It seems a fair bet that ETFs will continue on their trajectory of increased investor adoption and importance.
To be sure, mutual funds retain a secure place in the investment world. First, in the 401(k) market, mutual funds commanded $3.9 trillion in AUM at the end of 2021, or nearly 47% of all 401(k) assets, according to Cerulli.
Moreover, all the embedded capital gains taxation associated with exiting long-held positions in mutual funds will slow any transition to ETFs.
Such caveats aside, ETFs are where most of the new money is going these days and they have increasingly become a hot spot of innovation.
ETF model portfolios are one such area of innovation: Because of the flexibility of ETFs, they can be used as low-cost beta funds to generate alpha, and thus can be part of a viable portfolio-construction approach.
Also, active ETFs are garnering more interest. But while more than 34% of U.S.-listed ETFs are actively managed, less than 5% of overall assets are in active strategies.8
That said, active ETFs seem to be gaining investors, notably in the fixed income realm, where lower costs are crucial given the relatively modest but steady returns of fixed income. More broadly, active ETFs that maintain a transparent structure (rather than the newer varieties of nontransparent wrappers) have gained assets. This suggests that many of the players in the ETF ecosystem are taking a wait-and-see approach to the newer, less transparent structure.
What remains clear about ETFs is that they have proven themselves a useful and efficient way to invest. And while their popularity is still growing, ETFs already play a major role in helping investors reach their financial goals.
Vanguard offers 81 ETFs in the U.S. that are designed with the goal to give investors the best chance for investment success. When you invest with us, we invest with you. That’s the Value of Ownership.9