Investing, Stock Market

ZGRO Review For 2022: BMO Growth ETF

If you’re looking for long-term capital growth in a diversified portfolio, ZGRO is worth considering. This is because ZGRO is one of the best all-in-one ETFs in Canada that’s suitable for investors with low-medium risk tolerance.

But having low-medium risk tolerance is not enough to invest in ZGRO. You need to understand the allocations, holdings, past returns, and dividend yields of the ETF before deciding.

To make an informed decision, you also need to understand how ZGRO compares with similar growth portfolios out there.

This ZGRO review covers everything you need to know about the ETF including its pros and cons and how it compares. 

Let’s get started!

ZGRO Review
Photo Credit: Fahad Al Rajaan

What is ZGRO?

ZGRO is the BMO Growth ETF’s ticker symbol that’s traded on the Toronto Stock Exchange in Canadian dollars.

Managed by BMO Asset Management, ZGRO was launched in 2019 to provide capital appreciation to investors for the long term.

To achieve its investment objective, the ZGRO invests in diversified index ETFs with a major allocation to the Canadian market.

Compared to other growth ETFs in Canada, ZGRO has competitive returns, dividend yields, and fees. But that’s not enough reason to invest in the ETF.

As you continue reading, you will learn more about ZGRO and how it compares with other growth ETFs in Canada.

ZGRO Objective

ZGRO’s objective is to provide long-term capital growth through diversified index ETFs. Its investment strategy involves investing in equity, fixed income, and cash securities, yielding a low-medium risk rating.

To beat its benchmark, the portfolio manager rebalances ZGRO’s allocation quarterly to track changes in the market.

Based on ZGRO’s returns since inception, it’s safe to say that it’s a worthy vehicle for achieving long-term capital growth with a low-medium risk level. More on this later.

ZGRO Allocations

As with other all-in-one ETFs, ZGRO also allocates funds across different assets, sectors, and countries. 

With ETF allocations impacting portfolio diversification, it’s worth considering ZGRO allocations if you’re looking to build a diversified low-cost portfolio.

That being said, let’s take a look at ZGRO allocations across assets, sectors, and geographies. 

Asset Allocations

As a growth ETF with a low-medium risk level, ZGRO allocates funds across stocks, fixed income, and cash securities. As of October 20, 2022, ZGRO’s assets allocation is as follows: 

  • 81.18% on stocks 
  • 18.84% on fixed income
  • -0.02% on cash and cash equivalents

With over 80% allocation on stocks, it’s obvious why ZGRO’s past returns have been ahead of other growth ETFs in Canada. Of course, this also means that ZGRO is relatively riskier than similar portfolios.

Sector Allocations

There’s no information about the specific sectors ZGRO invests in. What’s available is the percentage of funds the ETFs allocate across equity and fixed income sectors. That’s:

  • 80.82% in equity sector
  • 19.18% in fixed income sector

One thing to worry about is that you’re not sure the exact sectors your funds will be invested in with ZGRO. This is unlike other growth ETFs that disclose their sector allocations which usually range on:

  • Financial sector
  • Telecommunication sector
  • Technology sector
  • Industrial sector
  • Consumer discretionary sector
  • Energy sector
  • Healthcare sector

Notwithstanding, ZGRO’s returns reflect the performance of the sectors it invests in which are impressive. Although it’s not safe to base your decision on ZGRO’s past performance alone. 

Geographic Allocations

ETFs provide greater diversification by investing across different markets. With ZGRO, funds are invested according to the following geographic allocations. 

CountryAllocation
Canada38.72%
US36.60%
Other countries9.75%
Japan3.79%
UK2.05%
China 1.96%
France1.71%
Australia1.35%
Germany1.25%
Switzerland1.00%
India0.93%
Netherlands0.89%

ZGRO has a home bias as it invests most of its funds in the Canadian market. The ETF also invests a significant amount in the US market owing to its stability and impressive past performance.

With 24.68% combined allocation to other countries, (including Japan, UK, China, and France), ZGRO provides global growth exposure.

ZGRO Holdings

ZGRO is a fund-of-funds that invests in 10 holdings 9 of which are index funds and 1 cash. 

Below are the current holdings of ZGRO and their varying allocations as of October 20, 2022.

ETF TickerAllocation
BMO S&P 500 INDEX ETF ZSP34.84%
BMO S&P/TSX CAPPED COMPOSITE INDEX ETF ZCN21.05%
BMO MSCI EAFE INDEX ETFZEA15.70%
BMO AGGREGATE BOND INDEX ETF ZAG13.37%
BMO MSCI EMERGING MARKETS INDEX ETF ZEM6.46%
BMO GOVERNMENT BOND INDEX ETF ZGB3.67%
BMO S&P US MID CAP INDEX ETF ZMID2.19%
BMO MID-TERM US IG CORPORATE BOND HEDGED TO CAD INDEX ETF ZMU1.80%
BMO S&P US SMALL CAP INDEX ETF ZSML0.93%
CASH-0.02%

One thing to note here is that ZGRO holdings are limited compared to the holdings of similar portfolios. 

