While exchange-traded fund sales have set records, mutual funds have quietly made a comeback.spxChrome/iStockPhoto / Getty Images
Like compact discs and yogurt smoothies, many view mutual funds as once-popular products that have fallen out of favour. But the reality has been different this year.
While exchange-traded fund sales have set records, mutual funds have quietly made a comeback. Data from the Securities and Investment Management Association (SIMA) show that through October, mutual fund net sales in Canada have topped $33-billion, more than double last year’s total. In contrast, there were large outflows from mutual funds in the previous two years.
“There has been huge growth in mutual fund assets throughout the year, driven by positive market effects and positive sales,” says Ian Bragg, vice-president of research and statistics at SIMA. Mutual fund assets under management totalled $2.52-trillion at the end of October.
Mr. Bragg says strong equity and bond market performance contributed to the inflows. He also notes that Canadian savings rates increased from last year, and while prices remain high, inflation has eased. “This has allowed Canadians to put at least some of their money toward long-term savings.”
New money entering the mutual fund system is directed overwhelmingly toward fixed income, he says, with bond funds grabbing more than two-thirds of this year’s net sales. This trend is partly related to declining interest rates, he says, which typically lead to higher bond prices and investors are forced up the risk spectrum as deposit products, such as guaranteed investment certificates, provide less yield.
There has also been a significant reversal of fortune in the balanced fund category compared to the previous year, with flows turning positive after significant redemptions in 2024. Additionally, alternative funds are having their biggest year ever, bringing in close to $7-billion in net sales.
The trend has not been positive for responsible investing or environmental, social and governance (ESG) funds, which have continued their downward trajectory. Mutual fund net sales in this category have been negative year to date, following two years of declining sales.
One of the more surprising trends of the year has been a net outflow for equity mutual funds.
“It’s important to clarify that Canadian investors are not avoiding equities altogether,” Mr. Bragg says. “Rather, they’re changing how they access them.”
While equity mutual funds have seen outflows, the broader demand for equity exposure remains robust, he says, particularly when accounting for the massive inflows into equity ETFs, which had topped $49-billion at the end of October.
There’s also a notable shift of capital moving back into balanced funds, which effectively consolidates equity exposure into diversified mandates rather than standalone equity funds, he adds.
Beyond U.S. equities
Ian Tam, director of investment research at Morningstar Canada in Toronto, says many investors would be surprised that U.S. equities aren’t near the top of the performance list this year.
Mr. Tam says funds focused on precious metals, natural resources and Chinese equities have been the three top-performing categories for the year. However, he notes these categories are often quite cyclical and would typically make up more of a satellite portion of a portfolio rather than the core.
Andrew Clee, vice-president of product at Fidelity Investments Canada ULC, says there was a “dramatic shift in leadership at the country level” this year. While the U.S. equity market has dominated the rest of the world since the global financial crisis, this year has seen both Canadian and international equities outpace the U.S. market significantly.
While the S&P 500 index was up almost 17 per cent for the year as of Dec. 5, the S&P/TSX Composite Index was up almost 27 per cent, and the S&P International 700 index, which measures the non-U.S. component of the global equity market, had gained 28 per cent.
Mr. Clee believes these trends will continue into 2026.
“We would not be surprised to see investors increase exposure into international markets as the U.S. dominance seen over the past 15 years has increased exposure to U.S. markets in many client portfolios,” he says.
To a lesser extent, with commodities – and gold producers, specifically – performing extremely well this year, he says there’s renewed interest in Canadian equities.
“Canadian markets also should not be slept on,” he says.
Mr. Clee also expects the global balanced category, which is a perennial stalwart in the Canadian fund industry, to attract assets where investors have one-ticket solutions to globally diversified portfolios.
Effect of fee transparency
Mr. Tam expects cost transparency to matter more than ever next year.
With total cost reporting coming into effect in 2027, he says advisors and investors will spend much of 2026 preparing for a regime in which the full costs of investing – management fees, trading expenses and the cost of advice – are shown together on a single statement that outlines explicitly which parties are getting paid.
Mr. Tam also notes that Morningstar’s research has consistently shown fees are one of the strongest predictors of long-term investor outcomes, and greater visibility will only reinforce that reality for many Canadian households.
He also expects other trends of the past several years to continue and likely accelerate.
“We have already seen persistent outflows from commission-based mutual funds alongside growth in fee-based mutual funds, ETFs and – for larger accounts – separately managed accounts," he says. “Once investors see their advice costs clearly isolated under total cost reporting, many will revisit whether the wrapper they are using remains appropriate for the value they receive.”
Along with downward pressure on fees and more transparent pricing structures, he says total cost reporting will likely lead to “a more deliberate conversation between advisors and clients about the true cost and value of advice.”