For a long time, investing in Canada was based on a fairly simple rule of thumb. Mutual funds were expensive. ETFs were cheaper. If you wanted better odds, you bought ETFs instead.
That advice was broadly correct and made a meaningful difference for many investors. Switching from a two-percent mutual fund to a low-cost index ETF is one of the few changes someone can make that immediately improves long-term results without requiring better timing, better forecasting, or more luck.
But the investment landscape has changed and the advice hasn’t quite kept up.
ETFs are no longer an asset class. It is a structure, actually a shell, and what is placed inside that shell today looks very different than it did fifteen years ago.
According to data from the Canadian ETF Association And SIMAETFs now account for just over a quarter of all mutual fund assets in Canada.
Mutual funds still hold the largest share overall, but year after year the flow of new money continues to favor ETFs, which gives you a pretty good idea of where investor preferences are heading.
The momentum has clearly shifted.
That shift has generally been good for investors. Lower fees, better transparency and easier access to diversification have all led to better results compared to the old mutual fund model, and index ETFs deserve real credit for forcing an industry to clean up its act.
When growth slows, products multiply
But when an industry no longer has easy growth, it doesn’t stop launching products. It’s starting to get more creative in what it sells.
Anyone who invested in the 1990s and early 2000s will recognize the pattern.
As mutual funds became more popular, the choice exploded. Sector funds, technology funds, income funds, market timing funds, each positioned as a smarter and more modern upgrade to boring diversification, even if the underlying ideas weren’t particularly new or well-supported.
Most did not deliver. Many disappeared quietly. Investors were left with higher costs, more complexity and portfolios that were harder to understand and harder to maintain when markets inevitably turned uneasy.
Today’s ETF market has some eerily familiar parallels.
By 2025 alone, there will be over 300 new ETFs launched in Canada, the majority of which are actively managed and very niche. In the United States, there are now more ETFs than individual stocks, which sounds like something someone made up until you realize it’s actually true.
ETFs themselves didn’t suddenly become the problem; they simply became overcrowded. No one is launching a simple S&P 500 ETF today, because that trade is already saturated and dominated by giants.
Ben Felix has described this wave of product development as: ETF doldrums. I think the idea is broader than just ETFs, because what we’re really seeing is investment waste, a growing pile of products designed primarily to attract attention and assets rather than improve long-term outcomes for the people who buy them.
The packaging may be new. The incentives are not.
An ETF can hold a globally diversified index portfolio at a very low cost, but it can just as easily hold leverage, derivatives, options strategies, narrow themes, or individual stocks packaged to look simple and approachable, even if they are anything but.
The ticker looks the same either way. The experience for the investor is not.
ETFs no longer automatically mean low costs
One of the more subtle changes in recent years is how broad the fees within the ETF universe have become.
Excellent index ETFs still exist with management fees well under 0.20 percent, and these products are still among the best tools available for self-directed investors.
At the same time, many newly launched ETFs now charge fees closer to 0.70 percent, 0.90 percent, or even higher when trading costs and strategy frictions are taken into account, which is starting to look a lot like mutual fund pricing, even if the label on the front has changed.
The danger is that investors continue to associate the word ETF with discipline and efficiency, even if the underlying strategy no longer reflects this.
The ETF wrapper won the confidence of investors. Some of what is sold inside does not always deserve it.
When choice works against investors
Much of today’s product innovation is based on very human instincts.
Some funds appeal to optimism, the belief that identifying the next big theme will lead to outsized returns. Others appeal to fear, soften the declines or promise some form of downside protection. Many turn to income, especially when markets are feeling uncertain and investors are looking for something that seems more stable.
The common thread is not the better results. It’s attention.
More choice often leads to more tinkering, more doubts and more opportunities to deviate from a sensible plan, usually at exactly the wrong time. The more difficult it becomes to separate long-term investing from consistent product selection, the more likely it is that behavior will counteract results.
This is the way investment waste accumulates, not all at once, but one interesting fund at a time.
The strange reputation of asset allocation ETFs
One of the more ironic side effects of all this is the way asset allocation ETFs are often discussed.
They are often described as entry-level products or starter portfolios, as if investors are expected to stop using them as they become more sophisticated and move on to something more complex.
I never liked that framework.
A single, risk-adjusted asset allocation ETF already provides global diversification, automatic rebalancing, low fees and built-in behavioral guardrails, things that investors often struggle to achieve if left to their own devices, especially during volatile markets.
Adding more moving parts doesn’t make a portfolio smarter. It usually just creates more opportunities to interfere.
Where this leaves me
None of this is an argument against ETFs. It’s really an argument for being more selective in what we expect from them.
The ETF structure remains one of the most important financial innovations of recent decades. It improved access, lowered costs and gave investors much better tools than before.
But ETFs are no longer automatically the good guys.
Some remain excellent building blocks for the long term. Others are simply distractions dressed in familiar clothing.
For most investors, fundamentals are still much more important than product design. Broad diversification, appropriate risk, low costs and the discipline to stay invested when the markets inevitably test your patience will always be more important than whatever flashy product launches this quarter.
You don’t have to constantly upgrade your portfolio to prove you know what you’re doing. A sensible plan usually works best if you leave it alone.
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