Even though ZGRO offers global exposure, its number of holdings can limit your portfolio diversification. 

ZGRO Performance

ZGRO has provided 1-year to 3-year returns since its inception in 2019. With this, we have sufficient data to compare the performance of ZGRO with similar portfolios.

Let’s take a look at the annualized returns of ZGRO as of September 30, 2022: 

  • -11.07% as a 1-year return
  • 1.88% as a 2-year return
  • 3.79% as a 3-year return
  • 4.87% return since inception

The above returns are impressive when we consider ZGRO’s asset allocation and the returns of its competitors. 

But as the stock market fluctuates often, it’s not safe to base your decision on ZGRO’s past returns because they can’t guarantee future returns. 

ZGRO Dividends

ZGRO is a dividend-paying ETF with a quarterly distribution schedule. As of October 14, 2022, ZGRO distributed 2.69% as dividend yield to investors.

Compared to the dividends of other growth ETFs, it’s obvious that ZGRO returned competitive dividends in its previous distribution. 

Note that the ZGRO quarterly dividend yield is annualized and distributed per unit. You can take out the dividend as cash or have it automatically reinvested.

ZGRO Fees

The management and operation of ZGRO attract a management fee and management expense ratio (MER) which are common with other ETFs. The ZGRO’s fees are expressed as follows: 

  • Management fee: 0.18% 
  • MER: 0.20%

With the above fee schedule, it’s safe to say that  ZGRO is low-cost compared to other growth ETFs and mutual funds.

To reduce the cost of investing in ZGRO, you can invest through a discount self-directed brokerage like Wealthsimple Trade that doesn’t charge commissions or trading fees. More on this later. 

ZGRO Pros and Cons

ZGRO has pros and cons like other investment vehicles. By evaluating the impact of the pros and cons, you can easily determine whether the ETF is perfect for you. 

Let’s take a brief look at the ZGRO pros and cons based on the above review.

Pros

  • Impressive returns: From 1-year returns to 3-year returns, ZGRO has provided competitive returns since inception based on its asset allocation. 
  • Competitive dividend yield: The last dividend distribution of ZGRO is also competitive compared to the distributions of the competitors.
  • Low fees: ZGRO’s management fee and MER are low compared to the fees of other growth ETFs and mutual funds. 
  • Eligible for registered accounts: The ETF can be invested through registered accounts such as RRSP, RRIF, RESP, TFSA, and DPSP.

Cons

  • Limited diversification: With 10 underlying holdings, ZGRO diversification is limited compared to other growth ETFs with hundreds of holdings.
  • Restricted information: If you’re a value-focused investor, you may be concerned about the sectors ZGRO invests in as such information is not available.

How to Invest in ZGRO 

The process of investing in ZGRO is similar to those of other ETFs. But if you’re a beginner, you may be wondering how to get started. 

There’s no one-size-fits-all way of investing in ZGRO. The ideal method will depend on your investment experience and time commitment.

If you have the time and can handle the entire investing process yourself, then you will save costs by investing through a self-directed brokerage.

With a self-directed brokerage, you will have access to a platform where you can buy and sell the securities of your choice. The process usually involves creating an account with your chosen brokerage, funding the account, and searching for your favourite security to start investing.

However, the self-directed brokerage you sign-up with can impact your investment costs. To save costs, you need to sign-up with a discount brokerage like Wealthsimple Trade that doesn’t charge commission on trading.

But if you can’t handle the investment yourself due to a lack of experience or time, you can do so through a robo-advisor or your financial advisor.

  • A robo-advisor will automatically handle the entire process for you using computers. This will result in paying management fees and MERs that vary per robo-advisors. If you’re going with a robo-advisor, Questwealth Portfolios will save you costs because of its low management fee and MER.
  • A financial advisor can also handle the entire investing process for you but this option may be more costly. But in return, your portfolio will get human touch from a skillful and experienced investor who can help reduce your investment risk.

How ZGRO Compares

Comparing ZGRO with similar growth ETFs will give you a broader knowledge of how the ETF performs. In this section, we are going to see how ZGRO compares with older growth ETFs in Canada.

ZGRO vs VGRO

ProfileZGRO VGRO 
Inception dateFebruary 15, 2019January 25, 2018
Portfolio managerBMO Assets Management Inc.Vanguard Investments Canada Inc.
ExchangeToronto Stock ExchangeToronto Stock Exchange
Underlying holdings1031,815
Management fee0.18%0.22%
MER0.20%0.24%
Average annual returns since inception4.87%+3.76%
Dividend yield2.69%2.30%
Dividend distribution frequencyQuarterlyQuarterly
Risk levelLow to mediumLow to medium
Eligibility for registered accountsYesNo

Vanguard Growth ETF Portfolio (VGRO) has the same investment objective as ZGRO. However, VGRO has a slightly different asset allocation as shown below: 

  • 79.56% on stocks 
  • 20.32% on bonds 
  • 0.12% on short-term reserves

As you can see, ZGRO invests more in stocks than VGRO. Little wonder VGRO had the following low returns as of September 30, 2022:

  • −11.81% as a 1-year return
  • +3.74% as a 3-year return 
  • +3.76% return since inception 

Besides competitive returns, ZGRO also outshines VGRO on dividend yields, tax advantage, management fees, and MERs. 

