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ETFs catching up to mutual funds…and investors get it

Thanks to Forefront Advisory for some excellent data on ETFs catching up to mutual funds.

First: The average total expense ratio for equity ETFs in the United States is 34 bps (basis points, or 0.34% expense ratio every year) versus 93 bps per year for the average equity index tracking fund and 146 bps for the average active equity fund. Takeaway: it’s cheaper to invest in stocks using exchange-traded funds than an index or equity mutual fund.

Second: Net sales of mutual funds (excluding ETFs) were negative — minus US $331.0 billion, while net sales of ETFs domiciled in the U.S. were positive US $38 billion during the first six months of 2010, according to Strategic Insight. Takeaway: investors are pulling out of mutual funds and putting money into ETFs.

Third: Fixed Income ETFs rock in 2010. Fixed Income year-to-date is by far the market share leader with $28.6 billion, or over 60%, of net money flowing into exchange-traded funds. Also noteworthy: long fixed income money flows declined sequentially from $4.76 billion in July to $2.2 billion in August 2010 while net short fixed income increased  to inflows of $648 million, from outflows previously. Fixed Income has been consistently the best asset class this year with performance ranging from flat to as much as up 23%.

August 2010 net cash outflows from all ETFs/ETNs totaled approximately $1.9 billion, with year-to-date net cash inflows totaled $47.6 billion.  At the end of August 2010, the number of listed products reached 1046, with 437 ETFs/ETNs posting $100 million in assets under management.

Thanks to the two Dans at Forefront for their continued excellent research on how exchange-traded funds.


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