Do you think exchange traded funds (ETFs) will ever replace the mutual funds’ place in the industry?

There are plenty of people who aren’t so sure, and believe it or not, we’re among them.

There have indeed been a number of mutual funds that have been consolidating and closing in recent years, but mutual funds have been around for decades and they’re a household name. There are trillions of assets in them, and they outnumber ETFs by a long shot.

While we feel ETFs are by and large superior to mutual funds, ETFs still have a lot of catching up to do in terms of their numbers, assets and familiarity. ETFs only have 5% of the assets mutual funds do. But one can’t argue with the fact that 80% of mutual funds underperform their benchmarks over time.

While the industry will continue to grow, it is unlikely they that they’d ever replace mutual funds entirely. That hasn’t stopped a growing number of advisors and individual investors from incorporating them into their portfolios.

One thing is for sure: ETFs are here to stay, and it’s time to embrace them.

More research is revealing that for the first time since open end mutual funds were born, launches were outnumbered by other investment vehicles. In 2007, ETFs, variable annuities and closed-end funds (CEFs) accounted for 52.8% of new products, while mutual funds were 47.2%, reports Kevin Burke for Ignites. Just eight years ago, in 2000, mutual funds were 70.2% of new launches.

Make no mistake – mutual funds are still dominant, but these other investment vehicles pose a viable threat to that dominance. Mutual fund providers have some thinking to do, because it won’t be possible to ignore ETFs forever.

The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.