The Migration Out of Mutual Funds….

Sober Look posted a good story yesterday on the outflows from mutual funds (see details below).   This is one of the tidal wave trend changes in the investment business.  Mutual funds are a dinosaur product.  The higher fees, reduced tax efficiency, lack of liquidity, and weak performance continues to hurt the industry.  And this is only just beginning.  There’s still $24 trillion in global mutual funds just waiting to find a new home.  This tidal wave of money will flow out of mutual funds and into ETFs and other more client friendly products and approaches in the coming decades.

Next up – investors will realize most hedge funds are largely the same thing (with higher fee structures).  But that trend change might take a few more decades of underperformance and data…..Here’s more via Sober Look:

“2012 was another rough year for equity mutual funds business. In spite of relatively strong stock market performance, retail investors continued to pull their money out. This trend has been in place for quite some time (see discussion), but has accelerated this year. The outflows from US equity mutual funds were roughly $154bn this year.”

Source: ISI Group


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • Barak

    the chart above doesn’t prove your argument since it doesn’t show what the ETF equity flows were. I think this chart has more to do with the bull market in bonds (where bond mutual funds enjoy inflows) than the demise of mutual funds in general. however, the shift you are talking about does exist to some extent when you look at the ratio of funds in equity ETF’s vs equity mutual funds. i think this chart is mostly proving that the cult of equity is dying which, paradoxically, is one of the conditions for the birth of the next equity bull market.

  • Geoff

    Agreed. This chart reveals more about equity sentiment than mutual fund sentiment. We really should look at all mutual fund categories, not just equities. But Cullen’s point is well taken. Mutual funds in general appear to be a dying breed.

  • hangemhi

    You guys should read the main article…. this is about equity mutual funds losing ground to equity ETF’s. They also have additional the charts to prove it.

    I just read a Chase self review of their performance. They congratulated themselves for being in the 4th quintile – in other words having 60% to 80% out performing them was more than acceptable.

  • perpetual neophyte

    The main article on Sober Look does not have any more info. The original discussion from January does:

    I think it’s a great point, though. When people talk about fund flows, I always ask if that is mutual funds and ETFs (and, ideally, CEFs) or if they are just referencing open-end funds.