But the infrastructure behind mutual funds is more expensive than ETFs. That has helped JP Morgan, which has until now focused on institutional clients in Canada, offer investment products for advisers and retail investors, Hughes said.
“To have mutual funds, you have to have a fund account and there are other costs associated with that, but with an ETF, it simplifies that process.”
Expenses are the main reason active ETFs are booming, with average management fees averaging 0.53%, according to Bloomberg, while mutual funds typically top 1%.
Benefits aside from the expense factor include transparency of fund holdings, the ability to trade ETFs throughout the day, and tax benefits. Because most ETFs trade in the secondary market, less rebalancing and selling of stock is required, which means fewer large gains are distributed to investors, Hughes said.
ETFs are driving growth in the mutual fund industry
The difference helped see ETFs of all types gain $33 billion in new assets in the first six months of the year, while mutual funds saw outflows of $8 billion, according to a TD Securities report.
The trend is growing enough in Canada and elsewhere that MFS Investment Management, the founder of the mutual fund a century ago, announced plans to launch its first active ETFs in the US.
But while active ETFs cost less than mutual funds, passive index-tracking ETFs are even cheaper, with some charging as little as 0.05%.
Passive investing has benefited over a decade of strong returns for major indexes like the S&P 500, making it challenging to beat the market, Hughes admits.
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