Mutual Funds

Exchange traded funds have experienced inflows over the past year, while the mutual fund industry has experienced significant outflows. The ETF business has gathered over $1 trillion in assets under management, and for good reason.

“Simple things that you’re used to in the stock market like a limit order, you can’t do with a mutual fund,” says Noah Hamman, CEO of AdvisorShares. To the degree that onerous mutual fund fees forced investors to buy and hold for the long-term, such flexibility could make it all too easy to start trading ETFs that are in turn being traded by a fund manager, reports Jack Macke on Yahoo Finance Breakout.

 The ease of the trade is a huge selling point for ETFs, since investors can trade them any time of day in real time. A mutual fund has restrictions that only allows them to be bought or sold at the end of a trading day. Traders can use tools to move quickly in and out of positions, making them attractive for both long–term investors and day traders, reports Dan Caplinger for The Motley Fool. [ETMFs Could Change the Fund Industry]A drawback for trading ETFs too frequently is that the brokerage fees can add up – quick.

A feature of ETFs that mutual funds can’t compete with are the low fees. The average passively managed ETF costs anywhere from .05% to 0.65%. The average mutual fund can cost at least 1.0%. [Why Individual Investors Like ETFs]

One area that mutual funds still have ETFs beat is the active management arena. Currently, actively managed ETFs cost more than a  passive index tracking ETF and since the sector is still in its infancy, there are still regulatory hurdles to iron out with The Securities and Exchange Commission.

Some of the most popular ETFs that utilize active management are the PIMCO Total Return ETF (NYSEArca: BOND), managed by Bill Gross, which has amassed more than $5 billion in assets. In general, actively managed ETFs are less expensive to trade than mutual funds, but the limited choices and short track record of these funds have kept the sector from taking off. [Big Money Managers Eye Active ETFs]

Tisha Guerrero 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.