Vanguard Retirement Income ETF (VRIF) Review
After covering some popular exchange-traded funds (ETFs) offered by BMO Global Asset Management, now we are taking a look at another giant fund manager in Canada, Vanguard Investments Canada Inc. or simply, Vanguard. The US branch of Vanguard boasts about 80 ETFs and the Canadian arm manages about 37 ETFs. In this article, we will focus on Vanguard Retirement Income ETF; ticker symbol VRIF, listed in the Toronto Stock Exchange (TSX).
Vanguard came into Canada in 2011 and has been a leader in keeping investment costs lower than its peers. Since then, it has also grown to be one of the key players in the investment front in Canada with a sizable collection of ETFs and mutual funds. Vanguard Group is one of the largest investment firms in the world with over $9.1 trillion assets under management and over 30 million clients worldwide.
Vanguard Retirement Income ETF is aptly named. This fund is designed to give consistent and regular incomes to retirees. There is nothing stopping from anyone taking advantage of this decent dividend-paying ETF even if their retirement is years down the line.
Retirees are advised to invest in the stock market so that they can have some source of income to rely on in their retired days. There are two ways to go about this. One way is to invest in growth stocks that will grow over the years and when you retire you can sell bits and pieces of your investments and live off of this money. The second approach is to invest money in income-generating stocks such as stocks or ETFs that pay a dividend. VRIF gives you the latter option.
Vanguard describes the VRIF ETF as;
a portfolio seeking to provide a combination of consistent income with the possibility of some capital appreciation by investing in equity and fixed income securities.
VRIF pays a monthly dividend to its investors to compensate for the monthly salary lost at retirement.
| Quick Facts | VRIF.TO |
|---|---|
| Fund inception date | September 09, 2020 |
| Net Assets (Sept 30, 2021) | $312 million |
| Exchange | Toronto Stock Exchange |
| Annualized distributions yield | 3.89% |
| Distribution frequency | Monthly |
| Management expense ratio | 0.29% |
| Account eligibility | TSFA/RRSP/RESP/RRIF/DPSP |
How much do you need to invest to retire off of VRIF ETF income?
This is tricky for two reasons. VRIF not only aims to give returns in the form of dividends, but it also aims to provide a capital appreciation for its investors. So, investors will be able to enjoy both monthly dividends and also sell off some investments and make a gain. VRIF is a very new ETF (only 1-year-old), so it is too early to determine where its capital appreciation element is headed towards. So, if we were to rely solely on the monthly dividends, we can figure out the investment needed to live off of VRIF income.
Since ‘how much you need to retire off of’ depends on your monthly spending, we can work out a few examples that you can use as benchmarks.
| Monthly income at retirement | Amount to be invested |
|---|---|
| $1,000 | $308,483 |
| $1,500 | $462,724 |
| $2,000 | $616,966 |
| $3,000 | $925,449 |
If these investment figures look too daunting, check out this article to see how you can benefit from investing early to reach these numbers with ease.
Vanguard has no information about the risk and volatility of this ETF due to the fact that there has not been enough time elapsed to make any measurements. Looking at the underlying holdings, we can give this fund an approximate risk of Low-Medium.
Vanguard Retirement Income ETF (VRIF) Holdings
VRIF invests in 8 other ETFs owned and managed by Vanguard. The weights of these underlying ETFs determine the success of reaching the objective of this ETF. As of this article, these weights are arranged 50.22% to stocks of companies and 49.7% to bonds, and 0.09% in short-term reserves. Below are the 8 ETFs held by VRIF as of this article date.
| Holding Name | Weightage |
|---|---|
| Canadian Corporate Bond Index ETF | 25.10% |
| U.S. Total Market Index ETF | 19.39% |
| U.S. Aggregate Bond Index ETF (CAD-hedged) | 19.10% |
| FTSE Developed All Cap ex North America Index ETF | 18.76% |
| FTSE Emerging Markets All Cap Index ETF | 6.07% |
| FTSE Canada All Cap Index ETF | 6.05% |
| Global ex-U.S. Aggregate Bond Index ETF (CAD-hedged) | 4.53% |
| Canadian Aggregate Bond Index ETF | 0.99% |
Within these 8 ETFs, there are over 13,330 individual companies and over 18,330 individual bonds (this is why paying an MER is still worth it).
Around 85% of the stocks are of large-cap companies which assures stability and growth. The 6% or so small and medium cap companies provide opportunities for capital appreciation. About 50% of the funds are invested in assets in North America, followed by 22% in Europe, 15% in the Asia Pacific, and 12% in Emerging markets such as China and Taiwan. These emerging markets provide the biggest growth opportunities. However, emerging markets investments are susceptible to high volatility as well.
The highest allocation of VRIF assets is in the technology sector at 18.8%, followed by the financial sector at 16.8%, the consumer discretionary sector at 14.2%, the industrial sector at 14%, and 10% in the healthcare sector. The technology sector is experiencing a boom right now and will likely continue into the future.
On the bonds side, VRIF invests in both government and corporate bonds with different interest rates and different maturities. This ensures that there are incomes flowing in at all times. The average coupon rate (AKA interest rate) on these bonds is around 2.7% per annum.
Since this 2.7% return does not explain VRIF’s total annual dividend yield of 3.89%, we have to look at its equity investments to bridge the gap.
VRIF holds investments in major companies such as Apple Inc., Microsoft Corp., Royal Bank of Canada, TD Bank, Google, Nestle, Shopify, and so on. There are both high dividend-paying companies as well as growth companies in this mix.
Vanguard Retirement Income ETF (VRIF) Performance
As we mentioned earlier, VRIF has been live for a mere one year. We do not believe this is sufficient time to evaluate its performance. Being said that, during this one year, VRIF has been able to give returns of about 11.35%, which is too good. An investment of $10,000 in September 2020 would have turned into $11,135 by September 2021.
Is VRIF ETF for You?
If you are looking for consistent monthly incomes for your retirement, VRIF might be the fund for you. You do not have to wait until retirement to take advantage of this ETF, but can also opt to grow along with it in the long run. Either way, VRIF is an ETF focused on substituting your monthly paycheck at your retirement (whenever that may be).
Check out the latest information about the fund on Vanguard.
Disclosure: Any information given in this article is not to be construed as investment advice. You must do your own research before investing any money in the stock market. All investments carry inherent risks even with the possibility of losing all your money.
