ETF Sales May Top Mutual Funds in 9 Years

Financial advisors are the main driver of exchange-traded fund sales.

Move over mutual funds.  

Exchange-traded funds will surpass mutual funds in assets in as little as nine years, market research firm Cerulli Associates says.  

ETF sales have been gaining on mutual funds since 2015, to the point where they will top them sometime between 2032 and 2036, Cerulli Associate Director of Product Development Research Matt Apkarian told etf.com during an interview Monday.  

“ETF asset flows continue to be very strong,” he said.  

He noted that there was only one month since the beginning of 2022 when ETFs failed to grow and actually contracted. 

Apkarian added that in April 2022, the Nasdaq was down 13% and the S&P 500 fell 8.7%, at a time when the Fed was also raising the federal funds rate, all of which “spooked” investors. He added that gross ETF flows have outpaced gross mutual fund flows every year since and including 2015. 

Total assets now stand at just less than $6.9 trillion, according to Cerulli’s recent newsletter. 

“ETFs continue to be a destination for investors, who collectively poured $77.8 billion in net flows into the vehicle during 1Q 2023,” Cerulli researchers wrote. “Net flows, coupled with positive returns across equities and fixed income, led to 5.7% asset growth over the first quarter of the year.”  

Apkarian said financial advisors are driving sales of ETFs: “Institutions only make up 20% of ETF investing, and direct retail investors are a small portion; they prefer individual securities and stocks.”  

Financial advisor Robin Giles of Apex Wealth Management in Katy, Texas, noted that ETFs are growing in part because they’re more flexible for trading than mutual funds: “They are very attractive to investors because they tend to be less expensive and offer the same diversity as mutual funds.” 

Joey Loss, a financial advisor and founder of Flow Financial in Jacksonville, Florida, noted three advantages of ETFs: low barrier to entry; no surprise pass-through capital gains taxes, as was the case with mutual funds in 2008; and the ease of trading during market hours.  

“These features make ETFs inexpensive and easy for investors and managers alike to interact with,” he said. 

Follow Michelle Lodge on Twitter @lodgemich