How Much Confidence Do You Have in Your Mutual Fund Lineup?

Survey shows high levels of confidence among fund investors.

Consider meeting with a financial adviser prior to applying to graduate school.
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Are you confident that your mutual funds will help you meet your financial goals? It turns out that if you happen to live in Canada, the answer is very likely "yes."

A recent survey by the Investment Funds Institute of Canada shows that 80 percent of Canadian mutual fund investors believe their funds will help them reach their financial goals. That includes respondents who said they were "very confident," "confident," or "somewhat confident." While only 4 percent expressed the highest level of confidence, 44 percent said they were "confident" and 32 percent indicated that they were "somewhat confident."

[See Should You Be in Cash Right Now?]

The survey also shed light on the relationship between mutual fund investors and their advisers. A convincing 93 percent of fund investors trusted their advisers to give them good advice, and 84 percent believed that their returns are better than they would have been had they not used an adviser.

Not surprisingly, this attitude is what motivated them to begin using an adviser in the first place. "The most important reasons [for using advisers], considered influential by 92% of investors, were the need to invest for retirement and a desire for a greater return on their money than they could achieve on their own," the survey found.

The survey also concluded that the "amount of investment knowledge that investors feel they have does not generally influence how they work with their advisor. The large majority of investors in all knowledge categories either make their decisions jointly with their advisor or decide based on the information the advisor provides."

[See How to Use the '4 Percent' Retirement Rule.]

Part of investors' confidence in mutual funds seems to come from their appreciation of diversification. For instance, mutual fund investors are 12 percentage points more confident in their funds than they are in individual stocks.

But familiarity also plays a role. Indeed, of the individuals surveyed who actually own individual stocks, 76 percent were confident in them­—a difference of just 4 percentage points from their confidence levels in mutual funds.

Perhaps the biggest example of the extent to which familiarity matters comes from the survey's findings about exchange-traded funds. Of mutual fund owners who also own ETFs, 71 percent were confident in their ETF holdings. But if you include mutual fund investors who don't own ETFs, the confidence level in ETFs plummets to 31 percent.

The survey also revealed some interesting demographic trends. For instance, it found that "[u]rban investors are more likely to be confident in mutual funds and ETFs, while rural investors are more likely to be confident in their primary residence [as an investment]."

Gender also appears to play a role in attitudes. Indeed, male investors were more likely to be confident in stocks, mutual funds, and ETFs. The only category of investment in which female respondents expressed higher confidence levels than male respondents was guaranteed income certificates.

[See Why Bother With Rebalancing?]

So how does this compare to confidence levels in the United States? If fund flows are any indication, confidence levels here in the United States are decidedly mixed. Notably, U.S. mutual fund investors remain highly suspicious of equity mutual funds. According to the Investment Company Institute (ICI), you would have to go back to April 2011 to find a month when U.S.-based domestic equity funds saw net inflows. In the week ending on September 26, investors pulled more than $5 billion from domestic equity funds, according to the ICI.

On the other hand, bond funds have taken in money every month since August of last year. These strong inflows have been more than enough to compensate for the outflows from equity funds. Notably, the domestic mutual fund industry has seen a net increase in total assets under management every month this year.