Pairing ETFs for Canadian Investors: A Guide to Adding Depth to Your Portfolio

In Canada, there are over 2,000 exchange-traded funds (ETFs) available on the market, and more than 100 of them are classified as multi-asset ETFs. These all-in-one portfolios provide broad exposure to various asset classes, including Canadian, U.S., international developed, and emerging markets equities.

Asset allocation ETFs often include a range of options for different risk tolerances, such as 100% equity portfolios, 80/20 or 60/40 equity/bond portfolios, and progressively more conservative variations. The underlying ETFs are typically passive index trackers, although some providers incorporate active management or factor strategies.

For Canadian investors, asset allocation ETFs have become extremely popular, with many opting for a core-and-satellite approach to add smaller ETF positions around the core fund for exposures not provided by the core. Three reasonably sensible ETF categories to consider pairing with an asset allocation ETF are adding cryptocurrency exposure, commodity exposure, and factor exposure.

One way to add cryptocurrency exposure is through an all-in-one ETF that includes bitcoin, such as Fidelity's All-in-One Growth ETF (FGRO), which has approximately 2.6% allocated to the Fidelity Advantage Bitcoin ETF (FBTC). Alternatively, investors can pair a spot bitcoin ETF with their existing asset allocation ETF, such as IBIT, which provides direct bitcoin exposure for a 0.33% management expense ratio.

When it comes to commodity exposure, Canadian investors can consider pairing an asset allocation ETF with a broad commodity ETF like BMO Broad Commodity ETF (ZCOM), which tracks the Bloomberg Commodity Index Total Return and charges a 0.30% management expense ratio. A modest 5-10% allocation could introduce another return source while giving investors an asset to periodically rebalance against stocks and bonds.

Finally, factor exposure can be added through dedicated factor ETFs like CIBC's partnership with Avantis Investors, which constructs portfolios using characteristics such as company size, valuation, and profitability. For pairing with an asset allocation ETF, one option is the Avantis CIBC Global Small Cap Value ETF (CASV), which uses a fund-of-funds structure and currently charges a 0.39% management fee.