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What are we looking for?

There are plenty of hot new ETFs floating around in the market, but few that have the kind of long-term track record needed to offer a comparison to seasoned mutual fund counterparts. How have the Canadian equity mutual funds compared to low-fee ETFs in the same category over the past decade?

Our screen

We looked at Canadian equity funds that have a 10-year track record to April 30. U.S. dollar, segregated and duplicate versions of the funds were excluded. We also removed all funds with a minimum initial investment above $25,000, those that were closed to new investors, and restricted funds.

What did we find?

Only two ETFs made our list – the iShares S&P/TSX Capped Composite Index and the iShares S&P/TSX 60 Index. Over the long haul, four mutual funds came out ahead of both ETFs in the screen, with the Mawer Canadian Equity at the top. It was both the top performer in the 10-year period with annualized gains of 10.6 per cent, but it also claimed the top return of those on our list for one year to April 30 with gains of 13.5 per cent.

This list of funds hasn't changed much since we last ran this screen two years ago – the top two funds maintained their leadership and the two ETFs were similarly placed – which indicates that this is a steady pack, even if past performance doesn't always dictate future returns. One of the only newcomers to this ranking was the NEI Ethical Canadian Dividend A, which appeared in the fourth slot.

But there is a stark difference when comparing fees. While Mawer's MER was mid-range at 1.23, the iShares S&P/TSX 60 Index and iShares S&P/TSX Capped Composite Index had an MER of 0.18 and 0.27 respectively in the period. Both had an annualized return of 9.2 per cent over the 10 years.

While the ETFs have held up well in the long term, an investor wouldn't know it from looking at the past year of performance. While the top four mutual funds posted gains of about 10 per cent or higher, the two ETFs, much like the S&P/TSX total return index, were up by less than 5 per cent.

Notably, there are four names in the lower half of the list which are bank-run mutual funds that act much like index-tracking ETFs and have low fees and no brokerage commissions. The first of four is the RBC Canadian Index fund, which had a 10-year return of 8.7 per cent.