Orlic agrees in that “there’s nothing wrong with using an ETF to get exposure to a certain area like the bond market.”
However, considering all that’s happening in the economy right now with tariffs, interest rates and inflation, she said a bond mutual fund might not be a bad idea.
“There’s a lot of moving parts and there’s a lot of interesting ways you can trade that and actually actively outperform an ETF if you invest with a good actively managed fund,” she said.
What are active funds?
Active funds means the manager is updating the composition as market dynamics change, while ETFs are a more static basket of holdings, but the greater involvement of the active funds means they also generally charge higher fees.
When setting up her younger clients, Orlic said she might go for a hybrid solution. Money that might be needed in the short-term would be invested in a high-interest savings account or guaranteed investment certificate while money invested for the long term would be put into an ETF.
Regardless of whether you choose an ETF or mutual fund, it’s crucial to learn about what’s in the investment.
The prospectus and fact sheet can give you an overview including the top holdings in the fund, the geography of the issuers, the investment grade of the debt, previous fund performance and how risky it is. Funds that hold government debt will typically be lower risk while ones that hold corporate debt are higher risk.
“I always look at volume traded every day, too, because you don’t want something that doesn’t trade very often,” Orlic said.
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