Close this search box.

ETFs on the Rise: Could They Capture Half of US Mutual Fund Assets?

Published by Violet
Edited: 4 weeks ago
Published: June 21, 2024

ETFs on the Rise: Could They Capture Half of US Mutual Fund Assets? Exchange-Traded Funds (ETFs) have been making significant strides in the world of investments over the past decade. While mutual funds still dominate the asset management industry, ETFs are quickly gaining ground. According to a report by BlackRock,

ETFs on the Rise: Could They Capture Half of US Mutual Fund Assets?

Quick Read

ETFs on the Rise: Could They Capture Half of US Mutual Fund Assets?

Exchange-Traded Funds (ETFs) have been making significant strides in the world of investments over the past decade. While mutual funds still dominate the asset management industry, ETFs are quickly gaining ground. According to a report by BlackRock, ETFs could capture up to half of mutual fund assets in the United States within the next two decades. This projection might seem bold, but a number of factors are driving this trend.

Key Differences Between ETFs and Mutual Funds

Before delving into the reasons behind this shift, let’s first examine some of the fundamental differences between ETFs and mutual funds. Both investment vehicles offer diversification, but they differ in their trading mechanisms.

Trading Mechanisms

ETFs: ETFs are traded like individual stocks on an exchange, allowing investors to buy or sell their shares at any time during market hours. This flexibility is a major advantage for traders and those who prefer to manage their portfolios actively.

Mutual Funds

Mutual Funds: Mutual funds, on the other hand, are priced once a day based on the net asset value (NAV) of their underlying securities. Investors can only buy or sell their shares at the end of each trading day, and their orders are executed at that day’s NAV price.

Why ETFs Are Gaining Popularity

Now that we have a better understanding of the differences between ETFs and mutual funds, let’s discuss why ETFs are gaining popularity. Below are some key reasons:

Lower Expense Ratios

ETFs: ETFs generally have lower expense ratios than mutual funds, making them an attractive choice for cost-conscious investors. Since ETFs incur lower expenses due to their unique trading mechanism, more of the investment dollars can be allocated towards the underlying securities.


ETFs: ETFs offer greater transparency compared to mutual funds due to their trading on a stock exchange. Investors can see the real-time price of an ETF and its holdings, giving them a better understanding of their investment’s performance.

Tax Efficiency

ETFs: ETFs are more tax-efficient than mutual funds due to their structure. Since ETF investors trade individual shares with one another instead of buying and selling units from a large pool, they may experience lower tax liabilities.


In conclusion, ETFs offer several advantages over mutual funds, including lower costs, greater transparency, and tax efficiency. As a result, they are rapidly gaining popularity, with projections suggesting that they could capture up to half of mutual fund assets in the United States by 2040. The ongoing shift towards index investing and the increasing demand for more flexible investment vehicles are fueling this trend.

ETFs on the Rise: Could They Capture Half of US Mutual Fund Assets?

Exchange-Traded Funds (ETFs): Revolutionizing the Investment Landscape

Exchange-Traded Funds (ETFs), a type of index fund with features of both mutual funds and traditional stocks, have been gaining significant popularity among investors over the past decade. These innovative investment vehicles enable investors to own a diversified portfolio of stocks, bonds, or commodities that closely tracks an underlying index. The transparency, flexibility, and lower costs associated with ETFs have set them apart from traditional mutual funds, leading to record-breaking inflows of capital.

Record-Breaking Inflows and Market Share

According to link, ETFs saw a net inflow of $613.4 billion in 2020 alone, surpassing the mutual fund industry’s inflows for the first time ever. As of February 2021, ETFs held an impressive $7 trillion in assets under management (AUM), which accounts for approximately 20% of the total global ETF AUM. With such remarkable growth, some experts are left wondering: could ETFs potentially capture half

of US mutual fund assets?

Understanding the Advantages of ETFs

To grasp the potential impact of ETFs on the mutual fund industry, it’s essential to understand their advantages. First and foremost, ETFs trade like stocks, allowing investors to buy and sell them at any point during the trading day. This level of liquidity is not commonly found in mutual funds, which price once a day based on the closing price of their underlying assets. Second, ETFs have lower expense ratios compared to many mutual funds, making them more cost-effective for investors. Lastly, ETFs offer greater tax efficiency, as they enable investors to harvest capital gains only when necessary, unlike mutual funds where all shareholders may be forced to pay taxes on realized gains whenever the fund manager makes a change.

Potential Impact on US Mutual Fund Assets

Given the numerous advantages ETFs have over mutual funds, it’s not surprising that many investors are shifting their assets. According to link, mutual fund assets under management have been on a steady decline since 2013, dropping from over $16 trillion to around $14.5 trillion as of 2020. As ETFs continue to attract record-breaking inflows and mutual funds lose assets, it’s a legitimate question to ask whether ETFs could potentially capture half

of US mutual fund assets.


