Financial advisors predict that exchange-traded funds (ETFs) will hold more client assets than mutual funds for the first time by 2026, driven by advantages such as lower fees, tax benefits, and transparency.
Financial advisors anticipate holding more client assets in exchange-traded funds (ETFs) than mutual funds by 2026, marking the first time ETFs will surpass mutual funds in this regard, according to Cerulli Associates. ETFs generally offer advantages over mutual funds in areas such as taxes, fees, transparency, and liquidity, experts assert. Advisors estimate that 25.4% of client assets will be invested in ETFs in 2026, compared to 24% in mutual funds , as projected by Cerulli.
If realized, this shift would position ETFs as the most prevalent investment vehicle for wealth managers, exceeding individual stocks and bonds, cash accounts, annuities, and other investment types, according to Cerulli. \ETFs and mutual funds share similarities as they both function as legal structures enabling investors to diversify assets across various securities like stocks and bonds. While ETFs currently hold approximately half the value of the roughly $20 trillion in mutual funds, they have consistently gained market share from mutual funds since their introduction in the early 1990s. 'ETFs have been appealing to investors for an extended period,' stated Jared Woodard, an investment and ETF strategist at Bank of America Securities. 'They offer tax advantages, lower expenses, and investors appreciate their liquidity and transparency.' Specifically, mutual fund managers incur capital gains within the fund when buying and selling securities. This tax obligation is then passed on annually to all fund shareholders. However, the ETF structure allows most managers to trade stocks and bonds without triggering a taxable event. In 2023, 4% of ETFs experienced capital gains distributions compared to 65% of mutual funds, according to Bryan Armour, director of passive strategies research for North America at Morningstar and editor of its ETFInvestor newsletter. 'When you're not paying taxes today, that amount of money is compounding' for the investor, Armour explained
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