One key difference is that ZGRO is weighted to the Canadian market while VGRO is weighted to the US market by allocation.

In terms of greater diversification, VGRO is ahead of ZGRO as it has about 32,000 underlying holdings. 

ZGRO vs XGRO

ProfileZGRO XGRO 
Inception dateFebruary 15, 2019June 21, 2007
Portfolio managerBMO Assets Management Inc.BlackRock Canada
ExchangeToronto Stock ExchangeToronto Stock Exchange
Underlying holdings1020352
Management fee0.18%0.18%
MER0.20%0.20%
Average annual returns since inception4.87%3.27%
Dividend yield2.69%1.57%
Dividend distribution frequencyQuarterlyQuarterly
Risk levelLow to mediumLow to medium
Eligibility for registered accountsYesYes

The iShares Core Growth ETF Portfolio (XGRO) is one of the oldest growth ETFs in Canada that has been around since 2007.

XGRO also seeks to provide long-term capital growth to investors like ZGRO. However, XGRO assets allocation differs slightly as we can see below: 

  • 79.77% on equity
  • 20.04% on fixed income
  • 0.18% on cash/derivatives

With this allocation, we can understand why the following XGRO’s returns are relatively lower than ZGRO’s returns: 

  • -12.21% as a 1-year return
  • 3.84% as a 3-year return (this is higher than ZGRO’s 3-year return)
  • 3.27% return since inception

Besides portfolio returns, ZGRO also has higher dividend yields than XGRO based on their previous distributions.

But in terms of diversification, XGRO is ahead of ZGRO as it has over 20,000 underlying holdings. Unlike ZGRO, XGRO also invests more in US equities than Canadian equities. 

That being said, both XGRO and ZGRO have similar fee schedules, and distribution frequency, and are eligible for registered accounts. 

RELATED:

Which Growth ETF to Choose?

For obvious reasons, you may still be wondering which growth ETF to invest in considering the drawbacks of ZGRO.

The thing is, you can’t go wrong with ZGRO if you don’t mind diversification. Of course, greater diversification will reduce your investment risk in unfavourable market conditions. 

But the past returns and dividend yields of ZGRO have undermined the drawbacks of the ETF. Note that there’s no guarantee that ZGRO will produce similar returns and dividends in the future.

Based on the side-by-side comparison of ZGRO with VGRO and XGRO, you can’t go wrong with the ETF if you’re looking for long-term capital growth with a low-medium risk level.

However, by investing more in stocks than other growth ETFs, ZGRO poses a slightly higher level of risk. 

As a result, it is essential to understand your financial situation, investment objective, and risk tolerance to make an informed decision on which growth ETF to go with.

When comparing which ETF to choose, your focus should be on the following factors: 

  • Assets allocation 
  • Number of underlying holdings
  • Management fee and MER
  • Portfolio returns and yields

The Bottom Line on ZGRO Review

ZGRO is worth recommending to investors looking for long-term capital growth with a low-medium risk level. 

However, it may be costly to accept such a recommendation without understanding what ZGRO entails in relation to your investment objective and risk tolerance. 

Hopefully, now you have a better understanding of ZGRO and can determine whether it’s perfect for you or not. If you’re still not sure, please contact your financial advisor to make an informed decision.

That brings us to the end of this ZGRO review. Before leaving, kindly visit our Investing Archive to learn more about other investment solutions in Canada.

If you have any questions, check out the following FAQs for answers. If you couldn’t find answers to your questions, hit me up in the comment below or contact our expert team at [email protected]

ZGRO ETF Review FAQs

Is ZGRO a good ETF?

It depends on your investment objective and risk tolerance. If you’re looking for long-term capital growth with a low-medium risk level, ZGRO could be your perfect match. 

Again, ZGRO is good for its competitive dividend yields. The major downside of ZGRO lies in its low underlying holdings that limit diversification.

What is ZGRO dividend?

ZGRO dividend is distributed quarterly per unit and the last distribution was 2.69%. This is competitive compared to the dividends of other growth ETFs.

What is ZGRO MER?

ZGRO MER refers to the ETF’s management expense ratio that’s charged at 0.20% of your assets. This is low compared to the MERs of mutual funds and other ETFs in Canada.

How risky is ZGRO?

ZGRO has a low-medium risk rating by the fund manager. But compared to other growth ETFs, ZGRO has a relatively higher risk level because of its stock allocation (80%+). So if you have a low-risk tolerance, ZGRO may not be an ideal option for you.

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About John Adebisi

John Adebisi is a CPA, FCCA and MBA holder with a Bachelor's degree in Accounting & Finance. He has over a decade of experience in writing personal and business finance content for audiences across North America, Europe, the UK and Africa. In addition to his writing experience, he also has a strong background in financial research and analysis, giving him a unique perspective of the financial markets. John derives pleasure in helping people make smart financial decisions, and he believes that knowledge and experience can be valuable resources for anyone who wants to learn how to manage their money.

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