Evidently, the shift back into mutual funds indicates that investors prefer having an active manager overseeing portfolio holdings, ready to take action if a sector or asset class is going down. The market uncertainty has come full circle and investors want reassurance.
Other reasons investors may have shied away from ETFs lately could be that investors are not all that interested in slicing up the market into niches and specialty classes. Also, frequent trading is not such a boon anymore, as investors are lagging returns while trying to time the market with ETFs. The overall ill-liquidity of most smaller ETFs is also a precaution, because certain funds could close up shop if interest is not strong enough.
Overall, the lack of availability of ETFs in the retirement category is also detrimental to the business. Al-ETF platforms have not been possible yet, due to structural difficulties. For now, mutual funds dominate the 401(k) business.
Most likely, neither industry will wipe out the other. Mutual funds and ETFs can fill out portfolios together, giving investors the best of both worlds.
Tisha Guerrero contributed to this article.