There is no longer any point in talking about mutual funds in opposition to exchange-traded funds.
There is a single fund industry in Canada, with players offering both mutual funds and ETFs in many cases.
You have to offer both in today’s market because as much as mutual funds are a bedrock investing product for the masses, ETFs are coming on strong.
The big exception is balanced funds. There are still vastly more assets in balanced mutual funds than balanced ETFs, which makes no sense from a practical investing point of view. If you own balanced mutual funds, it’s time to see if they’re doing the job for you.
The most recent ETF industry report from TD Securities notes that the mutual fund industry is bleeding assets, while the ETF sector continues to grow. In the first half of the year, ETFs were the sole driver of growth in the broad fund industry.
ETF investors have been pouring money into bond and equity funds, and some other categories as well. But balanced funds account for only about 4 per cent of total ETF assets, compared to 45 per cent for balanced mutual funds.
If your balanced mutual funds have delivered consistently competitive returns when measured against competing ETFs, then you’re fine. Mutual funds do have some built-in advantages, even if they typically have much higher fees than ETFs. You can opt for no-cost reinvestment of dividends and distributions with mutual funds, and there are typically no commissions to buy or sell. Several brokers charge nothing to buy ETFs, and a few have zero buy or sell costs. But many brokers still charge as much as $9.99 per trade.
The fee advantage for ETFs is strong, though. TD said that on average, investors pay 1.31 per cent for balanced mutual funds and 0.58 per cent for balanced ETFs. But some of the best, most established balanced ETFs have management expense ratios of 0.2 to 0.25 per cent. For more information, consult the 2024 Globe and Mail ETF Buyer’s Guide.
Those cheap balanced ETFs are offered by the likes of Vanguard and iShares, each of them a powerhouse in low-cost ETF investing. Somewhat more expensive balanced ETFs are available from CI, Fidelity, Mackenzie and other companies that are best known for their mutual fund lineups.
Fidelity is an example of a company that is traditionally based in mutual funds, but doing interesting things with balanced ETFs. The Fidelity series of four All-In-One ETFs have between 1 and 3 per cent of their assets in crypto, depending on the aggressiveness of the fund.
Want to super-simplify your investing? Find a suitable balanced ETF and a broker that charges nothing to at least buy ETFs. Add money to your ETF holdings each payday and repeat indefinitely.