Exchange traded funds (ETFs) are a nifty and useful investment tool. ETFs, with their transparency, low fees and wide selection of investment themes, have been making inroads on traditional mutual funds, and a major investment banker believes the investment vehicle will continue to do so.

According to a report conducted by Jefferies Group Inc. (NYSE: JEF) analysts Daniel Fannon and Surinder Thind, ETF flows gained while long-term equity mutual fund flows have been slow to return, which is a reflection of “favorable secular growth trends, expanding distribution channels and an increasingly diverse product suite,” reports John Spence for MarketWatch. [Making the Switch from Mutual Funds to ETFs.]

By the end of last year, ETF assets made up 6.4% of total U.S. mutual-fund assets and that number is expected to grow. The report also revealed that for the five years ending 2009, the number of ETFs increased fivefold to 797 funds, with assets rising to $777 billion from $238 billion. “It is clear that investor demand for transparent, low-fee products is increasing,” remarks Jefferies.

Between 2005 and 2009, ETFs brought in 42% of total long-term mutual fund flows and reeled in 77% of equity inflows.

With all the business to be had in ETFs, other big mutual fund managers, including Eaton Vance, Legg Mason and T. Rowe Price, are entering the ETF game, adds Fannon and Thind. That could very well convince mutual fund loyalists to make the leap into ETFs. [Filing: Eaton Vance Jumps Into ETF Industry.]

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