The Vanguard All-Equity ETF (VEQT) is an asset allocation ETF designed for investors who want to invest in a wide range of stocks worldwide without using an advisor. 

With a strategy focused on equity securities, VEQT offers investors exposure to both domestic and international markets, allowing them to own some of the most promising and powerful companies in the world with a single click of a button. Talk about convenience.

The allure of an all-in-one portfolio like VEQT lies in its simplification of the investment process. Investors benefit from a diverse mix of assets without the need for constant rebalancing.

If they place the ETF in a tax-sheltered account like an RRSP or TFSA, they can gain global exposure without worrying about the taxes on returns.

This is compounded even further when you can buy the Fund commission-free on brokerages like Questrade and Wealthsimple Trade.

VEQT stands out as an appealing option for do-it-yourself investors who prefer a hands-off approach without compromising on a comprehensive investment strategy. 

Let's dig into the fund in-depth.

Vanguard All-Equity ETF (VEQT) fund overview

VEQT fees and expenses

The management expense ratio for VEQT comes in at 0.24%. This is higher than you'll see in most all-in-one ETFs. For example, XEQT and ZEQT have MERs in the 0.2% range.

This management fee covers the costs of running the fund, along with any additional trading fees they may have.

The higher management fee is almost negligible, costing you around 40 cents a year for every $1000 you have invested. However, many investors look to fees first. So, this could be an issue for some.

I wouldn't be shocked if the company ended up matching its MER to become more competitive with the other major fund issuers in Canada. But for now, it sits a tad higher.

VEQT top holdings

VEQT contains over 13,500 stocks. At first, this seems like a crazy number of stocks to track for the portfolio manager. 

However, it doesn't achieve this by owning each of the stocks individually. Instead, it simply owns four Vanguard ETFs that give it broad exposure. Those 4 ETFs are the following:

• Vanguard US Total Market ETF (TSE:VUN)
• Vanguard FTSE CanadaAll Cap ETF (TSE:VCN)
• Vanguard FTSE Developed ex-North America ETF (TSE:VIU)
• Vanguard FTSE Emerging Markets All Cap ETF (TSE:VEE)

Through these ETFs, you'll gain exposure to many of the major tech companies in the United States, such as Apple, Amazon, Microsoft, and NVIDIA.

In addition to this, you'll hold Canadian blue chips like the Royal Bank of Canada, TD Bank, Enbridge, and Canadian National Railway.

Around 75% of the fund is located in North America, with the remainder in developed or emerging markets outside North America. This means you hold a chunk of Chinese, Japanese, and even UK stocks.

VEQT assets under management

VEQT's assets under management (AUM) are some of the largest out of all of the all-in-one ETFs, coming in at $3.5B. This is indicative of its popularity and investor confidence, primarily in the Vanguard brand.

Distributions

VEQT pays a distribution yield at the time of writing of around 1.8%. This fluctuates on a daily basis based on price movements, realized capital gains and dividends, and much more.

One important thing to note about these distributions is that they are distributions, not dividends. Many new investors get this mixed up, and it can end up being costly come tax time.

A distribution can be any form of investment income, such as dividends, capital gains, interest income, or even a return of capital. The tax situation will change depending on how the distribution is structured.

I'd also like to note that because this fund holds Canadian-domiciled funds with US holdings, you'll pay a withholding tax on the dividend portion of the distribution that comes from these US companies, even in an RRSP.

The tax situation can be quite complex in situations like this, so it's important to speak with an accountant if you have any questions.

How does the Vanguard All-Equity ETF Portfolio work?

Asset allocation

VEQT is designed to provide investors with a simplified approach to investing by exclusively holding equities. It maintains an asset allocation that is 100% invested in stocks, both from domestic and global markets. 

This concentration in equities is meant to try to achieve higher long-term returns, although it also carries higher risk compared to balanced funds.

Diversification

VEQT is well diversified. This isn't all that surprising as the fund does contain over 13,500 holdings. Although many of these funds vary slightly in terms of overall allocation, you're going to find they're very similar, which results in very similar returns as well.

The only thing I would mention about VEQT is that it does contain a little more exposure to Canadian stocks than something like XEQT, which results in a small increase in exposure to the material, financial, and energy sectors.

• Basic Materials: 6.27%
• Consumer Cyclical: 9.33%
• Financial Services: 19.76%
• Real Estate: 2.78%
• Communication Services: 5.93%
• Energy: 8.53%
• Industrials: 12.16%
• Technology: 18.68%
• Consumer Defensive: 5.61%
• Healthcare: 8.16%
• Utilities: 2.79%

How does VEQT rebalance?

VEQT employs an automatic rebalancing strategy. It monitors the portfolio's asset allocation, ensuring that it stays in line with the targeted equity distribution. 

