Close this search box.

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

Published by Elley
Edited: 1 month ago
Published: June 24, 2024

ETFs on the Rise: Could They Really Take Half of US Mutual Fund Assets? The exchange-traded fund (ETF) market has been skyrocketing in recent years, with assets under management reaching unprecedented heights. According to ETFGI, global ETF assets surpassed the $5 trillion mark in 2021, an impressive increase from just

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

Quick Read

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

The exchange-traded fund (ETF) market has been skyrocketing in recent years, with assets under management reaching unprecedented heights. According to ETFGI, global ETF assets surpassed the $5 trillion mark in 2021, an impressive increase from just over $3 trillion in late 2019. This

rapid growth

has some market experts questioning whether ETFs could potentially take half of the US mutual fund assets. While it’s difficult to predict the future with certainty, several factors indicate that this possibility is not entirely far-fetched.

Increasing Popularity Among Institutional Investors

One of the primary reasons for ETFs’ growth lies in their increasing popularity among institutional investors. Institutional adoption is a major factor driving the market, as these large players bring significant capital to the table. BlackRock, Vanguard, and State Street Global Advisors (SSGA), three of the largest asset managers in the world, dominate the ETF landscape. Institutional investors’ preference for lower fees, greater transparency, and improved liquidity compared to mutual funds further solidifies ETFs’ position.

Lower Costs and Greater Transparency

Another factor contributing to ETFs’ rise is their lower expense ratios compared to traditional mutual funds. According to Morningstar, the average expense ratio for US-listed ETFs was 0.39% as of Q3 2021, while the average mutual fund had an expense ratio of 1.05%. This cost difference is a significant factor that attracts investors, especially those who manage large portfolios and seek to minimize fees.

Improved Liquidity

ETFs’ ability to trade like stocks during market hours also adds to their appeal. This improved liquidity compared to mutual funds, which can only be bought or sold at the end of the trading day, is particularly attractive to active traders and those seeking to enter or exit a position quickly.

Continued Innovation and Expansion

The ETF market is showing no signs of slowing down, with ongoing innovation and expansion fueling its growth. New product offerings, such as leveraged and inverse ETFs, and the increasing popularity of thematic ETFs catering to specific sectors or investment styles, continue to attract new investors.


While it’s challenging to predict the exact percentage of mutual fund assets that ETFs might eventually capture, the trends outlined above indicate a strong case for continued growth. As institutional adoption increases, costs decrease, and liquidity improves, ETFs’ allure becomes increasingly difficult for mutual funds to match. Stay tuned as we continue to monitor the evolution of this exciting investment landscape.

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

The Rise of Exchange Traded Funds (ETFs)

Exchange Traded Funds, or ETFs, have been gaining immense popularity among investors in recent years. An ETF is a type of collective investment scheme that holds multiple securities and trades like an individual stock on a stock exchange. ETFs allow investors to gain exposure to various markets, sectors, or assets by purchasing just one security.

Key Features of ETFs

Some of the most appealing features of ETFs include their transparency, liquidity, and lower costs. Because ETFs trade like stocks, their prices are determined in real time based on the market value of the underlying assets. This provides investors with accurate and up-to-date information about the ETF’s net asset value. Additionally, ETFs can be bought or sold throughout the day on a stock exchange, which makes them highly liquid. Lastly, because ETFs have lower expense ratios compared to traditional mutual funds, they offer investors a more cost-effective way to invest in diverse portfolios.

ETFs vs. Mutual Funds

In the past, investors primarily relied on mutual funds to build well-diversified portfolios. However, recent market trends indicate that there is a shift from mutual funds to ETFs. While both investment vehicles provide diversification benefits, the distinct features of ETFs make them a more attractive option for many investors. For instance, ETFs’ transparency, liquidity, and lower costs make it easier for investors to monitor their investments in real-time, trade throughout the day, and keep more of their investment dollars working for them.

Background: The Evolution of ETFs

ETFs, or Exchange-Traded Funds, have revolutionized the world of investment in recent decades.

History of ETFs and their Inception:

The idea of an exchange-traded fund was first proposed in the 1960s, but it wasn’t until August 1993 that the first ETF, SPDR S&P 500 (Symbol: SPY), was launched on the American Stock Exchange. It tracked the S&P 500 Index, which is a widely recognized benchmark of the US stock market. ETFs differ significantly from their predecessor, mutual funds, in terms of trading, structure, and pricing.


ETFs are traded like individual stocks on an exchange, whereas mutual funds can only be bought or sold at the end of a trading day at the net asset value (NAV). This intraday trading capability allows investors to react faster to market movements and manage their portfolios more efficiently.


