Building a “core and explore” portfolio with an all-in-one ETF

by Ann deBruyn

A smiling woman looks down at her smartphone.

Photo by Karolina Grabowska from Pixabay

Investing shouldn’t be all or nothing, with investors forced to choose products that solely correspond to their risk tolerance and offer little flexibility. That’s why some people take a “core and explore” (or “core and satellites”) approach to building their portfolio: They allocate the majority of it—80% to 90%—to a core of diversified holdings, like broad-market index funds, and the rest toward speculative or more volatile opportunities, such as emerging sectors and cryptocurrencies.

For investors who embrace this hybrid strategy, new all-in-one exchange-traded funds (ETFs) offer a one-ticket solution for their portfolio’s core. Most all-in-one ETFs are low-cost, passively managed investments that are bundled together so that investors don’t have to track or manage them. These products often include ETFs and pooled stocks and bonds, which are automatically rebalanced.

With an all-in-one ETF as their portfolio’s core, investors can then be a little bolder with their room to explore. Here’s what to consider before getting started.

Take stock of your needs

All-in-one ETFs are appropriate if you have a medium- to long-term savings goal, such as home renovations, a sabbatical or retirement.

First, determine how much you need to save, how much stable income you’ll have from other sources and when you’ll need your money.

Next, determine your risk tolerance. Are you a cautious type or more adventurous? What is your investment horizon? Is your financial position better suited for an investment with fewer ups and downs or one that’s more volatile but has the potential for higher long-term returns?

Fidelity All-in-One Balanced ETF (FBAL) is a low- to medium-risk option, with a mix of approximately 59% equity, 39% fixed income and 2% cryptocurrency. It’s designed for investors who seek long-term growth without exposing their money to high risk. If you’re a less conservative investor with an eye for growth, Fidelity All-in-One Growth ETF (FGRO) has a higher equity weighting, with approximately 82% equity ETFs, 15% fixed income ETFs and 3% cryptocurrency ETFs. Both ETFs were launched in 2021 and have a one-year history.

Two new funds, Fidelity All-in-One Conservative ETF (FCNS) and Fidelity 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 factors, 59% systematic and actively managed fixed income ETFs and 1% cryptocurrency ETFs. FEQT has a neutral mix of approximately 97% equity factor ETFs and 3% cryptocurrency ETFs to provide a more robust growth profile.

You can hold most all-in-one ETFs in a tax-free savings account (TFSA), registered retirement savings plan (RRSP) or registered education savings plan (RESP).

Decide how much of your portfolio will be the “core”

Core holdings are usually stable, consistent investments that include a mix of equities and fixed income, weighted to the investor’s risk tolerance. “The core is globally diversified across countries and regions—Canada, the U.S. and international markets,” explains Himesh Patel, an ETF Strategist for Fidelity Investments Canada.

If you’re younger and have a longer time horizon, you’ll probably have a portfolio that’s more slanted toward equities, says Patel. On the other hand, if you have a shorter time horizon, you might want to have more in the core than in “any satellite positioning,” he says.

Choose your “explore” investments

Once you’ve determined the “core” portion of your investment portfolio, you can add a range of “explore” investments—anything from initial public offerings (IPOs), special-purpose acquisition companies (SPACs), thematic funds and venture capital funds to cryptocurrencies.

Other popular explore options are sustainable investments. These cater to investors who want to have a role in protecting the environment or making a social or governance impact. And two more possibilities—for those who want the potential for aggressive growth—are technology stocks and health care stocks, says Patel.

Outside of your portfolio’s “core,” “you have to be willing to take on more risk,” he cautions. “These funds are more volatile than the more stable, defensive stocks in the market.” For example, many firms that are at the forefront of innovation have “great upside potential, but it comes with lots of volatility,” says Patel.

How Fidelity All-in-One ETFs are different

For “core and explore” investors, Fidelity’s All-in-One ETFs offer one-ticket solutions diversified across regions, market caps and investment factors. “With these portfolios, on the equity side, we’re targeting known investment style factors like value, momentum, quality and low volatility,” says Patel. The portfolios’ fixed income portions also have an active component—trying to reduce risk, be diversified and get as high of a yield as possible—without being affected by short-term blips, like interest rate hikes.

In addition to professional management, strategic asset allocation and consistent portfolio rebalancing, these ETFs offer lower management fees: FBAL’s indirect management fee is estimated to be 0.35%, FGRO 0.37%, FCNS 0.34%, and FEQT 0.38%, though their fees will differ from time to time depending on their portfolio composition, rebalancing events and performance. Less money spent on fees means more money to put towards your future goals.

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

Read more about investing:

  • 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
  • The MoneySense Find a Qualified Advisor Tool