From CNBC: 2024-12-17 13:14:24

Financial advisors are shifting to favor exchange-traded funds (ETFs) over mutual funds, with estimates that by 2026, 25.4% of client assets will be in ETFs compared to 24% in mutual funds. ETFs offer lower fees, tax advantages, and transparency, making them more appealing to investors and advisors.

ETFs have grown to hold roughly $10 trillion in U.S. assets, half the amount held in mutual funds. ETFs offer tax advantages by allowing managers to trade securities without creating taxable events, unlike mutual funds. Lower fees, tax efficiency, liquidity, and transparency make ETFs a preferred choice for many investors and advisors.

One key advantage of ETFs is the ability to trade throughout the day, unlike mutual funds that execute trades after market close. ETFs also offer daily portfolio disclosures, providing investors with more transparency compared to quarterly disclosures by mutual funds. However, ETFs may not dominate retirement accounts like 401(k) plans due to tax advantages already available in such accounts. Additionally, niche ETFs may face challenges as they attract more investors, potentially impacting the fund’s execution of its investment strategy.

Read more: ETFs will soon beat mutual funds among advisor holdings: report