What Percentage of All Mutual Funds Are Exchange Traded Funds?
Learn the distinctions between mutual funds and ETFs, their market share, and the factors shaping today's investment landscape.
The investment world offers various avenues for individuals seeking to grow their capital, including direct ownership of stocks and bonds, and pooled investment vehicles. Pooled vehicles allow investors to combine money for professionally managed, diversified portfolios. This article focuses on two prominent types of pooled investment vehicles: mutual funds and exchange-traded funds.
Understanding Mutual Funds
Mutual funds are investment companies that gather money from numerous investors and invest it in a diverse collection of securities, such as stocks, bonds, or other assets. This pooling allows investors to access professionally managed portfolios they might not build independently. The fund’s investments are chosen based on a stated investment objective, which can range from aggressive growth to conservative income generation.
Investors typically buy and sell mutual fund shares directly from the fund company or through a broker. Transactions usually occur once per day after the market closes, at the fund’s Net Asset Value (NAV). While mutual funds can be passively managed, many are actively managed, with a fund manager selecting investments to outperform a benchmark.
Understanding Exchange-Traded Funds
Exchange-traded funds (ETFs) are pooled investment vehicles that hold assets such as stocks, bonds, commodities, or even currencies, offering investors a diversified portfolio and professional management. A key difference lies in how ETFs trade; they are bought and sold on stock exchanges throughout the trading day, much like individual stocks.
The price of an ETF share fluctuates throughout the day based on market supply and demand. While many ETFs are designed to passively track a specific market index, a growing segment are actively managed. ETFs often provide transparency, with holdings typically disclosed daily.
Key Distinctions Between Mutual Funds and ETFs
A key difference between mutual funds and ETFs is their trading mechanisms. Mutual funds are typically bought and sold directly with the fund company at the end of each trading day, processed at their Net Asset Value (NAV). In contrast, ETFs trade on stock exchanges throughout the day, allowing investors to buy or sell shares at fluctuating market prices, similar to individual stocks.
Pricing also varies; mutual fund prices are set once daily based on their NAV. ETFs are priced in real-time by the market, potentially trading at a slight premium or discount to their NAV during the day. Regarding management style, mutual funds have historically been dominated by active management, where portfolio managers make decisions to outperform a benchmark. Many ETFs are passively managed, tracking an index, though actively managed ETFs are becoming more prevalent.
Fee structures also present a distinction. Mutual funds may charge sales loads (commissions) when shares are bought or sold, in addition to ongoing expense ratios. ETFs generally do not have sales loads, but investors typically pay standard brokerage commissions when buying or selling shares, similar to trading stocks.
From a tax perspective, ETFs often exhibit greater tax efficiency due to their unique “in-kind” creation and redemption process, which helps minimize taxable capital gain distributions compared to traditional mutual funds.
The Evolving Investment Landscape
The investment landscape has seen a significant shift in asset allocation between mutual funds and exchange-traded funds. ETFs are distinct investment vehicles, not a subset of mutual funds, representing separate categories within the broader managed fund industry.
As of year-end 2024, ETFs represented approximately 33% of the total managed fund industry in the United States, with over $10 trillion in assets under management. By June 2025, U.S. ETF assets reached $11.54 trillion. In comparison, the U.S. mutual fund market commanded assets estimated at $30.09 trillion in 2025. While mutual funds still hold a larger pool of assets, recent years have seen net flows significantly favoring ETFs, with mutual funds experiencing outflows. Annual net ETF flows surpassed $1 trillion for the first time in 2024, reaching $1.1 trillion.
Factors Driving Investment Shifts
Several factors have contributed to the increasing popularity of ETFs and the observed shift in investment capital. Cost efficiency is a primary driver, as many ETFs, particularly those that track broad market indexes, typically feature lower expense ratios compared to actively managed mutual funds. This cost advantage can significantly impact long-term returns for investors.
Transparency is another appealing characteristic of ETFs. While mutual funds generally disclose their holdings quarterly, ETFs often provide daily transparency, allowing investors to see the exact composition of their portfolios at any given time. The trading flexibility offered by ETFs also plays a role; their ability to be traded throughout the day on exchanges, similar to stocks, enables investors to react quickly to market movements and utilize various order types, such as limit orders or stop-loss orders.
The structural tax efficiency of ETFs provides a notable advantage. The “in-kind” creation and redemption process, where securities rather than cash are exchanged, helps minimize taxable capital gain distributions to shareholders. ETFs are also widely accessible through various brokerage platforms, contributing to their growing adoption among investors seeking cost-effective and flexible solutions.