ETFs Take Another Big Bite Out of Mutual Fund Market Share

The setbacks keep on coming for the mutual fund industry, which saw about $80 billion worth of net outflows in October to extend a monthly losing streak that goes back to August 2021. 

Flows into exchange traded funds, meanwhile, continue moving in the other direction with net inflows in the $30 billion range last month, according to multiple data tracking sources. 

“These have been long-standing trends,” said Adam Sabban, senior manager research analyst at Morningstar Research Services. 

Morningstar’s data shows mutual funds, at more than $26 trillion, still make up about 70% of the combined mutual fund and ETF assets, and Sabban said that mutual funds “aren’t going away anytime soon.” 

But the trends are difficult to ignore.  

Sabban pointed to the “resilience” of actively managed ETFs as just one example of where the lower-cost wrapper is steadily gaining ground on mutual funds. 

Active ETFs 

Morningstar’s data shows actively managed open-end mutual funds had more than $65 billion worth of net outflows in October, while actively managed ETFs had more than $14 billion worth of inflows. 

“It’s kind of confusing because, on one hand, the narrative of active is that it is slowly withering away,” Sabban said. “We’re asking ourselves what investors hate more, active management or the mutual fund structure, and it seems like it’s a little of both.” 

But as with much of the ETF story, Sabban pointed out that actively managed ETFs are “still in their infancy on a relative basis.” 

“We don’t know how durable active ETFs will be down the road,” he added. 

Eric Balchunas, ETF analyst at Bloomberg Intelligence, sees the same trends, but pointed out that mutual funds are still finding some positive flows in select categories. 

“This is normal stuff for mutual funds, but most of the bloodshed has been on the equity side,” he said. 

While active U.S. equity mutual funds led the race to the bottom last month with $23.8 billion in outflows, active alternative, commodities and nontraditional equities all saw inflows. 

On the passive side, U.S. equity mutual funds registered $22.6 billion in net inflows in October, well above the second-best passive mutual fund category of taxable bonds, with $6.6 billion in net inflows during the month. 

Passive ETFs, meanwhile, saw more than $24 billion worth of inflows in October. 

Contact Jeff Benjamin at [email protected] and find him on X at @BenJiWriter