The latest ICI fund data shows that ETFs continue to take market share from mutual funds. As of the end of July, ETFs represented 8.6% of all non-money market funds. In 2005, ETFs represented only 3.5%, notable because that’s the year non-money market mutual funds reached their peak in terms of total number of funds. Since that time, the number of mutual funds has decreased by 466 and assets in mutual funds have decreased from a peak of $8.9 trillion in 2007 to $6.8 trillion currently.
While it’s easy to point to the recent market collapse as a primary culprit in the decrease of mutual fund assets, one only has to look to ETF assets to see what’s really driving the decline of mutual funds – investors are realizing the potential benefits that ETFs can offer including lower costs, more transparency, tax efficiency, and better, more direct access to alternative asset classes. While mutual fund assets have decreased, ETF assets have increased from $608 billion in 2007 to $640 billion currently.
ETFs still have some ground to cover (and it’s important to note that ETFs haven’t even begun to significantly penetrate the 401k space – the key driver for mutual fund assets), but the growth trend is too obvious to ignore. If you haven’t explored the potential benefits of ETFs, now may be the time to do so. There’s a reason investors are moving into ETFs and out of mutual funds.
