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Are mutual funds getting a bad rap?

March 14, 2012 - 1 comment

It seems that mutual funds are getting a bad rap these days and exchange traded funds have been praised as the new “best” investment tool.

When we construct portfolios, we look for vehicles that fill a spot in the asset allocation we have identified for our client. The characteristics we look for are:

  • Broad diversification
  • Low cost
  • Low turnover and tax efficiency (especially for taxable accounts)
  • High liquidity
  • Transparency
  • Exposure to an investing factor we want to include in the portfolio (Factors we look for include the overall allocation between fixed income and equities, an equity tilt to small companies, an equity tilt to value companies, and exposure to stocks exhibiting momentum, when possible.)
  • Exposure to an asset class which is to be included in our portfolio.

If these characteristics are available, the structure as an ETF or mutual fund is not a material consideration. So don’t let the mutual fund tag deter you from considering it as a viable investment vehicle.

By: Kathleen Clough with 1 comments.
Filed under: Funds, Investments
  12/04/2012 2:18:43 PM
david toyne
Thank you Kathy for this brief, but insightful note. Mutual funds are getting a bad rap for their high fees and closet indexing bias, but not all funds are high fee, or benchmark huggers!! There are a few, good options but they don't typically pay trailers to brokers/planners for selling them. Investors need to find them, or use advisors who get paid directly by the client for the services they perform.

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