Q: Is there any inherent or unreasonable risk in having one's entire portfolio in a single ETF such as XEQT or VEQT? This would be under the scenario of buying a position and holding for an extremely long time frame eg 30 - 40 years. Given the complete diversification of either of these ETFs, is there a better approach than having all your eggs in one basket?
5i Research Answer:
ETF assets are held separately from the managers, so there is little actual risk. Still, we would prefer owning a few ETFs rather than just one. This is because "reputational" risk could still occur, potentially leading to redemptions and forced selling. Now, these ETFs own large and liquid securities so we would not really expect this, but in a market crisis it could still happen. Then, there are times when an ETF company gets into trouble and redemptions are halted. This happened with Emerge Funds in Canada. Investors got their money back, but with a halt on redemptions they incurred market risk with no liquidity for several months.