In fact, mutual fund companies may be giving up. More of them are launching their own ETFs or converting existing mutual funds into ETFs in response to growing demand. Institutions and larger investors are increasingly turning to ETFs. The Walton family, the world’s richest, revealed $5 billion in holdings in June, almost all of which are invested in stock and bond ETFs.
Advisers are increasingly replacing mutual funds with ETFs in client portfolios. It’s an easy way to lower clients’ overall fees without having to cut their own. It’s also a way to appeal to younger investors who prefer ETFs to mutual funds and stand to inherit the biggest wealth transfer in history. It may also keep advisers out of trouble as regulators clamp down on kickbacks from mutual funds.
Even so, mutual funds will be around for a while. There’s still more than $17 trillion in actively managed mutual funds, and fund companies are in no hurry to give up the more than $100 billion a year they generate in fees. There’s an additional $5 trillion in index mutual funds, most of which rival ETFs in cost, and mutual funds still dominate retirement plans such as 401(k)s.
But the future almost certainly belongs to ETFs. The decades-long era of expensive and underperforming mutual funds is ending, and not a moment too soon.
Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young.