In conclusion, Exchange-Traded Funds (ETFs) have emerged as a powerful force in the investment world over the past decade. With their transparency, flexibility, lower costs, and greater tax efficiency, ETFs have captured the attention of investors, leading to record-breaking inflows and an impressive market share. As mutual fund assets continue to decline, it’s worth considering whether ETFs could potentially capture half

of US mutual fund assets. Only time will tell, but one thing is for certain: ETFs have forever changed the investment landscape and are here to stay.

ETFs on the Rise: Could They Capture Half of US Mutual Fund Assets?

The Rise of ETFs: A New Era for Investing

Exchange-Traded Funds (ETFs) have disrupted the traditional investment landscape, offering numerous advantages over mutual funds.

Lower Fees:

One of the most significant advantages is the cost structure. ETFs generally have lower expense ratios than mutual funds due to their unique structure. As market-traded products, ETFs are bought and sold like individual stocks on an exchange throughout the trading day, incurring no additional costs for buying or selling units. In contrast, mutual funds incur a sales charge or expense ratio when investors buy or sell shares.


ETFs also offer unparalleled transparency. As market-weighted or index funds, ETFs aim to replicate the performance of a specific benchmark, such as an index like the S&P 500. This transparency makes it easier for investors to understand what they own and how their investments are performing in real-time, as the composition of ETFs is publicly disclosed and can be monitored throughout the trading day.


Another advantage of ETFs is their flexibility. They can be bought and sold at any point during the trading day, allowing investors to react quickly to changing market conditions. In addition, ETFs offer a wider range of investment opportunities, including sector-specific and thematic funds that cater to various investing styles and goals.

“ETFs are really disrupting the mutual fund industry. They’re more cost-effective, more transparent, and more flexible,”

says Todd Rosenbluth, director of ETF and mutual fund research at CFR”The shift to passive investing is a trend that’s here to stay.”

Successful ETF Categories:

The success of ETFs is evident in various categories. For instance, link, tracking the S&P 500 index, is one of the most popular and largest ETFs. In the bond sector, link provides broad exposure to the US bond market. Furthermore, sector-specific ETFs like link cater to investors seeking sector exposure and thematic ETFs like link focused on technology companies reflect the diverse range of investment opportunities available through ETFs.

ETFs on the Rise: Could They Capture Half of US Mutual Fund Assets?

I Market Share and Growth Trends

As of the third quarter of 2021, mutual fund assets in the United States stood at approximately $16.9 trillion, according to the Investment Company Institute (ICI). On the other hand, exchange-traded funds (ETFs) had a total net asset value of around $5.3 trillion, as reported by BlackRock, the world’s largest ETF provider. This signifies that mutual funds still dominate the market with a 62% share, while ETFs account for just under a third (38%). However, the growth trend in ETF assets has been impressive.

Growth Trends:

Mutual funds

Mutual Fund Assets

The mutual fund industry has experienced steady growth over the years, with only slight fluctuations. The total assets under management (AUM) have been increasing steadily since 2010.


ETF Assets

In contrast, ETFs‘ market share has significantly grown over the past decade. Their AUM increased tenfold from 2010 to 2021, and the growth rate has been consistently faster than that of mutual funds. This trend is expected to continue as more investors seek lower cost investment options with greater transparency and flexibility.


ETFs on the Rise: Could They Capture Half of US Mutual Fund Assets?

Reasons for the Shift from Mutual Funds to ETFs:

The financial landscape has witnessed a significant shift in preference from traditional mutual funds to Exchange-Traded Funds (ETFs). Several factors have contributed to this trend, making ETFs an attractive alternative for investors.

Cost Savings and Fee Structures:

The first factor is the cost savings that ETFs offer over mutual funds. With lower expense ratios, ETFs allow investors to save money on management fees. ETFs operate like an index fund with a passive investment strategy and, therefore, have lower costs compared to actively managed mutual funds. This cost advantage can lead to substantial savings for investors over time.

Intra-day Liquidity and Trading Capabilities:

Another factor contributing to the popularity of ETFs is their intra-day liquidity and trading capabilities. Mutual funds have a set redemption price that is calculated at the end of the trading day, making it difficult to buy or sell shares intra-day without significant fees. On the other hand, ETFs can be traded like individual stocks throughout the day on an exchange, allowing investors to buy or sell shares whenever they choose at the current market price.

Tax Efficiency and Tax Implications:

The third factor is the tax efficiency of ETFs. Mutual funds generate capital gains when they sell securities, and these gains are passed on to investors through capital gains distributions. This can lead to unexpected tax liabilities for mutual fund investors. ETFs, however, have a unique feature called “creation and redemption in kind,” which allows the issuer to create or redeem shares by delivering the underlying securities rather than selling them, thus minimizing capital gains and reducing tax implications for investors.

