ETFs Take the Lead: Will Mutual Funds Fade Away?

A report released by Barclays Global Investors Monday shows exchange-traded funds (ETFs) have hit an all-time high in terms of assets under administration (AUM), of nearly $900 billion (U.S.). So has Canada: the ETF industry grew by 49% in 2009 to an all-time high of C$28.8 billion, as of the end of September 2009.

Of the ETF asset categories in Canada, fixed-income ETFs experienced the highest growth in 2009, doubling AUM to C$5 billion. Coming in second were inverse/leveraged commodity ETFs, which jumped from C$0.2 billion to C$1.5 billion.

ETF company iShares “remains the undisputed leader” with 80.4% of total AUM in Canada. Claymore and Horizon BetaPro roughly split the remaining market share.

Contrasting with ETF growth were net redemptions of mutual funds, amounting to C$800 million in Canada. The downward trend is similar at the global level, as can be seen from the chart below. Could we finally be seeing the turning point for mutual funds?

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Comments

[SeeTheLight:]

Another nail in the "buy and hold as a viable investment strategy" coffin. Sure the average investor still wants someone else to manage their money but they want to be able to pull the ripcord themselves.

Good Luck all.

Oct 06 04:47 AM

[Benny D.:]

Buy and hold is basically for bond funds.

Oct 06 04:21 PM

[Joe Eqcome:]

Russell

For me there are two issues regarding ETFs overtaking mutual funds.

The first is the index (ETFs) versus active management (mutual funds) argument. An article in today’s WSJ intimated that on a risk adjusted basis most actively managed mutual funds lag behind their indexes over time. Not a pretty picture. Score one for ETFs.

But threshold issue may be the success of newly minted, actively managed ETFs which are just being rolled out.

If actively managed ETFs provide comparable returns of mutual funds in some of the major investment categories for those seeking active management, then why would you want to own a mutual fund?

All things being equal, the ability to trade ETFs during the day is a compelling feature over mutual funds.

I guess the other question is: what is the complexity and cost of converting a mutual fund to an ETF?

Maybe if you can’t beat them, you join them.

Oct 08 10:30 PM

[PCScipio:]

Where is the preponderance in the 401(k) world? The company I used to work for had only regular MFs in its plan.

Oct 09 12:17 AM