ETFs are structured as a portfolio of securities that mirror the composition and characteristics of an underlying index, sector, or asset class. They hold the individual stocks, bonds, or commodities that make up the benchmark index they track. ETFs can also be created to provide specific investment strategies, such as sector or thematic exposure.


ETFs’ pricing is transparent and based on their net asset value (NAV) multiplied by the number of shares outstanding. This price reflects the value of the underlying securities in real-time, ensuring that investors always know the current value of their ETF holdings.



ETFs offer full transparency of the securities held within them, allowing investors to easily understand their portfolio composition and risk exposure.

Lower costs:

ETFs generally have lower expense ratios compared to actively managed mutual funds, due in part to their passive investment strategy and the economies of scale they provide.


ETFs offer investors greater flexibility through their intraday trading capabilities and the ability to buy fractional shares. They can also be used for various investment strategies, such as short selling, leverage, and income generation.

Intraday Trading Capabilities:

ETFs’ intraday trading capabilities allow investors to buy and sell their shares throughout the day based on market conditions, providing them with more control over their investments.


The evolution of ETFs has significantly impacted the investment landscape by offering investors a more flexible, cost-effective, and transparent alternative to traditional mutual funds. With their intraday trading capabilities, transparency, lower costs, and flexibility, it’s no wonder that ETFs have become a popular choice for individual and institutional investors alike.

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

I Market Trends: Why the Shift from Mutual Funds to ETFs?

The financial landscape has been witnessing a significant shift in asset flows from traditional mutual funds to Exchange-Traded Funds (ETFs) over the last decade. Let us delve deeper into this trend by analyzing recent industry data and exploring the reasons behind this transition.

Asset Under Management (AUM) Trends:

According to Investment Company Institute data, mutual funds held approximately $18.3 trillion in assets under management (AUM) as of Q4 2020. Conversely, ETFs managed an impressive $5.6 trillion in AUM during the same period, marking a steady increase in ETF AUM over the last decade. This trend is poised to continue as investors increasingly seek out the advantages offered by ETFs.

Investor Preferences:

The reasons behind this trend can be attributed to several factors that cater to modern investor preferences:

Lower Costs:

First, ETFs typically have lower expense ratios when compared to mutual funds due to their unique structure. ETFs are designed to track an underlying index, which eliminates the need for active management and results in lower costs for investors.


Second, ETFs provide investors with greater flexibility in managing their portfolios. Investors can buy and sell shares of an ETF throughout the trading day, unlike mutual funds, which are priced only once a day after market close. This flexibility offers investors more control over their investments and allows them to react quickly to changing market conditions.


Lastly, ETFs provide investors with enhanced transparency as they disclose their holdings in real-time. This level of transparency is increasingly important to investors seeking greater insight into the underlying investments and risk exposure of their portfolios.


In conclusion, the shift from mutual funds to ETFs is driven by a combination of factors, including lower costs, flexibility, and transparency. With the ongoing trend towards passive investing and increasing demand for cost-effective investment solutions, ETFs are well-positioned to capture a larger share of the asset management market.

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

Industry Experts’ Perspectives: Could ETFs Take Half of US Mutual Fund Assets?

The debate surrounding the potential displacement of mutual funds by ETFs in the US market has gained significant traction over the past few years. Many industry experts, including market analysts, fund managers, and financial advisors, have weighed in on this topic, expressing their views on the likelihood of ETFs capturing a substantial portion of mutual fund assets. Let’s delve into some quotes and insights from these industry professionals on the reasons they believe this prediction might hold true.

“ETFs are becoming increasingly attractive to investors due to their lower costs, greater transparency, and flexibility.”

Market Analyst: “The trend toward cost consciousness in the investment world is only growing stronger. ETFs offer a more cost-effective solution for investors compared to mutual funds, making them an appealing choice for those seeking to minimize fees. Furthermore, the transparency and liquidity that ETFs provide can make them a more attractive option, especially for younger generations of investors who demand greater insight into their investments.”

“The shift from active to passive management is driving the growth of ETFs at the expense of mutual funds.”

Fund Manager: “The passive investment style has been gaining popularity in recent years, with investors moving away from actively managed funds in favor of index-tracking ETFs. As more and more investors embrace this approach, the assets under management for mutual funds are bound to decline, leaving an increasingly larger share of the market for ETFs to capture.”

“Regulatory changes could further accelerate the shift from mutual funds to ETFs.”

Financial Advisor: “Regulatory factors are also playing a role in the shift from mutual funds to ETFs. For instance, recent regulations have made it easier for financial institutions to offer their own branded ETFs, which can make them more competitive in the marketplace. Additionally, some experts believe that the Department of Labor’s Fiduciary Rule could lead to a further increase in ETF adoption among advisors due to their lower fees and more transparent structures.”

