Blogs & Comment

Mutual funds vs. ETFs

For the first half of 2009, only 34.5% of Canadian Equity active funds outperformed the S&P/TSX Composite Index, reports SPIVA. However, some categories of active mutual funds did relatively well at beating their benchmarks over the six months:
62% of Small/Mid Cap Equity 71.4% of Canadian Focused Equity 63% of International Equity funds
Longer term, fewer active funds outperformed their respective benchmarks. Only 16.7% and 7.6% of active Canadian Equity funds were able to outperform the S&P/TSX Composite Index over the three and five-year periods, notes SPIVA.
Im a believer in exchange-traded funds (ETFs) but out of fairness to mutual funds, a comparison I would also like to see SPIVA do is between mutual funds and comparable exchange-traded funds (ETFs). ETFs are the practical alternative to mutual funds; that comparison would be informative to those investors considering a choice between mutual funds and ETFs.
The percentage of mutual funds that underperform their comparable ETF (i.e. tracking the benchmark index) shouldn’t be as high as the SPIVA’s comparisons show (on the basis of comparisons to indexes). ETFs not only have costs of their own (annual expenses plus commissions to buy and sell), but alsotracking errors. Indeed, given tracking errors for sector and international ETFs are known to be on the high side, I wonder if it is possible mutual funds may hold up well (even over the long haul) against at least these ETFs.