Investor love grows for the simple, low-cost balanced fund

Investor love grows for the low-cost balanced fund

By Julie Cazzin on March 6, 2017
Estimated reading time: 3 minutes

Even though ETFs and segregated funds are popular, the balanced fund is the investor favorite

Canadian investor confidence in stocks, mutual funds, TFSAs, RSPS and ETFs are all up these days, but it may be surprising to learn that it’s the simple Balanced Mutual Fund that received the biggest increase in consumer confidence—climbing 10% in one year. Confidence in balanced funds, which blend stock and bond investments, is at its highest level since 2011. Increased confidence in balanced mutual funds is a sign of investors’ need for growth while taking into account the uncertainties of the market, says Kevin Headland, senior investment strategist for Manulife, who has done an annual survey on consumer confidence, using 2001 respondents at least 25 years of age or older. “While it’s been an uncertain year with Canadian elections, U.S. elections and the Brexit vote, people are realizing that there are some good things out there,” says Headland. “What better way to get good growth while also getting protection on the downside than with a good balanced fund?” He’s right, but the survey also revealed a surprising truth: That Canadians still favour mutual funds over ETFs. “ETFs are great, low-cost financial products but they’re also fairly new, having become popular over the last decade or so,” says Headland. “Mutual funds have been around for a much longer time and returns have been very good. For Canadians, a balanced fund is easy to use, fairly low fee—although not as cheap as ETFs—and doesn’t require as much personal money management.” Of course, many investors use both products in their investments. But a third category of investment that also showed an increase in Canadian confidence are segregated funds—a type of investment fund administered by Canadian insurance companies that give policyholder death benefit guarantees. With the aging Canadian population, you’re seeing a strong interest in estate planning tools and segregated funds are a key part of that. Guarantees such as 5% annual payouts for life and guaranteed income until death are what make seg funds particularly attractive to older Canadians. “Longevity risk is a key concern because people are living longer and they want their money to last,” says Headland. “Seg funds are a good way of meeting this long-term income requirement.” The bottom line? ETFs are great for low-cost investors who have a DIY attitude towards their investments, even though a lot of investors have still not caught on to them. For those who have, and recognize the many benefits of using these low-cost vehicles, check out Dan Bortolotti’s couch potato strategy here: The Ultimate Guide to the Couch Potato Portfolio. It includes everything you need to know to start using his strategy now. Balanced funds are also a great option for those who want a simple investment at low cost. Some lower fee balanced funds to consider for your portfolio include the Mawer Balanced Fund (MER of 0.94%) as well as the Leith Wheeler Balanced fund (MER 1.17%). Both are RRSP-eligible though minimum investments of $5,000 or more are required. For those just starting out, you should also consider the Tangerine Balanced Fund. It has a decent MER of 1.07% and requires no minimum initial investment to get started. All three balanced funds provide solid returns and are considered a worthy addition to any conservative portfolio. Read more: