What Do Mutual Funds and Books Have in Common?
January 19, 2010
They are both fighting new technologies that are changing their once lucrative business models. Book publishers and sellers are waking up to a new type of e-Book reader every week, while the mutual fund industry is trying to fight off its new competitor ETFs.
The chart below shows how quickly ETFs are taking market share away from the traditional mutual fund industry. We believe that as members of Generation Y enter the workforce they will save through ETFs and not mutual funds. The advantages of ETFs are listed below, but we would add a further key advantage of how they do not underperform their benchmark indexes. We Blogged yesterday that just over 66 percent of mutual funds underperform the S&P composite. That's like going into a grocery store and having a 66 percent chance of coming out with rotten fruit!
ETFs share of the pie has risen nearly 1.9 times in four years, from 3.9 percent in 2005 to 7.2 percent in 2009. If this trend continues, as we believe, ETFs should account for more than a third of mutual fund assets by 2020. And the mutual fund industry has only itself, or it's highly paid inconsistent performance, to blame.
Source: Index Universe
