Exchange traded funds have been compared to mutual funds since they first hit the market. As the mutual fund industry experiences outflows, some are quick to say ETFs are snapping up the assets. However, mutual funds have held their own in certain areas of the market.
“Active managers are indeed adding modest value in asset classes where fundamental research or the ability to reduce exposure to certain underperforming market segments can provide an edge. However, it remains to be seen whether they can maintain this advantage over the long-term given their higher fees,” Daniel Putnam for InvestorPlace wrote.
Many mutual funds have lagged their ETF counterpart by a wide margin in most sectors except the “small-cap value” area, reports Putnam. This proves the theory that small-cap value offers the most potential to make more returns when active management is involved.
Theoretically, active managers are supposed to have a leg up in the international equities sector, particularly in the emerging markets category. However, this has not been the case. The ETF iShares MSCI Emerging Markets (NYSEArca: EEM) has outperformed its mutual fund counterparts over the past decade. Some attribute this to the ETFs ability to take below benchmark weighting in troubled sectors, particularly in financials. [Morningstar on How to Build a Core ETF Portfolio]