ETFs, CITs Take Further Share From Mutual Funds

Mutual fund assets fell beneath $17 trillion in September, Cerulli found.

Mutual funds lost market share last month, as ETFs took in more investor money and the popularity of collective investment trusts (CITs) increased, research firm Cerulli Associates reported. 

ETF flows rose in September to just below 2023’s monthly average of $36 billion, according to The Cerulli Edge U.S. Monthly Product Trend analysis. Investors flocked to active ETFs as the vehicles experienced their strongest month in terms of inflows this year so far. Active ETFs are on track to see their largest annual inflow ever by month’s end.  

Mutual funds lost ground again to other investment vehicles, even as the asset class remains dominant in much of the investing industry. ETFs, which have lower fees and trade easier than mutual funds, have steadily gained investors over the past decade, while the older, less flexible mutual fund format has struggled to keep up.  

Mutual fund assets fell below $17 trillion in September, as the funds saw a total of $292 billion in outflows year to date, according to Cerulli.  

Many firms are resorting to mutual fund conversions into ETFs, and even considering rolling out ETF share classes of mutual funds, a savvy move asset manager Vanguard Group patented in the early 2000s.  

ETFs, CITs, Grab Mutual Fund Market Share

Largely due to RIA retirement plan aggregators, CITs, which are tax-exempt collected investment vehicles used by institutional investors, are gaining popularity, according Cerulli said. Assets in CITs have grown faster than assets in mutual funds since 2018. Unlike mutual funds, CITs are largely not used by retail investors, only by institutional investors and in employer sponsored retirement plans, so they are more tax efficient.  

“CIT asset growth has outpaced that of mutual funds since 2018, as DC plan sponsors and intermediaries value the cost advantages of the vehicle,” Cerulli wrote in an emailed statement. “RIA retirement plan aggregators (e.g., CAPTRUST, One Digital) are increasingly bringing CITs to small- and mid-market plans.” 

Contact Lucy Brewster at [email protected] .