Last year was very good for ETFs but not for mutual funds. ETFs had net inflows of $502 billion,led by taxable-bond ETFs that collectednearly half those assets, while mutual funds saw outflows of $289 billion,according to Morningstar’s late Januaryfund flows report, which tracks bothETFs and mutual funds.
That divergence in flows is nothingnew. ETF flows have topped mutualfund flows in eight of the past 10 years,but the gap in 2020 was the largest todate, according to Ben Johnson, directorof global exchange-traded fund researchat Morningstar.
The growing popularity of ETFs posi-
tions them to overtake mutual funds
in assets, writes John Rekenthaler,
Morningstar’s vice president of research.
It “won’t happen anytime soon, because
mutual funds possess the power of his-
tory,” he writes — mutual funds have
$18.2 trillion in assets compared with
$5.5 trillion in ETFs — “but the outcome
ETFs and mutual funds recovered
from the beating they took in March
when the coronavirus pandemic hit,
trashing markets along with the U.S.
economy in terms of flows and perfor-
mance, but the comeback was uneven,
especially among equity funds.
Equity mutual funds suffered recordnet outflows of $370 billion in 2020 —double the previous record of $180 billion in outflows in 2019 and the seventhconsecutive year of net outflows despitea 16% gain in the S&P 500. U.S. equityETFs, in contrast, collected $129 billionin 2020, marking their fifth consecutiveyear of inflows above $125 billion.
Advisors are more likely to use ETFs
now instead of mutual funds, writes
Rekenthaler, for several reasons: they
don’t carry charge extra charges like
loads or 12b- 1 fees, are more transpar-
ent about their holdings, more liquid
since they can be traded throughout the
day and less prone to post capital gains,
which are taxable.
ETFs have become so popular thattraditional mutual fund companies likeDimensional Fund Advisors are launching them for the first time; others likeCapital Group are planning to do thesame. Some of these launches are brandnew; others are conversions or clones ofexisting mutual funds.
EXPLOSIVE GROWTH OF ARK
In December 2020, four of the 10 fundswith the largest inflows were ETFsand three of the four were from ARKInvestment Management, home of fiveof the best-performing ETFs in 2020.They more than doubled in price. Inthe first two weeks of January, flowsinto ARK ETFs topped flows intoBlackRock’s iShares ETFs.
“The growth of ARK ETF Trust isnothing short of impressive,” accordingto the Morningstar fund flows report.“With its calendar-year inflows of $20.6billion and strong gains for its ETFs’holdings, the firm grew 11-fold duringthe year to $34.5 billion as 2020 closedfrom $3.1 billion in total assets at theend of 2019.”
MOST AND LEAST POPULAR FUNDFAMILIESiShares placed second in fund flows forall of 2020, collecting $122.12 billion,according to the Morningstar total forcombined ETF and mutual fund flows.Vanguard, as usual, led inflows with$140.62 billion and J.P. Morgan placedthird, with $40.4 billion. State StreetGlobal Advisors, home of the first ETF,the SPDR S&P 500 SPY, placed fourth,with $356.2 billion.
Among the top 10 fund families thatexperienced the biggest outflows wereDFA (-$37 billion), T. Rowe Price (-$33.3billion), Franklin Templeton (-$25.2 bil
ETF ADVISORBy Bernice Napach
ETFs Are Hot, Mutual Funds Are Not: Morningstar
Also, new ESG-linked ETFs are launched by New York Life and Gabelli.