The mutual fund industry is losing ground to upstart exchange traded funds as more investors and financial advisors turn to the low-cost, transparent and easy-to-use ETF wrapper.
“We’re finding ETFs make a lot of sense for investors like ourselves, not just traders,” Ron Vinder, managing director at UBS Wealth Management, said in a Wall Street Journal report.
Index-based ETFs typically cost less than most actively managed funds – the average U.S.-listed ETF charges 0.6% in annual fees, compared to index mutual funds with a 0.8% expense ratio and active mutual funds that charge 1.3%, according to Morningstar data.
Additionally, ETFs disclose component holdings on a daily basis and can be traded throughout the day, like stocks.
As of the end of 2013, ETFs made up 12% of the $13.9 trillion U.S. mutual fund and ETF market – ETFs held $1.61 trillion in assets under management at the end of last year, compared to about $1.69 trillion for index mutual funds. Currently, there are 1,563 U.S.-listed ETFs with $1.69 trillion in assets, but to be fair, there are 83 actively managed ETFs with $15.2 billion in assets.
“2013 was the year when assets of ETFs essentially caught up with those of index mutual funds,” Sebastian Mercado, an ETF analyst for Deutsche Bank, said in the article.