In the world of DIY investing, many mutual fund investors bailed out in droves from their high-priced funds and have turned to lower cost ETFs.

Basically, both mutual funds and ETFs are a diversified collection of stocks and bonds.

ETFs have lower fees because they are “passively managed,” meaning their holdings closely match their specific indexes and have very little change. (Index mutual funds work the same way.) Actively managed mutual funds seek to outperform market indexes. Fund managers use their judgement and experience to make investment decisions and have more latitude in choosing investments than index fund managers do. This “expertise” comes at a high price, especially in Canada, and subsequently resulted in the aforementioned exodus from actively managed mutual funds.

ETFs changed how individual Canadians invest and that ETF market has tripled since 2009.

What's in your professionally managed portfolio?

Working with an investment advisor

Investors who don’t want to handle their own investing (for various reasons) turn to professional investment firms and work with an advisor. Instead of managing individual stocks and bonds, many advisors have usually invested their clients’ money in proprietary mutual funds and wrap accounts.

Now, they are increasingly turning to ETF portfolios to capture and share in the growth of ETFs in the marketplace.

ETF based mutual funds

This year BMO introduced an extended line of mutual funds that hold ETFs. They are marketed as the best of both worlds “featuring an all-in-one solution.”

Investment advisors supposedly are actively managing these ETF mutual funds – not just rebalancing allocations – but by tactical and strategic investing in various sectors to capitalize on market opportunities.

For example, there’s BMO’s Covered Call US High Dividend ETF Mutual Fund. Its holdings are 100% BMO US High Dividend Covered Call ETF!!

Of course, this “active management” adds another layer of fees to investors’ portfolios.

Final thoughts

Investors may not mind paying extra for active management. But, for heaven’s sake understand how much you are paying your investment advisor, and make sure you’re getting good value in the way of advice, financial and estate planning and/or other services.

I challenge you to examine your next statement and have a conversation with your investment advisor about the portfolio he or she chose for you, and the fees you are paying for it.

Otherwise, why would you not build your own ETF portfolio or use a robo-advisor?


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