2009: A Sea Change for Mutual Fund and ETF Industries? | ETF Trends

The poor performances brought on by the recession has mutual funds losing investors’ money at an ever faster pace. The mutual fund business model is shifting and more fund providers are turning their attention to exchange traded funds (ETFs) as a way to adapt in the investment world.

Last year, investors pulled money away from traditional, open-end U.S.-stock funds and continued to throw money into bond funds, reports Tom Lauricella for The Wall Street Journal. In November alone, investors took out $2.1 billion from U.S.-stock funds. [Mutual fund and ETF predictions]

Where’s the money going? Largely into bond funds. Observers believe this phenomena is because of temporary performance chasing, and flows into short-term bond funds show the investor trend of shifting out of money-market funds that have yields of almost zero. Brian Reid, chief economist at Investment Company Institute trade group, thinks money has been flowing into bonds as a result of more baby boomers stocking up as they ready themselves for retirement.

ETF operator iShares has taken in $126 billion since 2007, and some of that money is coming out of mutual fund providers who have disappointed investors with poor performance. This trend hasn’t gone unnoticed and more fund providers are getting into the ETF game with actively managed stock and bond portfolios. [ETFs vs. mutual funds.]

Today, there are around 8,000 mutual funds, but the industry had closer to 10,000 at the high. There’s been lots of underperformance and year-end capital gains distributions. These days, investors are taking a closer look at how the funds they own have actually been doing. Chances are, they’re not happy and they’re voting with their feet.

For more information on mutual funds, visit our mutual fund category.

Max Chen contributed to this article.

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.