Recent research has found that Canadian investors are continuing to show support for balanced ETFs.
Offering a varied mixture of stocks, bonds, and other assets, balanced ETFs can provide investors with diversified exposure to a number of asset classes. Last week, Morningstar published research highlighting how balanced ETFs are resonating with Canadian investors, particularly retail investors.
According to Morningstar, the number of Canadian balanced ETFs increased from 39 to 66 between 2018 and the end of 2023. These funds represent roughly CAD 15 billion in assets under management.
The research added that Canadian investors prefer to invest in products with lower fees. Exchange traded funds generally operate with lower expense ratios than mutual funds.
“In fact, if you look over the last five years, balanced ETFs overall have been relatively immune to the market conditions. Canadians were pouring money into them, no matter the market environment. Not one single month in the last five years had balanced ETFs been in outflows. It makes logical sense. You’re going to sell the more expensive funds and keep the cheaper funds all else remaining equal,” Morningstar manager research analyst Michael Dobson added.
Fees: ETFs vs. Mutual Funds
Across balanced funds of all kinds, many operating fees have seen sharp cuts. However, Morningstar noted that exchange traded fund fees have dropped at a notably faster pace than mutual funds have. While mutual funds have seen fees decline an average of 20 basis points across the last 10 years, ETFs have dropped an average of 47 basis points over the same time period.
For retail investors, balanced funds can provide straightforward access to a wide range of assets, minimizing the time needed to monitor multiple investment funds. With balanced ETFs, investors can harness a broad range of assets in a more low-cost package.
The success of Canadian balanced exchange traded funds comes despite Canadian investors pulling money out of balanced funds. Morningstar noted that the Canadian Client Focused Reforms released in 2021 by the Canadian Securities Administrators (CSA) provided traders with new levels of fee transparency. With Canadian ETFs’ fee cuts outpacing those of rival mutual funds, many fee-conscious investors backed out of costlier funds and stuck with ETFs.
For Canadian investors seeking a balanced ETF with a low expense ratio, the Vanguard Balanced ETF (VBAL) could be a valuable portfolio addition. It has a management expense ratio of 0.24%. The fund has seen strong returns, rising 2.21% over the last month and 12.68% over the past 12 months.
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