I operate in Mexico. What is better for me, an ETF or a mutual fund?

Genevieve Signoret

(Hay una versión en español de este artículo aquí.)

I love managing portfolios, but I understand that some La Carpeta Negra readers wish to learn how to do it themselves. If you’re in that category, this article is for you.

Today I got a message from a Mexican reader whose portfolio is invested with a Mexican brokerage firm. They asked which type of fund is better for them, a mutual fund or an ETF. My answer is: it depends.

I see four advantages of ETFs over mutual funds:

1. In Mexico, if we include ETFs from the International Quotation System (Sistema Internacional de Cotizaciones, SIC), their range is broader and more varied than that of mutual funds. This permits a wider diversification across countries and asset classes.
2. Their management fees are generally lower than those of mutual funds.
3. Since they trade on the stock exchange like corporate stocks, they give you better control over your entry and exit prices compared to mutual funds, which are quoted only once per day at the end of the trading session.
4. The array of funds you can choose from doesn’t depend on the brokerage firm you’re with, whereas your choice of mutual funds does.

Mutual funds, however, have two advantages over ETFs:

1. Brokerage firms don’t charge commissions for buying or selling them, whereas there are commissions to enter and exit an ETF. Keep in mind that this drawback affects you especially if you trade frequently.
2. For investing in Mexican securities, especially debt securities, mutual funds offer more options than ETFs.

Returning to my answer now: it depends on how frequently you buy and sell and how much you aim to diversify your portfolio globally. If you trade infrequently and seek broad international diversification, ETFs are better for you. But if you trade frequently or want the maximum number of options in Mexican assets, a mutual fund is a better choice.
 
 
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