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This is a Disturbing Trend for Mutual Funds

October 26, 2017 By Jeremy Jones, CFA

Exchange traded funds are a booming business today. Brokers, advisors, and everybody’s mother has been moving assets from actively managed funds into ETFs, but now even actively managed mutual funds are buying ETFs.

I guess since many investors now recognize that actively managed funds are nothing more than high-fee closet index funds, the “portfolio managers” of these funds feel they can just openly buy index based ETFs.

Marketwatch reports that in 2016 1,222 mutual funds held an ETF as a component in their portfolio. The median size of the ETF holdings were 4.5% of the portfolio. In 2006, only 595 mutual funds held an ETF, comprising 1.2% of assets.

The most widely held ETF by mutual funds, was the SPDR S&P 500 ETF.

According to data from Morningstar, 1,222 mutual funds held an ETF as a component of their portfolio in 2016, the most recent period for which data is available. The median size of the ETF holdings were 4.5% of the mutual fund’s total assets under management.

In 2006, only 595 mutual funds held an ETF, comprising 1.2% of the assets.

While the number of mutual funds with ETF positions doubled over the past decade, those are still the minority: there were more than 9,000 U.S. mutual funds in 2015, according to the 2016 fact book put out by the Investment Company Institute. The category held $15.7 trillion in assets.

Read more here.

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Jeremy Jones, CFA
Jeremy Jones, CFA, CFP® is the Director of Research at Young Research & Publishing Inc., and the Chief Investment Officer at Richard C. Young & Co., Ltd. Richard C. Young & Co., Ltd. was ranked #10 in CNBC's 2019 Financial Advisor Top 100. Jeremy is also a contributing editor of youngresearch.com.
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