The idea of comparing exchange traded funds to mutual funds is natural but choosing one over the other is not necessary. Many financial advisors use both types of funds within their clients’ portfolios.
“It’s very rare that I don’t include ETFs” in client portfolios, Ken Robinson, owner of Practical Financial Planning said. “For passive investments, I almost always find myself using ETFs now. Even when you factor in the trading costs, they’re typically less expensive than other options.” [Mutual Fund Investors Smarten up on ETF Benefits]
The growth rate of the ETF industry has surpassed that of mutual funds, however, the total number of assets in the mutual fund industry still eclipses that of the newer industry. According to Morningstar data, at January’s end, the value of U.S. ETF assets were $1.15 trillion, compared with $8.3 trillion for open-end funds, excluding money market and fund-of-funds portfolios, reports Joseph Lisanti for Financial Planning.
Furthermore, ETF assets under management surged globally to $1.5 trillion in early 2012 from $25 billion in 1997, according to figures compiled by ETF Global Insight. [ETFs Seen Hitting $4 Trillion By 2016]
Some analysts and advisors believe that comparing ETFs to mutual funds is a meaningless debate. Joel Dickson, principal and senior investment strategist at Vanguard, one of the two biggest mutual fund companies and the third-largest ETF sponsor, says that the choice between ETFs and open-end mutual funds has been driven not by the structure of the investment, but by “the distribution platform that is available to the advisor.”