The case against the actively managed mutual fund, and the managers who run them, is getting stronger as the exchange traded fund (ETF) is gaining preference, and rightfully so.

Former mutual fund investors who took a hit this year are facing a deteriorating market and the managers who picked the so-called “winning” stocks. Stock pickers in seven of nine U.S.-stock categories have trailed the corresponding S&P indexes, investment researcher Morningstar Inc. revealed.

The exchange traded fund(ETF) is gaining appeal to many individual investors who crave transparency and lower costs. Jonathon Burton for The Wall Street Journal reports that switching over to ETFs isn’t exactly easy, and there are no equal translations, so there is research to be done.

About 700 U.S.- and international-stock ETFs jumble various sectors, strategies and styles. Then, mixing matters are “fundamental” ETFs, which blend elements of active management with conventional indexing methods. Financial advisors can help sort through the mess.

At ETF Trends, model portfolios include iShares MSCI EAFE Index Fund (EFA) and Claymore/BNY Mellon BRIC (EEB), among others.  Expenses are low, you know what you’re buying, and from a diversification standpoint you should benefit over time.

As the market share of ETFs continues to double about every three years, the actively managed mutual fund is finding itself on unsure footing.

In 2008, investors yanked $235 billion from non-money market mutual funds while adding $175 billion to ETFs, and the pace of the growth is likely to quicken. Robert Dubois for Seeking Alpha reports that asset levels at many mutual fund companies are standing at one-half to one-third of pre-crisis levels, leaving revenue streams dried up and the industry at a standstill.

As of the end of March, there was $489 billion in 839 ETFs and ETNs, according to the National Stock Exchange. Mutual funds still have a significant number of assets – $9 trillion, to be exact.

This trend away from mutual funds and toward ETFs have been occurring before July 2007, but recent market troubles have taken it to the next level. As investors are learning to appreciate the importance of both superior product and superior advice, many are now full aware that picking market tops and bottoms is not the way to go.

The industry transition to low-cost, transparent index investing via ETFs is being driven at a grassroots level, by a stream of determined individual retail and institutional investors and like-minded advisers. The other side of the coin will be demanded, as many investors want to know where there money is, and why.

Tags: BRICs, EEB, EFA, Emerging Markets, ETF Trends in the Press, Global ETFs, Mutual Funds