Mutual Fund Investors Smarten Up on ETF Benefits

May 3rd at 3:40pm by John Spence

Exchange traded funds saw net inflows slow to around $3 billion for the volatile month of April but they held up much better than traditional mutual funds.

In April, global investors withdrew the most money from stock funds in any April in at least 17 years as Europe’s debt crisis crept back into the headlines, Bloomberg News reports.

Equity funds had net redemptions of $18.6 billion through April 25, according to data from EPFR Global.

Aside from fears over recent volatility in the stock market, there is more evidence that investors are growing tired of paying active fund managers to underperform equity benchmarks.

“About 80% of actively managed mutual funds underperform the market in a typical year. Investors who stick with them pay much more than they have to,” according to a separate Bloomberg report. “Just one reason why traders and financial heavies deride oblivious retail investors as the ‘dumb money.’”

ETFs gathered $3.2 billion in net flows in April, taking the year-to-date total to $55.1 billion, according to data from the ETF Industry Association.

More than 80% of active fund managers lagged their relevant index in 2011, according to Standard & Poor’s. [Active Fund Managers Trailed Benchmarks Badly in 2011]

Investors are paying too much in mutual fund fees “when ETFs and index funds are knifing at one another to drive expenses well below 0.2% percent, and even 0.1%,” according to the Bloomberg story. [ETFs vs. Active Managers]

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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