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Don’t be such a snob about mutual funds

Rob Carrick

Brigitte Bouvier/brigitte bouvier The Globe and Mail

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Self-directed investors who don't want to pick stocks tend to prefer exchange-traded funds over mutual funds, and with good reason. ETFs are much cheaper to own, and that allows their returns to compare favourably with a majority of mutual funds. But what if you could find a cheap balanced mutual fund that gave you a fully diversified portfolio in one product? You might not want such a fund for your biggest accounts, but it might come in handy for a smaller account like a start-up TFSA.

Using the fund filter on Globeinvestor.com, I found three balanced mutual funds with management expense ratios of less than 1 per cent and competitive returns over the past five years. Here they are:

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PH&N Balanced D
Classified in the Canadian neutral balanced category, this fund produced an average 8.9 per cent annually over the five years to Dec. 31. The portfolio is roughly 60 per cent invested in Canadian, U.S. and international stocks, 28 per cent in bonds (half in corporate bonds) and almost 12 per cent in cash. The MER is 0.9 per cent, cheapest in this group.

Mawer Balanced Class A
This global neutral balanced fund is a juggernaut that compares well against its average peer fund and its benchmark indexes over almost all timeframes. The five-year return was 12.2 per cent, and the MER is 0.95 per cent. The most recent portfolio update shows a 60-per-cent weight in stocks, 30 per cent in bonds and almost 10 per cent in cash. There's more of an emphasis on U.S. and global stocks here than in PH&N Balanced.

Mawer Tax Effective Balanced
A version of Mawer Balanced designed for taxable accounts. The MER is a touch higher at 0.99 per cent.

Some quick notes about these funds:

1.) Minimum purchases are $500 for PH&N Balanced D and $5,000 for the Mawer funds when you buy through an online broker.

2.) PH&N funds are widely available through online brokers, but Mawer funds are not offered by at least one firm (RBC Direct Investing); most firms charge no buy or sell commissions for these funds, but check with your broker before investing. 3.) You can certainly build an ETF portfolio to more or less replicate these balanced funds, and the combined MER would be lower; the appeal of these funds is in providing competitive returns that require zero effort on your part.

(This blog post updates an earlier version that stated the PH&N Balanced fund had a $5,000 minimum investment. RBC has advised us that it has lowered that requirement).

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