Tuesday, December 3, 2024

Investors’ love for a simple, low-cost sustainable fund is growing

Canadian investors’ confidence in stocks, mutual funds, TFSAs, RSPS and ETFs is growing these days, but what may be surprising is that it was a simple sustainable mutual fund that saw the biggest increase in consumer confidence – up 10% in one year.

Confidence in sustainable funds, which combine stock and bond investments, is at its highest level since 2011. Increased confidence in sustainable mutual funds is a sign of investors’ need to grow while taking into account market uncertainty, says Kevin Headland, senior investment strategist at Manulife, who conducted the annual survey consumer confidence survey, which involved 2,001 respondents aged 25 or over. “Even though it’s been an uncertain year with the Canadian election, the U.S. election and the Brexit vote, people are realizing that there are some good things,” Headland says. “What better way to achieve good economic growth while protecting against negative impacts than a good balanced fund?”

He’s right, but the study also revealed a surprising truth: Canadians still favor mutual funds over ETFs. “ETFs are great, low-cost financial products, but they’re also quite new because they’ve become popular over the last decade,” Headland says. “Mutual funds have been around for a much longer time and the returns are very good. For Canadians, a balanced fund is easy to use, has fairly low fees – though not as cheap as ETFs – and doesn’t require as much personal money management.

Of course, many investors use both products in their investments. A third category of investment that has also shown an increase in confidence in Canada is segregated funds, a type of mutual fund managed by Canadian insurance companies that provide policyholders with a guarantee of death benefits. As Canada’s population ages, there is a lot of interest in estate planning tools, and ring-fenced funds are a key part of that. Guarantees like a 5% annual payout for life and a guaranteed income until death make seg funds especially attractive to older Canadians. “Longevity risk is a key issue because people are living longer and want their money to last longer,” Headland says. “Segmented funds are a good way to meet this long-term income requirement.”

Conclusion? ETFs are great for low-cost investors who take a DIY approach to their investments, even though many investors still haven’t embraced them. For those who already have them and see the many benefits of using these cheap vehicles, check out Dan Bortolotti’s couch potato strategy here: The Complete Guide to the Sandwich Potato Portfolio. It covers everything you need to know to start using his strategies now.

Balanced funds are also a great option for those who want a simple, low-cost investment. Lower-fee balanced funds worth including in your portfolio include the Mawer Balanced Fund (MER 0.94%) and the Leith Wheeler Balanced Fund (MER 1.17%). Both are RRSP eligible, although 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.

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