When dividends are received or when market price movements cause a drift from the initial allocation, rebalancing occurs to realign with the portfolio's targeted allocations. This helps maintain the fund's intended risk level over time without the need for investor intervention, which is a great feature of exchange-traded funds overall.

Rebalancing is crucial for maintaining a consistent risk profile, which can impact performance and long-term capital growth. Given the strength of the US markets recently, if this fund didn't rebalance, it would likely be more heavily weighted towards US equities than it already is.

Who is VEQT for?

VEQT is suited for investors looking to tap into the potential for long-term capital growth through a diversified, all-equity portfolio. However, there are some caveats to this, and you need to know if the fund is right for you.

Those with a high tolerance for risk

Investors considering VEQT should be comfortable with higher volatility and potential fluctuations in market price, as the fund holds 100% equities. 

If you're able to accept the higher volatility, you can take advantage of potentially higher returns over the long term. If you are prone to making emotional decisions with your investments and selling during market drawdowns, you may want to look to a more stable fund with an 80/20 or even 60/40 equity and fixed income mix.

The lack of dividend payments underscores its growth-focused strategy rather than income generation as well. Many investors look to stable income during market drawdowns. This fund will not provide that.

Those with a long-term investment horizon

VEQT is tailored for those with a long-term investment horizon. Historical data suggests equities tend to perform better over extended periods, whereas, in the short term, they are simply unpredictable. 

If your plan is to own VEQT for 6 months, a year, or even 2 years, you are likely approaching it the wrong way. This should be an investment made with a 5+ year timeline, at minimum.

Individuals aiming to accumulate wealth over decades may find this fund fitting, especially considering its broad market exposure.

How has VEQT performed?

Performance relative to other all-in-one ETFs

Vanguard's performance has lagged behind other 100% equity all-in-one funds like XEQT or VEQT. This is due to a combination of things.

Many will look to fees as the reason it has underperformed. However, the difference is so small that it hardly impacts total returns.

In my opinion, the fund's lagging performance is due to its holding the most Canadian exposure out of the three. When we look at ZEQT or XEQT, their Canadian exposure is typically in the 20-24% range. With VEQT, it comes in at over 30%.

The Canadian markets have lagged significantly in recent years relative to the markets in the United States.

The emergence of big tech south of the border in addition to larger policy rates having an impact on many interest rate sensitive companies here in Canada, the Toronto Stock Exchange (TSE:TSX) just hasn't performed all that well.

Will this change in the future? It's hard to say. However, for something like VEQT to outperform its counterparts, the Canadian markets would need to perform well, likely better than the US and international markets.

All in all, the performance difference isn't that drastic. But it is certainly not negligible.

What are Some Alternatives to VEQT?

For investors seeking alternatives to the Vanguard All-Equity ETF Portfolio (VEQT), there are several options to consider, providing a mix of returns, allocations, and strategies for long-term wealth accumulation.

XEQT - iShares Core Equity ETF Portfolio:

• Similar all-equity composition.
• More US and international exposure, less Canadian exposure.
• Potentially varying performance and volatility.

ZEQT - BMO All-Equity ETF Portfolio:

• Offers diversified exposure to global equities.
• Aims for long-term capital growth.
• More US and international exposure, less Canadian exposure
• A newer fund with a smaller AUM
• BMO is slowly emerging as one of the best fund managers in the country

VGRO - Vanguard Growth ETF Portfolio:

• Allocation includes 80% equity and 20% fixed income.
• Provides a balance between growth and reduced volatility.
• The fund pays a bit higher distribution because of its fixed income.
• Will suit investors who have a lower risk tolerance.

My overall opinion on the Vanguard All-Equity ETF (VEQT)

Vanguard is a big name in the ETF space. If you purchase this fund, you know you're purchasing an ETF from one of the most reliable fund providers on the planet.

However, at this point in time, the fund has higher fees and lagging performance, which would lead me to choose something like XEQT or ZEQT over it.

Yes, the fees are almost negligible. VEQT will cost you an extra 40 cents a year for every $1000 you have invested over XEQT or ZEQT. However, lower fees are lower fees, and when all else is equal, it's a no-brainer to choose the lower option.

Speaking of all things equal, it's really not all things equal. VEQT has lagged behind the other all-in-one funds because of its larger exposure to the weaker Canadian markets. 

This has resulted in moderate annual underperformance, and although it's never guaranteed that outside markets will outperform the Canadian market moving forward, it's certainly something an investor will have to consider.

So, for that reason, I'd say the Vanguard All-Equity ETF is best suited for those who have confidence in the Canadian markets. In contrast, the other options have more exposure to the United States and developed markets in Europe.