Vanguard’s products and model portfolios

Vanguard's products and model portfolios

AS OF SEPTEMBER 30, 2020

For financial advisor use only. Not for public distribution.

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Contents

1 Our tools and resources 2 Using Vanguard products in portfolios 4 Model portfolios 20 Equity index ETFs 43 Fixed income index ETFs 54 Asset allocation ETFs 61 Factor ETFs 67 Mutual funds

Our tools and resources

Portfolio analytics Build, analyze and compare portfolios to see how our investment products can fill gaps and add diversification. View a portfolio's sector breakdown, weighting by world regions, credit quality, degree of correlation and risk exposure. Generate and save custom reports.

Cost simulation Compare the costs of thousands of Canadian mutual funds and ETFs. You can view and compare investments side by side to see the benefit that low-cost investments can provide over time.

Fund comparison View a side-by-side comparison of returns, top 10 holdings, expenses and more about funds from Vanguard and other fund families.

Investor questionnaire

Start a conversation about asset allocation by having your clients answer some simple questions. Review our sample asset allocation results.

Practice management centre

Define and articulate your value, build a thriving fee-based practice and establish enduring client relationships with the help of our guides and sample materials.

ETF education centre

Mutual fund

Find information on exchange-traded funds, whether you're

brushing up on the basics or researching strategic and

tactical portfolio options.

ETF

Updates via social media

Stock

Follow us on LinkedIn and Twitter and keep current with Vanguard research, our insights into market and economic trends as well as upcoming events.

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Using Vanguard products in portfolios

When it comes to constructing and maintaining clients' investment portfolios, flexibility and choice are key.

Low-cost strategies using ETFs and mutual funds not only offer flexibility and choice, but also help streamline traditional portfolio construction efforts and free up your time to focus on value-added activities such as financial planning, behavioural coaching and tax planning for investors.

This guide provides three different ways to effectively implement Vanguard investment products into portfolios. Each method or strategy is designed with a different focus in mind.

Vanguard model portfolios Vanguard model portfolios provide you with a strategic asset allocation framework to help build diversified portfolios that suit a range of investor profiles.

Our model portfolios allow you to build a diversified exposure to the constituent asset classes using three to seven Vanguard ETFs?. Strategic and index-centric by nature, our model portfolios are weighted by market capitalization. Mindful of investors' preference in Canada for domestic investments, we overweight Canadian securities relative to global marketcap-weighted benchmarks. In addition, our models incorporate CADhedged and unhedged equity ETFs.

Choose this method if you want control over asset allocation and are happy to rebalance the portfolio when needed.

Vanguard asset allocation ETFs Intended as all-in-one, diversified portfolios, Vanguard asset allocation ETFs are designed to simplify investment management and mitigate risk through asset allocation.

Each portfolio is a single-fund solution providing broad global diversification using different blends of several core Vanguard ETFs--many of the same ETFs we use in our model portfolios--offering exposure to a wide range of equity and fixed income markets.

Our asset allocation ETFs are simple and straightforward. Regular rebalancing helps maintain exposure across key sub-asset classes at levels appropriate for investors' goals and risk tolerance. Our focus on low costs helps investors keep more of the portfolios' potential returns.

Creating a portfolio using Vanguard asset allocation ETFs can be an attractive option for clients who seek the benefits of a diversified low-cost portfolio that delivers competitive returns over the long term.

Vanguard ETFs and mutual funds We offer a diverse range of index and actively managed ETFs and actively managed mutual funds that allow you to design and build an entire portfolio. Vanguard ETFs have no minimum investment amount, so no matter how small or large the allocation to a particular ETF, they're an attractive, low-cost way for clients to gain broad market exposure.

Our actively managed mutual funds feature low costs, global diversification and access to the disciplined, sophisticated strategies of several renowned global investment management teams.

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Vanguard model portfolios

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Vanguard

model portfolios1

Asset allocation

100% equity

90% equity 10% fixed

income

80% equity 20% fixed

income

70% equity 30% fixed

income

60% equity 40% fixed

income

50% equity 50% fixed

income

40% equity 60% fixed

income

30% equity 70% fixed

income

20% equity 80% fixed

income

10% equity 90% fixed

income

100% fixed income

Asset-weighted management expense ratio2

All-cap core

Traditional core

Traditional core (hedged equity)

Page

0.21%

0.15%

0.15%

7

0.20%

0.15%

0.15%

8

0.20%

0.16%

0.16%

9

0.20%

0.16%

0.16%

10

0.20%

0.16%

0.16%

11

0.19%

0.17%

0.17%

12

0.19%

0.17%

0.17%

13

0.19%

0.17%

0.17%

14

0.19%

0.17%

0.17%

15

0.18%

0.18%

0.18%

16

0.18%

0.18%

0.18%

17

1 Portfolios are market-capitalization weighted.

2 Asset-weighted management expense ratio is calculated using the management expense ratio (MER) of each ETF multiplied by the weight of each ETF in the model portfolio.

Please see page 18 for other important information about Vanguard model portfolios.

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Data as of September 30, 2020

Vanguard model portfolios

About our model portfolios

At Vanguard, we believe investors have the best chance for investment success when they're mindful of four fundamental principles.

We believe investors should:

? Create clear, appropriate investment goals. ?Develop a suitable asset allocation using

broadly diversified funds. ? Minimize cost. ? Maintain perspective and long-term discipline.

