For every reader inquiry about mutual funds I get these days, there are probably 50 others about exchange-traded funds.
That’s why this recent mutual fund-related query from a reader jumped out at me: “I look forward to your upcoming annual Buyer’s Guide to ETFs series,” he wrote. “It’s possible that you’ve addressed this issue in a column not too far back, but is there still any role for mutual funds in a portfolio? If so, under what circumstances?”
The short answer to this question: For sure. Mutual funds can work for people who want a simple, accessible vehicle for making contributions to their investments on a regular basis with no commissions or fees. Funds also offer access to smart managers and strategies that complement other types of investments, including index-tracking ETFs.
The drawback of mutual funds is the prevalence of high fees that undermine returns. There is value in fundland, but you have to put some work into finding it. Start with low-fee fund companies like Beutel Goodman, Leith Wheeler, Mawer and Steadyhand. Each serves the do-it-yourself investor and offers fees that are lower than funds sold by advisers. A balanced, equity or dividend fund from these companies could provide a solid foundation for a portfolio that adds exposure to other sectors or themes via ETFs or individual stocks and bonds.
Funds from traditional fund companies that work through adviser networks or bank branches cost more, which means they have a higher hurdle to get over in delivering returns that compare well with ETFs.
Look for mutual funds that attack the market in a different way than ETFs. Avoid “closet index funds,” which are actively managed mutual funds with high fees and portfolios that resemble the indexes tracked by ultra-low-cost ETFs.
When selecting a mutual fund, the DIY investor should insist on a Series D version. Series D, widely available from online brokers, offers a reduced management expense ratio compared with the usual Series A or B version meant to be sold by advisers.
Total investments in ETFs are about one-seventh the amount held in mutual funds, but it’s ETFs that keep popping up as a topic in my inbound e-mails. Let’s not count mutual funds out, though. Amid the dross, there are some mutual fund industry nuggets.
Note: The first installment of the 2021 Globe and Mail ETF Buyer’s Guide will appear Feb. 12 and the five subsequent segments will run every two weeks after that. Here’s the 2020 version.
-- Rob Carrick, personal finance columnist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
NFI Group Inc. (NFI-T) This is a Winnipeg-based manufacturer of mass transportation products under various brand names. Gordon Pape had recommended NFI in the past in part because of its emphasis on energy-efficient vehicles. But by mid-2019 the company was experiencing a dramatic drop in orders and the backlog was declining. Now things are starting to turn around for the better. Gordon takes a fresh look at the stock as he restores his buy recommendation.
General Motors Co. (GM-N) If you are wondering whether Tesla Inc. still has a stranglehold on investor affection for electric vehicles, check out the recent rise of GM. The old-guard Detroit-based automaker long associated with gas-guzzling pickup trucks and SUVs, has been on a tear recently: Its shares have risen 34 per cent since the start of 2021, outperforming Tesla – itself no slouch – by nearly 14 percentage points. The rally could be worth pursuing, but you’ll need steady nerves. The reason: GM is now being valued by the market as an electric vehicle (EV) maker, which means that its share price is reflecting an upbeat scenario of soaring EV sales. David Berman tells us more.
Copper Mountain Mining Corp. (CMMC-T) Shares of this company are surging amid a steady comeback in the price of copper, a commodity considered the bellwether for economic growth and a key metal used to help the world transition to a low-carbon economy. As Brenda Bouw reports, analysts see more upside.
This is when you’ll know that dividend stocks are in big trouble because of inflation
Using real estate investment trusts as an example, Scott Barlow has this analysis for estimating when it’s time for dividend investors to worry about inflation’s negative effects on income-paying stocks.
How investors can take advantage of big changes in REITs
Many real estate investment trusts have been hit hard by the economic impact of the pandemic, especially those that focus on office space, the hospitality industry and shopping malls. But some other types of REITs are profiting from the shift in consumer behaviour we have seen in the past year. Gordon Pape tells us about three Canadian-based REITs that are among the leaders in taking advantage of this trend.
As renewable energy stocks soar, some see stretched valuations
Canadian renewable energy stocks have been on a tear for the past 10 months, rising to record highs as investors anticipate steady growth in wind and solar power and concerted efforts to combat global warming. But the gains are raising questions about lofty valuations. David Berman reports.
Tech shares could retake market reins as earnings heat up
A bevy of major U.S. earnings reports next week led by Apple, Microsoft and Facebook could help technology and growth stocks reassert their dominance after a recent run by banks, energy and other potential beneficiaries of an economic reopening. Lewis Krauskopf of Reuters reports.
Wall Street hedges against possible bumps in U.S. vaccine rollout
As U.S. stock prices have marched to record highs, futures contracts for Wall Street’s “fear gauge” show some investors are buying insurance against market turbulence that could erupt if surprise glitches hit the U.S. rollout of COVID-19 vaccines. April Joyner and Sinead Carew of Reuters report.
Others (for subscribers)
Friday’s Insider Report: Director invests over $2.5-million in this trust
Thursday’s Insider Report: Value investor sinks another $1-million into this REIT
Number Cruncher: Five aerospace dividend stocks with sustainable dividends
Others (for everyone)
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.
Ask Globe Investor
Question: My understanding is that I should hold U.S. dividend-paying stocks in a registered retirement savings plan, instead of a tax-free savings account, to avoid the 15-per-cent U.S. withholding tax on dividends. My question: Does this same advice also apply to Canadian-based ETFs (for example from Vanguard Canada or iShares Canada) that focus on U.S. dividend-paying stocks?
Answer: No. Canadian-listed exchange-traded funds are not exempt from the 15-per-cent U.S. withholding tax, regardless of the account in which they are held. Only U.S.-listed ETFs held in a registered retirement account (such as an RRSP, RRIF or LIRA) qualify for the exemption from withholding tax under the Canada-U.S. tax treaty.
What’s up in the days ahead
Ian McGugan will argue that investors needn’t fret about the recent wave of inflation warnings.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Globe Investor Staff