There is no longer any point in talking about mutual funds as being part of a separate universe from exchange-traded funds.
There is a single fund industry in Canada, with many players offering both mutual funds and ETFs. You have to offer both in today’s market because while mutual funds are a bedrock investing product for the masses, ETFs are coming on strong.
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 this year, ETFs were the sole driver of growth in the broad fund industry.
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.
ETF investors have been pouring money into bond and equity funds. But balanced funds account for only about 4 per cent of total ETF assets, while balanced funds account for 45 per cent of mutual-fund assets.
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 still charge as much as $9.99 a 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 per cent to 0.25 per cent, and these products work well. 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 Financial, Fidelity, and other companies that are best known for their mutual-fund lineups.
Fidelity is an example of a company that is traditionally focused on mutual funds but doing interesting things with balanced ETFs. The Fidelity series of four All-In-One ETFs have between 1 per cent 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 buy ETFs. Add money to your ETF holdings each payday and repeat indefinitely.