As a group, index mutual funds and ETFs have gathered more inflows over the same 7 years. In 2012, passively managed funds have gained $69 billion in new inflows.
“It’s not about active versus passive,” Mr. Kinniry said in a recent interview. “It’s about fees. We’re in the early innings of prolonged lower returns. Costs really matter.”
An average broad-based, large-cap focused ETF can cost about 0.10%. A comparable mutual fund can cost around 1.20%, which can really cut into principle. Plus, actively managed mutual funds also deliver capital gains to all shareholders, regardless of activity. The costs can add up quick, and in this uncertain, yield-starved environment, every dollar counts. [You’re Fired: Investors Drop Underperforming Fund Jockeys and Buy ETFs]
“While that’s no guarantee of performance, it’s no surprise that managers who run funds with higher expenses will probably have a harder time outperforming over the long haul,” said Michael Herbst, director of active fund research at Morningstar.
Tisha Guerrero contributed to this article.