How to choose a mutual fund

Mutual funds continue to be extremely popular with investors of all types. According to the Investment Funds Institute of Canada (IFIC), as of the end of 2022, Canadians owned a total of $1,809 billion in mutual fund assets. In recent years, exchange-traded funds (ETFs) have outsold mutual funds, but with $314 billion in ETF assets, ETFs still have some way to go to catch up.

There are currently over a hundred companies offering mutual funds in Canada, and more than 3,400 mutual funds available for sale. How do you choose the right one(s) for you?

In this article, we'll review a few places where you can start looking for broad investment themes and take a look at a few of the key tools and resources to help you identify, track and evaluate specific mutual funds.

Where to look for broad investment themes

Mutual funds come in all shapes and sizes. Some are designed to follow the performance of specific stock or bond indices, while others are invested according to an industry, such as information technology, or a theme, such as green energy. Balanced funds, which include a mix of stocks and bonds, are the largest category of mutual funds. 

The first thing to do when choosing a mutual fund is to look at broader investment themes to narrow your search:

Economics and politics: Economic and political trends can have a powerful influence on a company's or industry’s performance. Every country's economy moves through different cycles, from expansion and growth to contraction and recession. Some companies do better at different stages of that cycle. At the same time, major opportunities or challenges for companies can result from government decisions around taxation, interest rates, privatization, minimum wage laws, and so on.

Demographics, social themes and trends: From aging populations to the rise of Millennials, large demographic shifts can create new markets or new demand for certain goods and services. Big-picture themes, such as the environment, social justice and gender equality, can also present opportunities for investment. Witness the rise of environmental, social and governance (ESG) investment, which measures more than a company’s profits. And in various sectors, such as energy, health care, technology, and other areas, major shifts could drive growth for companies that provide solutions.

News and industry trends: Financial results, mergers and product launches — these kinds of announcements can drive stock and bond prices within an industry in the short term and sometimes over the longer term as well. The same good and bad news headlines that impact the stocks and bonds that are held in your mutual fund will naturally also impact the value of your mutual fund. You may want to keep tabs on the financial media and watch for developments in the industries and sectors that interest you. 

Qtrade’s comprehensive mutual fund tools

Once you’ve identified some themes and trends you want to explore, you need to look at the individual mutual funds to find the ones that are best suited to your goals and objectives. You’ll need to do some research into the investing goals/theme of the mutual funds and review their reports to review the underlying holdings, fees charged, management details and performance.

Qtrade Direct Investing provides many useful tools and resources to help you find and evaluate mutual funds, starting with the comprehensive Mutual Fund Research page. This information hub provides a number of articles on personal finance, fund manager insights and mutual fund insights, as well as listings for the top- and bottom-performing funds, and the largest mutual funds in Canada.

From the Mutual Fund Research page, you can also find quick links to Qtrade’s mutual fund tools, including:

• Fund Screener
• Fund QuickRank
• Top 10 funds ranked by 3-month returns
• Fund indexes
• Biggest gainers and losers chart

These tools allow you to click on the names of individual mutual funds to find detailed information, from net asset value (NAV) and performance returns data to risk measures, holdings and market capitalization. Explore the fund’s sector and regional exposures, as well as its sustainability score and analyst ratings.

To start exploring mutual funds, log in to your Qtrade account, and go to Research >> Mutual Funds Research.

Other tools and resources to identify specific mutual funds

• Mutual Fund Screener allows you to filter mutual funds according to the fund provider, currency, size, management style, total return, Morningstar Ranking – a total of 19 different filters. Once your filters are set, you can delve deeper and view a comparison of the short- and long-term performance and risk ratings of your selected list.
• Morningstar Library provides a treasure trove of articles on investing. You can search by topic to get current insights.
• The Morning Briefing gives you the day's top headlines and insights, so you can scan the latest company, market, business and economic news.

Mutual fund fees

Another consideration in your choice of mutual fund is what fees are charged. Mutual funds, like ETFs, charge a management expense ratio (MER) to cover ongoing operating expenses, advisory services, administration and recordkeeping – and they will differ by fund based on complexity and structure.

In most cases, mutual funds are available in a series (or class), each having a different fee structure to suit different types of investors. For Qtrade Direct Investing clients, F-series (or F-class) mutual funds are available for purchase. This class generally has the lowest MERs available. Also keep in mind that money market mutual funds or high-interest savings account (HISA) funds on the Qtrade platform can be traded commission free. 

Monitoring mutual funds

Because mutual funds are not traded on the stock exchange, some of the tools that allow you to monitor companies and individual stocks are not available for mutual funds. However, you do have access to comprehensive performance reports by individual fund through Qtrade’s Quotes & Charts section. Find price history or customize interactive charts to look at performance over one month or since the fund’s inception.

Researching, choosing and monitoring your investments takes time. The more investments you own, the more homework you’ll have to do to monitor their performance and to remain aware of developments that can impact their value.

However, if you prefer to leave the investing and monitoring to others, Qtrade’s automated investing service, Qtrade Guided Portfolios*, will design a portfolio matched to your financial goals and automatically rebalance it when needed.