ETFs Gaining Ground On Traditional Funds: New Data

Exchange-traded funds continue to upend the investing world.

Last year investors around the world sunk a record-breaking $2.4 trillion into ETFs and mutual funds. Yet the ETF’s received a disproportionately large portion of the haul, new research from Morningstar shows.

That new data could be great news for the ETF industry but bad news for investment companies that solely provide mutual funds, as Morningstar explains. The report states the following:

• “ETFs attracted 49% of net flows even though they represented just 21% of assets at the end of 2021, suggesting that ETFs will soon capture the majority of net global flows on an ongoing basis.”

In other words, investment companies that don’t provide ETFs as an investment alternative could find themselves at a disadvantage in the race to accumulate investor cash. ETFs are fast becoming and investing must-have for investment companies.

The Morningstar news comes at the same time as data on the U.S. investment industry from the Investment Company Institute. Last year investors pulled $440 billion from U.S. domiciled equity-focused mutual funds, ICI found. That follows an even larger out-flow the previous year which totaled $646 billion.

That fits with the Morningstar data above and suggests that U.S. residents are ditching mutual funds in favor of ETFs.

Still, Americans haven’t given up on investing in funds. The country receiving the largest portion of the global cash inflows (for both types of funds) was the U.S. netting a hefty $1.2 trillion, Morningstar found. Europe, which ranked second, took in less than half that; $485 billion.

This data also shows that Wall Street is continuing its perennial practice of innovating and changing to suit customer needs. Put another way, in finance as elsewhere, change is the only constant.