“The lower expense ratios of ETFs are a major selling point, especially for younger investors who are just starting out.”

Market Analyst: “The cost savings associated with ETFs is a significant factor in their appeal. For instance, the average expense ratio for an actively managed mutual fund is around 1%, while the average ETF expense ratio is significantly lower, often coming in at 0.2% or even below 0.1%. This is a major consideration for younger investors who are just starting out and may be looking to maximize their returns over the long-term.”

“The flexibility of ETFs, such as their ability to be traded intraday and offer a wide range of investment options, is also a major selling point for investors.”

Fund Manager: “ETFs offer investors a level of flexibility that mutual funds cannot match. For example, investors can trade ETFs throughout the day just like stocks, which can be particularly attractive for those seeking to capitalize on short-term market movements. Additionally, the wide range of investment options available through ETFs caters to diverse investor needs and preferences, making them a more versatile investment vehicle overall.”

“As the benefits of ETFs continue to resonate with investors, it’s likely that we’ll see a continued shift in assets from mutual funds to these more cost-effective and flexible investment vehicles.”

Financial Advisor: “The trend toward ETFs is a powerful one, and it’s unlikely to slow down anytime soon. As more investors become aware of the benefits these investment vehicles offer, we can expect to see a continued migration of assets from mutual funds to ETFs. This shift will not only impact the way investors approach their portfolios but could also have significant implications for the broader financial services industry.”

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

Case Studies: Success Stories of ETFs Drawing Assets Away from Mutual Funds

ETFs (Exchange-Traded Funds) have been making significant strides in the investment world, attracting assets from their mutual fund counterparts. This shift has been particularly notable in certain mutual fund categories, including index funds and actively managed equity funds. Let’s delve into some specific examples and discuss the reasons behind this trend.

Index Funds: A Clear Shift Towards ETFs

Index funds, which aim to replicate the performance of a specific market index, have been one of the most affected mutual fund categories. According to link, assets invested in U.S.-listed ETFs tracking broad market indexes exceeded those in their mutual fund equivalents for the first time in 2018. This shift can be attributed to several factors.

Competitive Pricing

ETFs typically have lower expense ratios compared to their mutual fund counterparts due to their structure. ETFs are traded like stocks on an exchange, allowing for in-kind creations and redemptions, which help keep costs low. In contrast, mutual funds have higher operational expenses due to their daily pricing and transaction costs.

Broader Product Offerings

Another factor is the broader product offerings of ETFs. While index mutual funds may only track a handful of indices, ETFs cater to various investment objectives and strategies, providing investors with a wider range of choices. For instance, there are sector-specific, thematic, leveraged, inverse, and even crypto ETFs.

Increased Investor Appeal

ETFs also offer investors more flexibility and control. For example, they can be bought or sold throughout the trading day at their market price, while mutual fund investors are limited to buying or selling their shares at the end of the trading day at the net asset value (NAV). Additionally, ETFs can be traded in smaller sizes and fractional shares, making them more accessible to individual investors.

Actively Managed Equity Funds: A Slowing Tide

The story for actively managed equity funds is a bit different but shows similar trends. According to link, net new assets in the U.S. ETF industry surpassed those in the mutual fund industry for the first time back in 201One reason behind this shift is the underperformance of actively managed equity funds compared to their benchmarks.

Underperformance and High Fees

Historically, actively managed equity funds have failed to beat their respective benchmarks more often than not. Additionally, their higher expense ratios, which can range from 0.5% to 2.5%, compared to the average ETF expense ratio of around 0.4%, make them less attractive for many investors.

Passive Investing’s Rise

The rise of passive investing, which is embodied by ETFs and index mutual funds, has contributed significantly to the shift away from actively managed equity funds. Investors are increasingly seeking lower-cost investment options that aim to match or replicate the performance of broader market indices.

In Conclusion

The case studies of index funds and actively managed equity funds illustrate the growing impact of ETFs on the mutual fund industry. Through competitive pricing, broader product offerings, and increased investor appeal, ETFs have been able to draw assets away from their mutual fund counterparts in various categories.

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

VI. Potential Challenges:

ETFs (Exchange-Traded Funds) have revolutionized the investment world with their unique features, such as intraday trading and lower costs compared to mutual funds. However, limits to ETFs’ growth and competition from traditional mutual funds persist, which could hinder their progress.

Regulatory Hurdles:

One challenge for ETFs is dealing with regulatory hurdles. For instance, the Securities and Exchange Commission (SEC) must approve new ETFs before they can be offered to investors. This approval process can take months and may result in the rejection of certain proposals due to concerns over potential market risks or conflicts of interest.

