Seeking lower-cost options, investors are increasingly opting for ETFs in lieu of mutual funds.
That’s according to Deloitte, who recently published its 2025 Investment Management Outlook. The Deloitte report broke down just how much cash is moving into the ETF wrapper, along with why investors are continuing to pivot to ETFs.
According to Deloitte, active mutual funds have seen cumulative net flows of -$2.6 trillion over the last five years. Meanwhile, mutual funds with an indexing approach have accrued only $0.2 trillion in net flows over the same time period.
Money from mutual funds seems to be flowing into ETFs instead. In the past five years, passive ETFs have seen net flows of $2.5 trillion, while active ETFs earned $0.4 trillion in net flows.
ETFs are becoming increasingly popular investment vehicles for a number of reasons. To start, ETFs tend to have lower costs, making them an easier product for investors to enter into. ETFs can also offer the added benefit of stronger transparency, tax efficiency, and flexibility.
Momentum Mounts for Active ETFs
Interestingly enough, the Deloitte research also highlights that actively managed ETFs are seeing significant growth in flows this year. Looking at the macroeconomic picture of the U.S. economy, this can make a great deal of sense.
For example, take a look at the Federal Reserve’s rate cutting cycle. While the Fed is now in full swing, experts initially expected a different economic picture for 2024, featuring a far more active rate cycle in the first half of the year. Instead, investors faced an economy rife with uncertainty, though the market presented strong opportunities to lock in returns.
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Keeping all this economic and market uncertainty in mind, many investors found comfort in an actively managed strategy. An active manager can respond to market developments in a far more flexible manner than a passive indexing strategy could.
An Active Strategy in Motion
As a good example of the benefits of active management, look no further than the Dimensional U.S. Equity Market ETF (DFUS). DFUS is a low-cost equity ETF seeking long-term capital appreciation with the added benefit of active management.
So far, the strategy DFUS offers presents a good opportunity for long-term returns. As of September 30th, 2024, the fund’s NAV has skyrocketed 35.23% over the last twelve months.
Fund flows for DFUS illustrate the growing investor interest towards actively managed ETF strategies. As of October 11th, 2024, DFUS has seen over $596 million in net flows in the last month.
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