Transparency and Customization:

Lastly, ETFs offer increased transparency and customization. Mutual funds only provide a portfolio snapshot at the end of each trading day, while ETFs offer real-time information about their holdings and performance throughout the trading day. Additionally, investors can choose from a wide variety of ETFs that cater to specific sectors, asset classes, or investment strategies, making it easier for them to diversify their portfolios and tailor their investments based on their risk tolerance and financial goals.

ETFs on the Rise: Could They Capture Half of US Mutual Fund Assets?

Potential Challenges for ETFs Capturing Half of US Mutual Fund Assets

Exchange-Traded Funds (ETFs) have been gaining significant traction in the investment world, offering numerous advantages over traditional mutual funds. However, despite their growing popularity, ETFs still lag behind mutual funds in terms of assets under management (AUM). In this context, it is essential to address potential roadblocks and concerns that hinder ETFs from overtaking mutual funds.

Regulatory Hurdles and Market Structure Limitations

One major challenge for ETFs is the regulatory environment and market structure. Mutual funds have been around for decades, and they benefit from a well-established legal framework that provides them with certain advantages. For example, mutual funds can offer investors tax benefits through tax-deferred retirement accounts. In contrast, ETFs are subject to capital gains taxes when they are bought or sold on the secondary market, which can deter some investors. Additionally, some institutional investors and financial advisors may prefer mutual funds because of their long-standing relationships with mutual fund companies.

Lack of Investor Education and Awareness about ETFs

One of the most significant challenges for ETFs is the lack of investor education and awareness about these investment vehicles.

Many investors are not fully aware of the benefits that ETFs provide, such as lower costs, greater liquidity, and the ability to trade throughout the day. Moreover, some investors may be skeptical about ETFs due to their relatively recent entry into the investment landscape compared to mutual funds.

Psychological Barriers among Investors who Prefer Mutual Funds

Another potential challenge for ETFs is the psychological barriers among investors who have a strong affinity for mutual funds.

Despite their shortcomings, mutual funds enjoy a long and storied history in the investment industry. Many investors view them as a trusted and familiar investment vehicle that has served them well over the years. Switching to ETFs may be perceived as a risky move, especially for investors who are risk-averse or have limited investment knowledge.

Addressing these Challenges

To overcome these challenges, the ETF industry must continue to innovate and educate investors about the benefits of ETFs. This can be achieved through targeted marketing campaigns, collaborations with financial advisors and institutions, and the development of new products that address the unique needs of different investor segments. Additionally, regulatory efforts to level the playing field between ETFs and mutual funds could help accelerate the growth of ETFs.

In Conclusion

While ETFs have made impressive strides in the investment industry, they still face significant challenges in their quest to overtake mutual funds. Addressing regulatory hurdles, increasing investor education and awareness, and breaking down psychological barriers are crucial steps towards realizing this goal. By continuing to innovate and adapt to the evolving investment landscape, ETFs can continue to capture market share from mutual funds and provide investors with compelling investment solutions.

ETFs on the Rise: Could They Capture Half of US Mutual Fund Assets?

VI. Conclusion

In the dynamic world of investing, it’s essential to stay informed and adapt to changing trends. In this article, we’ve explored the rising tide of Exchange-Traded Funds (ETFs) and their potential to disrupt the traditional mutual fund market. Key takeaways from our discussion include:

  • ETFs and mutual funds differ in their structure, trading mechanisms, and cost structures

  • The trend towards passive investing has fueled ETFs’ growth, with their lower fees and tax efficiency being attractive to investors

  • ETFs offer more flexibility than mutual funds through their intraday trading capability and the ability to short sell, leverage, and access niche markets

  • The shift from mutual funds to ETFs is not a question of if, but when, with some experts estimating that ETFs could capture half of US mutual fund assets by 2030

Industry insiders and experts share their insights on the future outlook for both asset classes:

“The mutual fund industry has been around for decades, but ETFs offer unique advantages. As technology continues to evolve and investors become more sophisticated, I believe that ETFs will increasingly capture market share from mutual funds,”Jane Doe, Head of Research at XYZ Asset Management.


“ETFs can help investors build more customized and diversified portfolios while offering tax benefits and lower costs. Mutual funds still have a place in the market, especially for those who value active management or prefer a simpler investment approach, but ETFs are likely to dominate the landscape moving forward,”John Smith, Portfolio Manager at ABC Wealth Management.

As an investor, what does this shift mean for you?

  • Consider assessing your current investment strategy and determining whether ETFs may better align with your goals.
  • Learn about the various ETF options, their fees, and tax implications to make informed decisions.

Join us on this exciting journey as we explore the future of investing and the potential benefits that ETFs can bring to your portfolio.

Ready to dive deeper into the world of ETFs? Stay tuned for our upcoming articles and resources designed to help you make informed investment decisions.

Quick Read

June 21, 2024