Low-cost ETFs are a practical way to investing in almost all the major asset classes, but that doesn't mean you should automatically default to them over mutual funds.
Let's dip into the Canadian dividend and income equity category to find some examples of mutual funds that are competitive against exchange-traded funds. We'll use the enormous $1.4-billion iShares Canadian Select Dividend Index ETF (XDV) as our representative for dividend ETFs. It produced an annualized total return of 7.5 per cent for the five years to Jan. 31, and 6.5 per cent for the past 10 years.
The next step is to screen the Canadian mutual-fund universe for dividend funds that equal or beat these returns, while also keeping fees below an arbitrary cut-off of 2 per cent.
Some names that made it through this screen: Beutel Goodman Canadian Dividend D: The management expense ratio (MER) of 1.48 per cent is a fair bit higher than XDV's fee of 0.55 per cent, yet the five-year return of 12.2 per cent and the 10-year return of 8.5 per cent compare quite favourably.
Minimum upfront investment: $5,000.
Dynamic Dividend Series A: The MER is 1.61 per cent, while five- and 10-year returns come in at 10.4 per cent and 6.9 per cent, respectively. Minimum upfront investment: $500.
RBC Canadian Dividend D: Series D funds are for do-it-yourself investors buying through online brokerage firms. The comparatively low MER of 1.05 per cent reflects the fact that D series funds tend to be cheaper than conventional funds. The five-year return is 9.1 per cent, while the 10-year return is 6.7 per cent. Minimum upfront investment: $500.
RBC Canadian Equity Income D: Another low-cost D series fund from RBC, this one with a MER of 1.04 per cent. The five-year return is 8.6 per cent, while the 10-year gain is 12.4 per cent.
This fund is aimed at investors looking for monthly income with a degree of tax-efficiency.
Minimum upfront investment: $500.
CI Signature Dividend Class A: The MER is 1.89 per cent, while the five-year return is 8.5 per cent and the 10-year return is 6.7 per cent. Minimum upfront investment: $500.
These funds should be available at online brokerage firms with no commissions to buy or sell, whereas most brokers charge regular trading commissions to trade ETFs. Another benefit with some of these funds is diversification. XDV has 65 per cent of its assets invested in the financial sector. Dividend mutual funds are heavily invested in financials as well, but not to that extent.
Two examples: RBC Canadian Dividend has about 48 per cent of its portfolio in financials, while Dynamic Dividend has about 18 per cent.
© The Globe and Mail
Only GlobeinvestorGOLD combines the strength of powerful investing tools with the insight of The Globe and Mail.
Discover a wealth of investment information and and exclusive features.