CIFSC updates Balanced Fund categories

By John Krisko, CFA, BBA

Balanced funds are the second-largest fund type by assets under management (AUM) among Canadian ETFs and mutual funds. According to the Securities and Investment Management Association (SIMA), as of July 31, 2025, $1.1 trillion is held in balanced funds – representing 36% of the nearly $3 trillion invested across Canadian ETFs and mutual funds.

Although balanced ETFs currently hold only a fraction of the AUM of their mutual fund counterparts, they are quickly gaining traction. July 2025 SIMA data show that while balanced ETFs account for just 5.2% of all long-term ETF AUM, that share represents a 54% year-over-year increase. In addition, balanced ETFs represent 8.7% of all total net sales of long-term ETFs year-to-date in 2025 – a 70% higher share of sales than indicated by their share of total ETF AUM – making them one of the fastest-growing ETF categories.

With this growth, the recent proposal released for public comment by the Canadian Investment Funds Standards Committee (CIFSC) represents a significant update for one of Canada’s largest fund categories.

What’s changing

On September 30, 2025, following a public pre-proposal consultation, the CIFSC proposed three key changes to the balanced categories:

• The addition of a fourth balanced category and redefined equity ranges;

• Renaming of the categories; and

• Moving private equity and private credit from “Other Assets” into equity and fixed income allocations.

New category and names

Currently, three categories exist for both Canadian and Global Balanced funds:

• Fixed Income Balanced (5-40% equity)

• Neutral Balanced (40-60% equity)

• Equity Balanced (60-90% equity)

The CIFSC is proposing the following new naming convention for balanced funds in both Canadian and Global categories:

• Balanced – 5-25%

• Balanced – 25-45%

• Balanced – 45-65%

• Balanced – 65-90%

The new category names mark a departure from traditional naming conventions while maintaining an asset-based focus. They are easy to understand and clearly indicate both the category type and the permitted equity range.

New Equity ranges

Along with the new names, equity ranges will change. The CIFSC has long recognized the challenge of maintaining the cutoff between Neutral Balanced and Equity Balanced at the “textbook” 60/40 mix, which represents the highest concentration of balanced fund AUM. Market fluctuations and tactical adjustments by portfolio managers can easily push a fund above or below this threshold, potentially triggering category changes and limiting allocation flexibility.

This issue also exists, to a lesser degree, for the lower cutoff at 40% equity – another common balanced mix (40% equity/60% fixed income).

The new equity ranges address this issue by providing a broader range around these key asset mixes. Funds targeting 60/40 will now have a permitted equity range of 45%-65%, while 40/60 funds will have a range of 25%-45% equity. Completing the ranges, the lower-end category has 5%-25% equity, and the upper-end category has 65%-90% equity.

In addition to broadening the range around key asset mixes, adding a fourth balanced category will narrow the currently wide ranges. Categories will move to 20% equity bands (and 25% at the top), creating more appropriate peer groups with less dispersion in risk/return profiles.

Funds may still choose to target the upper equity limit of their category to pursue higher returns. However, these new ranges will reduce the likelihood that normal market movements or small tactical adjustments will trigger a category change for funds at important asset thresholds.

New Alternatives classification

The proposal also changes the treatment of private equity and private credit. Previously classified as “Other Assets,” private equity will now be included in a fund’s equity allocation, and private credit will be included in fixed income. This reflects the growing use of alternative assets by balanced funds as diversifiers of risk and drivers of return that are central to their strategies. Although these asset types can differ significantly in risk/return profile compared with traditional equity and fixed income, excluding them entirely from the equity/fixed income mix no longer reflects how they are being used in portfolio construction.

Other alternatives, such as infrastructure, real assets, and commodities, will remain classified as “Other Assets.”

It is important to note that this proposal has not yet been voted on or adopted by the CIFSC. It is currently available for a 60-day public comment period through December 31, 2025. The proposal may be modified following public comment, and one or more changes may not be adopted. Comments may be submitted through the contact page at CIFSC.org.

© 2025 by Fundata Canada Inc. John Krisko, CFA, BBA, is Vice President, Investment Analytics at Fundata Canada Inc. and is Chair of the Canadian Investment Funds Standards Committee (CIFSC). All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. No guarantee of performance is made or implied.