Vanguard Investments has become one of the most popular choices for investors, and we’re going to tell you why. Here’s everything you need to know about Vanguard mutual funds in Canada.
Founded in the 1970s in Pennsylvania, USA, Vanguard has, due to its long list of low-cost mutual funds, grown to become one of the largest and most respected investment companies in the world, managing more than $6.2 trillion in global assets. Vanguard’s Canada operations are still relatively new, only setting up shop in The Great White North in 2011, when it launched 6 ETFs on the TSX. So what exactly are mutual funds?
What are Mutual Funds?
Mutual funds are made up of a pool of money collected from several investors to be invested in securities. Professionals manage this money and designate the funds to make capital gains for the fund’s investors.
Instead of just investing in individual stocks, mutual funds contain portfolios of securities. So by buying a mutual fund, you’re essentially investing in multiple securities all at once, hundreds or even thousands of them. This lowers the risk involved because if one stock does poorly, others’ performance may cover its losses.
It also lowers fees. Instead of racking up the commissions you’d pay when buying and selling individual securities yourself; you pay one expense ratio. The price you pay for administrative and operational costs, an annual fee that funds charge shareholders. It’s expressed as a percentage of the assets under management. You don’t own the underlying investments that make up your mutual fund, though; you own only a share of them.
Since mutual funds have professional managers, those in charge research the market to determine the best securities to purchase, even with little knowledge, one can still invest and profit from mutual funds.
Note that there are two kinds of Mutual funds, actively managed funds and passive funds.
Actively Managed Funds
According to the fund’s criteria, these generally do well as the manager in charge of the funds picks securities for the fund. There are more trades, and typically more gains are made as well. Fees are also generally higher for actively managed funds.
The fund manager either buys all or a sample of the securities in the fund’s criteria. Fewer trades and typically lower gains are made with this type of mutual funds. The fees are generally much lower than the prices for actively managed funds.
Mutual funds can earn money in any one of these three ways:
Capital gains distribution
Capital gains distribution occurs when the price of the securities within the fund increase over time. When this happens, selling those securities leads to capital gain. The fund distributes the capital gain to its shareholders at the end of the year.
This payment is income earned from dividends on stock or interest on bonds.
Increased market value
This occurs when the market value of the mutual fund portfolio increases.
Vanguard Mutual Funds Asset Classes
Vanguard currently has over 130 mutual funds in the following asset classes:
- Money market funds
These are low-risk investments. You can use money market funds to invest in short-term investments issued by corporations and government agencies.
- Bond funds
These pose a higher risk than money market funds but also carry higher rewards. They’re ideal for people looking for more income.
- Stock funds
These funds have a higher risk exposure than typical bond funds; however, the risks can be lessened by pairing stock funds with bond funds. With stock funds, you can invest in domestic or international companies of all sizes and industries. They’re ideal for people looking to earn more income over a more extended period.
- Balanced Funds
These funds offer a combination of income and growth potential mixed in one. The risk involved varies and is dependent on the ratio of stocks and bonds in the portfolio.
- International funds
These funds offer exposure to international opportunities in various countries.
- Sector and Specialty funds
These funds focus on specific industries like real estate or energy. The funds are high risk because of their narrow focus.
Vanguard Mutual Funds
As earlier stated, Vanguard Investments is one of the most popular mutual fund options. Vanguard is famous for launching the first index mutual fund for individual investors, and it proudly advertises this on its website.
Vanguard boasts of lower prices than its competitors. According to a June 2020 study from investment researcher Morningstar, its average expense ratio is 0.10%, while 0.45% is the industry average across all mutual funds and ETFs. This is perhaps the most critical reason for its fame and reputation.
They also offer mutual funds without sales fees when you buy or sell fund shares; these are known as no-load mutual funds.
Vanguard funds are often very reliable and high performing. 87% of Vanguard’s no-load mutual funds have performed better than their competitors over the past ten years. You can check Vanguard’s performance numbers. It also has excellent customer support.
Vanguard has a wide selection of mutual funds you can choose from, about 131. So many that choosing the right one requires quite a bit of research. Some of them are;
1. Vanguard Global Balanced Fund
This fund provides long-term growth in capital and current income as well. It invests in equity and fixed income securities of issues anywhere around the globe.
Wellington Management Canada ULC manages the fund (with separate teams for equity and fixed income).
2. Vanguard Global Dividend Fund
Vanguard Global Dividend provides a higher than average level of current income along with long-term capital growth by investing mostly in dividend-paying equity securities of companies all around the world.
Wellington Management Canada ULC and The Vanguard Group, Inc. (Quantitative Equity Group) manage the fund.
3. Vanguard Windsor U.S. Value Fund
Vanguard Windsor provides long-term capital growth and income by investing primarily in value-oriented U.S. equities.
The fund is managed by Wellington Management Canada ULC, Pzena Investment Management, LLC, and The Vanguard Group, Inc.
4. Vanguard International Growth Fund
Vanguard International Growth Fund provides long-term capital growth by investing mostly in the stocks of quality companies situated outside Canada and the U.S.
Baillie Gifford Overseas Ltd., Schroder Investment Management North America Inc. and The Vanguard Group. Inc manages the fund.
Vanguard Canada contact information
Vanguard Investments Canada Inc.
Bay Adelaide Centre
22 Adelaide Street West
Toronto, ON M5H 4E3
Vanguard does not allow direct contact with individuals, stating on its website, “Contact information is for registered dealers or financial advisors only. At this time, Vanguard is not registered to deal directly with individuals in Canada. If individuals have questions, they should contact their financial advisor or account provider”.
Disclaimer: Rates and product offerings are always changing, so this article might not reflect the current market situation. Please contact your financial advisor before making any financial decisions.
How can I invest in Vanguard mutual funds?
You can buy Vanguard Mutual funds either through a third party financial advisor or an online brokerage account. If you don’t have an advisor, ask your network for referrals or choose one through the Investment Industry Regulatory Organization of Canada or the Mutual Fund Dealers Association of Canada. Confirmed online brokerages include BMO InvestorLine, CIBC Investor’s Edge, Scotia iTrade, T.D. Direct Investing, etc.
- What are the cut-offs for placing deals?
Deadlines for same-day deals are published on the Vanguard website.
- What price will I get if I invest in a fund now?
Mutual funds are dealt with daily. This means that they are only traded once a day, unlike ETFs. Each fund has a daily cut-off time, which varies from fund to fund. After the cut-off, a sale or purchase order cannot be executed until the next day. This means the price you get is likely to be different from the price you saw when you placed the trade.
- How soon can I can start trading after depositing via my debit card?
You’ll have to wait for Vanguard one business day to confirm your payment before placing an order. If an order is made before the payment is approved, the investment is made at the next available dealing point.
- How do I choose the right fund?
Vanguard has a comparison page on its website where you can compare the effects and rewards of different funds and simulate costs. In addition to this, you will need to do a bit of research to determine which suites you best.