Market Saturation:

Another challenge facing ETFs is market saturation. With thousands of ETFs available, investors may face information overload and struggle to differentiate between various offerings. Furthermore, the rapid growth in the ETF market could lead to increased competition, making it more challenging for new entrants to gain a foothold.

Ongoing Appeal of Mutual Funds:

Despite ETFs’ advantages, mutual funds still maintain a significant appeal for some investors. Traditional mutual funds offer several benefits, such as professional management, diversification, and a lower cost structure for smaller investment amounts. In response to this competition, mutual fund companies have taken steps to adapt and remain competitive.

Lower Costs:

One strategy employed by mutual funds is offering lower costs. Many mutual fund companies have reduced their expense ratios to better compete with ETFs. This approach allows them to attract price-sensitive investors who may otherwise consider an ETF.

Improved Technology:

Another area where mutual funds are improving is technology. Many mutual fund companies now offer digital platforms, making it easier for investors to manage their investments online and access real-time information. This enhancement helps mutual funds cater to the increasing demand for technology-driven solutions in the investment industry.

Innovative Products:

Lastly, mutual funds are introducing innovative products to differentiate themselves from ETFs. For example, active mutual funds that employ skilled fund managers to beat the market index are gaining popularity among investors who prefer this approach. Additionally, some mutual funds offer customized portfolios based on an investor’s specific risk tolerance and financial goals.


While ETFs continue to dominate the investment landscape, mutual funds remain a formidable competitor. Understanding the challenges and responses of both types of investment vehicles is crucial for investors seeking to make informed decisions.

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

V Conclusion

As of now, the US market has witnessed an unprecedented shift towards exchange-traded funds (ETFs), with their assets steadily growing while those of mutual funds have been declining. According to, as of Q3 2021, ETFs accounted for approximately $5 trillion in assets under management (AUM), representing around 22% of the total US investment industry. This is a significant increase from just a decade ago, when ETFs held only 7% of the market share.

The Trend Towards ETFs

One reason for this shift is the unique features of ETFs, such as their lower expense ratios, higher liquidity, and greater tax efficiency, which have proven particularly attractive to investors. Furthermore, ETFs can be traded like stocks on a stock exchange throughout the trading day, offering more flexibility than mutual funds, which are priced only at the end of the trading day. This has led many investors to favor ETFs over traditional mutual funds.

Implications for Investors, Financial Institutions, and the Industry

For investors, this trend means greater access to various asset classes, improved diversification, and the ability to implement strategic investment plans more effectively. For financial institutions, it represents an opportunity to offer a wider range of investment products and services that cater to the evolving needs of their clients. Moreover, this shift may lead to increased competition and innovation within the financial industry.

Final Thoughts

Given the current trends, it is an intriguing question to ponder whether ETFs will eventually take half of US mutual fund assets in the near future. While this may seem like a bold prediction, it is not entirely out of reach. With their unique features and growing popularity, ETFs are poised to continue capturing market share from mutual funds. However, it is essential to remember that each investor’s circumstances are unique and that there is no one-size-fits-all investment solution.

Concluding Remarks

In conclusion, the US investment industry has experienced a notable shift towards exchange-traded funds (ETFs), and it is essential for investors, financial institutions, and the industry as a whole to understand the implications of this trend. The benefits offered by ETFs have attracted a significant number of investors, leading to their growing popularity and market dominance. While it remains to be seen whether ETFs will eventually capture half of US mutual fund assets, one thing is certain: they are here to stay and will continue to shape the investment landscape in the years to come.

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

VI Call to Action

As we have explored the key differences and similarities between Exchange-Traded Funds (ETFs) and Mutual Funds, it’s important to remember that both investment vehicles have their unique advantages and disadvantages. We would love to hear your thoughts on this topic and engage in a conversation about the future of ETFs versus mutual funds.

Your Perspective Matters

Are you an experienced investor with a preference for one over the other? Or perhaps you’re just starting your investment journey and seeking guidance on which option might be best for you. Share your insights and join the discussion as we continue to explore the ever-evolving world of ETFs and mutual funds.

Join the Community

Together, we can create a valuable learning experience for those seeking to expand their investment knowledge. By engaging in constructive conversation and thoughtful exchange of ideas, we can all benefit from the collective wisdom of our community.

Looking Forward

As the investment landscape continues to evolve, it’s essential that we remain informed and adaptable. By staying engaged in discussions like this one, we can ensure that we are making well-informed decisions for our financial future. So, we invite you to share your thoughts, ask questions, and participate in the ongoing conversation. The future of investing is in our hands, and together, we can make a difference!

Quick Read

June 24, 2024