation lineup (and select bond ETFs) is a strong first step, but several other products would benefit from the same treatment.

At the top of my list is the Vanguard Retirement Income ETF Portfolio (VRIF). It’s an actively managed blend of roughly 65% bonds and 35% equities with a managed distribution policy targeting 4% a year. Distributions come from internally realized capital gains, interest, dividends, and return of capital.

I like the design and think VRIF fills an important gap for retirees, but the 0.32% MER stands out. Given that the ETF holds many of the same underlying building blocks as the lower-cost asset allocation lineup, a reduction to something closer to 0.24% would make it far more competitive for cost-conscious investors seeking a single-fund retirement solution.

I’d also like to see the distribution target increased. A 5% payout would better align with the minimum RRIF withdrawal rate at age 70. Retirees generally avoid selling units for income whenever possible, which explains the popularity of covered call ETFs despite their weaker total return profiles.

VRIF tries to address the same income challenge without relying on derivatives, but the current 4% target still forces many retirees to sell units to meet RRIF requirements. A 1% bump in the target distribution rate, financed through a slightly higher mix of realized gains or return of capital would make the ETF a more complete solution for retirement income needs.