Capital Ideas^™ 
Investment insights from Capital Group

Simplicity. 

That’s just one of the reasons why balanced mutual funds, which combine stocks and bonds in a single portfolio, have long been a staple of Canadian investing. Their evolution — from modest beginnings as domestic diversification tools to globally oriented investment strategies today — mirror the changing needs of investors and the increasing sophistication of financial theory.

Their growth over the years has not only been driven by their hallmark simplicity, but also their potential to meet investors’ needs for capital appreciation, income and stability through diversification and risk mitigation. 

“These benefits make balanced funds particularly attractive to investors with moderate risk profiles who seek growth while enjoying a smoother ride than an all-stock portfolio,” says investment director Julie Dickson.

The decision to blend stocks and bonds together in a single portfolio has been a winning combination in the eyes of investors. The balanced category ranks as the largest mutual fund category in Canada, according to the Securities and Investment Management Association. The fund category comprised 44% of total mutual fund assets as of the end of 2024, as shown in the pie chart below. The category includes funds that invest in a mix of stocks and bonds as well as funds that invest in a mix of separate, stand-alone funds. Ranking second in size was the equities category at 39% of total assets followed by bonds at 13%, while money market and specialty categories accounted for 2% each. 

The rise of balanced mutual funds to become the largest mutual fund category did not happen overnight. Initially, balanced mutual funds — regardless of domicile — singularly focused on blending domestic equities and bonds only from their home countries after they debuted in the 1930s. This was primarily due to necessity, as it would be several more decades until globalization took root along with the investment infrastructure necessary to buy and sell foreign securities. 

In time, with the rise of multinational companies, air travel, communication networks and regulatory frameworks, international and global investing became possible. But even with the necessary infrastructure in place it took another unexpected development to accelerate global balanced fund creation and adoption. 

The shift to global 

Modern Portfolio Theory (MPT), introduced by University of California finance professor and Nobel prize winner Harry Markowitz in 1952, revolutionized investment strategy in general and balanced funds in particular as it emphasized diversification to optimize risk-adjusted returns. MPT posits that:
 

• Risk and return should be evaluated at the portfolio level: Individual asset performance matters less than how assets interact within a portfolio.
• Diversification reduces risk: Combining assets with low or negative correlations can lower overall portfolio volatility.
• Efficient frontier: Investors should aim for portfolios that offer the highest expected return for a given level of risk.

As access to global markets increased over the decades, so did the ability to diversify and thereby reduce risk.

“Though domestic balanced mutual funds embody MPT principles, it became clear that a global balanced fund further enhanced this efficiency. They not only offer greater diversification and lower asset correlation, but also a larger opportunity set,” says Dickson. 

For example, Canada's market is heavily weighted toward financials and commodities. Global exposure allows investors to access sectors such as technology and health care, which dominate U.S. and international markets. Global diversification also helps manage geopolitical and economic risks specific to Canada. Plus, adding global equities can not only reduce home country bias but also exposure to domestic economic and market cycles. “This aligns with MPT’s goal of constructing portfolios that lie on the ‘efficient frontier’— maximizing return for a given level of risk,” says investment product manager Anish D’lima.

Global balanced funds hit their stride

As a result, Canadian investors have increasingly turned to global balanced funds in recent years. According to the Morningstar 2025 Canadian Balanced Funds Landscape report, the number of Canadian-oriented balanced strategies shrank for the fifth straight year. In comparison, the number of global balanced strategies rose for the fourth time in five years. Further, firms have converted 18 Canadian-focused strategies into global ones over the same five-year period while another 65 Canadian-focused balanced funds were liquidated or merged away.

In sum, there were 615 global balanced strategies in Canada at the end of 2024, an increase of 102 strategies since 2020, mostly to do with new launches. Counting a handful of launches and other conversions, the number of Canadian-oriented balanced funds dropped to 190 at the end of 2024 from 261 in January 2020. 

The preference among investors towards global balanced funds continues despite the rare and painful setback in 2022 when, for the first time in decades, both stocks and bonds declined simultaneously. 

“Though the overall balanced funds category saw outflows in 2023 and 2024, global balanced funds fared much better,” says D’lima. 

To illustrate, the Morningstar Canadian neutral balanced fund category notched outflows of $4.7 billion in 2023 and $4.5 billion in 2024 compared to $2.5 billion and $1.6 billion for global neutral balanced funds for the same two years. In 2025, flows have now turned positive for global neutral balanced funds, attracting $3.4 billion, while the Canadian neutral balanced category remains in redemption, notching outflows of $1.4 billion through July 31. 

Global balanced versatility 

Despite the common 60% stock and 40% bond starting point, global balanced funds come in all shapes and sizes. Some stay close to the classic split between stocks and bonds, while others venture tactically around that anchor. Some use all passive funds as the building blocks, some stand by active management funds, and others use a blend of both. 

“As Canadian investors continue to seek greater diversification and larger opportunity sets, global balanced funds have become a vital component of investing — providing a disciplined, diversified approach to navigating an increasingly complex financial landscape,” says Dickson.