One trend in recent years has been investors transferring capital out of mutual funds and into exchange traded funds. According to analysts, the tide is turning and assets have been flowing back to actively managed mutual funds.
“Mutual funds are more nimble in navigating the investing landscape,” Loren Fox, senior analyst for fund research firm Strategic Insight said.”If you’re locked into a tight box with an ETF, and your box is going down the tubes, then low costs aren’t your first concern. It’s the fact that you’re losing a lot of money.” [ETF Assets Slowly Gaining on Mutual Funds]
Since the start of 2010, equity focused ETFs have attracted $142 billion in assets, according to Lipper data. During the same time frame, mutual funds experienced $86 billion in outflows, reports Chris Taylor for Reuters. The trend had gained so much momentum, industry observers began to ponder if ETFs were to eclipse the mutual fund industry by assets under management. [Institutional Investors Favor ETFs]
Thus far, ETFs assets grew 15% in about one year, during the intense market volatility and uncertainty over the Eurozone crisis. [ETF Assets Seen Growing to $5 Trillion]
“Investors and advisers are attracted to ETFs for their low expense ratios, tax efficiency, transparency and ability to be traded throughout the day,” Erik Liik, CEO of FocusShares said. “They’ve democratized investing by bringing virtually all types of investments to all types of investors.” [Retirement Planning? ETFs Can Help]
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.