Sibling Rivalry: Mutual Funds Vs. ETFs
Mutual funds and ETFs have always made for strange bedfellows. While they compete for investor dollars, they may share the same corporate parent. And fund shops that don’t offer ETFs are justifiably worried about losing business to exchange-traded investment vehicles. (ETFs are similar to mutual funds in that they hold many stocks, but ETFs trade as a unit throughout the day, whereas mutual funds are priced just once a day, according to their holdings.) ETFs now hold more than $500 billion in assets, including net inflows of $176 billion last year. And according to a recent report by Strategic Insight, ETF assets are on track to top $1 trillion by 2011. “The ETF world is slowly pushing the mutual fund world out of the picture,” says Robert Pavlik, chief market strategist for Banyan Partners LLC, an investment advisory firm in Palm Beach Gardens, Fla.
If mutual funds are getting to be a tougher sell, in fact, it’s because fund companies are undercutting their own business with similar ETFs. Vanguard, for instance, offers 33 ETFs that are essentially just alternative share classes of their mutual funds. But the ETFs have annual expense ratios that are a fraction the mutual funds’, and the differences, while small, can add up over time. Vanguard recently launched a foreign stock ETF — the FTSE All-World ex-US Small Cap fund VSS with annual expenses of 0.38%, or $38 for every $10,000 invested — versus 0.6% for a Vanguard mutual fund that tracks the same index. Sure, the ETF only saves $22 a year, but compounded over time it can add up to thousands of dollars coming out of investors’ pockets
Full Story: http://www.smartmoney.com/investing/etfs/sibling-rivalry-mutual-funds-vs-etfs/?cid=1108?mod=smartmoney
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