By following these four principles, financial advisors and their clients can focus on what they can control, which can be an effective way to achieve the long-term results they seek.

As a champion of low-cost investing, The Vanguard Group, Inc., has conducted research that shows that well-managed index ETFs have generally offered long-term outperformance relative to higher-cost investments.3 By seeking to track benchmarks that mirror broad stock and bond markets, index ETFs can provide diversification, a valuable risk management tool.

To help advisors present the option best-suited for a particular client, The Vanguard Group, Inc.'s Investment Strategy Group (ISG) has developed model portfolios that illustrate how our ETFs might form the core of a client's investment portfolio.

ISG is led by Vanguard Chief Economist Joseph H. Davis, PhD, and includes more than 30 strategists and analysts who develop and maintain our investment methodology, including our model

portfolios. Every Vanguard model portfolio reflects our conviction that investment success hinges on asset allocation, broad diversification and low costs.

Our model portfolios seek to provide broad exposure to Canadian, U.S. and international equities and Canadian and global investment-grade taxable bonds in an asset allocation framework.

Vanguard's model portfolios are strategic and indexcentric by nature. Within the broad asset classes (Canadian, U.S. and international equities as well as fixed income), the portfolios are weighted by market capitalization and will reflect the investment styles and security size exposures of their benchmarks.

Research shows that investors across the globe tend to overweight domestic securities at the expense of international securities. We recognize that Canadian investors have historically demonstrated a significant "home bias" when investing in stocks and bonds.4

Consider that Canadian investors, on average, collectively held 43% of their equity portfolio in Canadian stocks at the end of 2016 compared with a 3% allocation suggested by global marketcap weighting. Similarly, Canadians tend to favour domestic fixed income in percentages well in excess of the 3% weighting for Canadian bonds in the global fixed income market as of December 31, 2018.5

Although historical analysis strongly supports the benefits of increasing global diversification, it also demonstrates that the theoretically optimal portfolio

3 The case for low-cost index-fund investing, a Vanguard research paper by James J. Rowley, et al. (May 2018). 4The global case for strategic asset allocation and an examination of home bias, a Vanguard research paper by Brian J. Scott et al.

(January 2017). 5 Vanguard's framework for constructing globally diversified portfolios, a Vanguard research paper by Scott J. Donaldson et al. (April 2017).

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Vanguard model portfolios

often was not the actual optimal portfolio over a given period. Therefore, we also take into consideration other factors such as investors' home-country preference, costs, liquidity, concentration and regulatory constraints. While these factors can be reasonably balanced against greater diversification, we believe further movement toward market-cap weights may be prudent.6

Our model portfolios use a 30%/70% ratio of Canadian and non-Canadian equities, as well as a 60%/40% ratio of Canadian and non-Canadian fixed income, representing a conscious home bias relative to global market-cap-weighted benchmarks. There are no intentional tactical overlays or factor bets (size or style) within the asset classes of the portfolios.

Some of our models use multiple ETFs to capture the beta of a single asset class (for example, non-Canadian equities as represented by Vanguard U.S. Total Market Index ETF, Vanguard FTSE Developed All Cap ex North America Index ETF and Vanguard FTSE Emerging Markets All Cap Index ETF). However, the risk and return characteristics should not meaningfully deviate from those of the asset-class benchmarks.

We offer three types of model portfolios, which we describe as:

?A ll-cap core--Using five ETFs to provide global diversification.

?Traditional core--Using seven ETFs to offer more flexibility with the same global reach.

?Traditional core (hedged equity)--Using seven ETFs, including two equity ETFs that are CAD hedged.

We believe advisors can help clients determine whether hedged or unhedged equity ETFs are most appropriate based on their investment profiles.

Vanguard offers only currency-hedged versions of its U.S. and international fixed income ETFs. Hedged ETFs reflect more closely the performance of international bonds in their local currencies, without the daily ups and downs of exchange rates that would be associated with converting that performance into Canadian dollars.

In our model portfolios, risk is primarily determined and managed through asset allocation and extremely broad diversification. There is no active management or security selection involved.

As the underlying ETFs are index ETFs and the portfolios do not incorporate active or tactical allocation shifts, the returns from each portfolio should very closely approximate those for the benchmarks.

Index-oriented, strategically allocated strategies historically have been very tax-efficient, which may enhance a taxable investor's after-tax returns. These strategies have also tended to be lower-cost, relative to comparable actively managed investment alternatives. Research has shown a negative correlation between cost and returns, whereby lower-cost funds have tended to deliver higher longer-term returns relative to higher-cost funds.7 This potential for higher returns due to the models' low relative cost may benefit both taxable and tax-exempt investors.

We provide a single asset-weighted management expense ratio for each of these model portfolios so that you can show clients the low cost associated with achieving broad diversification.8

Data for each model portfolio will be updated monthly at vanguardcanada.ca. All data shown here are as of June 30, 2020, unless otherwise noted. ETF allocations in these model portfolios may not equal 100% due to rounding.

6 Vanguard's approach to Canadian target-date funds, a Vanguard research paper by Scott J. Donaldson et al. (November 2015). 7 Vanguard's Principles for Investing Success, a Vanguard research paper. (2017). 8Please see page 18 for other important information about Vanguard model portfolios.

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