The mutual fund industry has gotten demolished this year, losing 21% of its assets in just five months, and some believe that exchange traded funds (ETFs) are the reason why.

As of Oct. 31, mutual funds had $9.5 trillion in assets, compared to $12 trillion under management on May 31.  October showed record amounts of outflows from stock funds, a whopping $86 billion, and fixed income funds recorded outflows of $44.3 billion.

A combination of redemptions and huge losses of all stock funds has lead to this dramatic decline, states Sam Mamudi of The Wall Street Journal.

So where have these outflows gone?  A huge portion has been shifted to ETFs.  Over the first nine months of the year, net infows of $104 billion have been seen in the ETF market.  ETFs are versatile, taking power and control away from fund managers and putting it the hands of advisors, states Richard Romney of ETF Portfolio Strategies.

This trend toward ETFs may continue. Mutual funds could be raising fees due to loss in assets next year, and investors won’t be too thrilled about capital gains distributions after suffering heavy losses this year, either.

Tags: Mutual Funds