Equity fund investors appear to be exiting from mutual funds and investing in ETFs instead. The ICI reported net redemptions of $64.673 billion for U.S. equity funds and $42.887 billion for all equity funds for the year to date.

At the same time, equity ETFs are booming. ETFs/ETPs saw net inflows of $130.766 billion for the year to date through July, and equity ETFs/ETPs gathered the largest net inflows with $75.852 billion, followed by fixed income ETFs/ETPs with $41.353 billion, according to London-based ETFGI.

Deborah Fuhr, a partner with ETFGI and author of the firm's monthly industry insights says the reason is that it's "hard to find active equity funds that consistently deliver alpha.  In the U.S. last year, 81.2 percent of active large cap managers did not beat the S+P 500 index.  Investors know this has been the case for a many years. Investors are also familiar with equity indices and the exposures they represent, and ETFs are very cost efficient."

ETFs provide more options for investors than index funds and they are even more cost-effective, said Fuhr. On the retail side, many online brokerage firms offer no-commission trading on the investment vehicles, she said. And ETFs have the added benefit of allowing investors to get in and out any time during the day, she said.

Fixed income mutual funds and ETFs are a somewhat different story. Investors are flocking to bond funds according to the latest numbers from ICI. But more investors are also turning to bond ETFs than they have in the past. Last year, fixed income ETFs/ETPs attracted $18.14 billion; that number jumped to $41.353 billion for the year to date. That compares to $177.858 billion in net inflows into bond mutual funds for the year to date, according to the ICI.

Investors aren't embracing fixed income ETFs as much as they are equity ETFs because while they are very familiar with equity benchmarks, it's harder for them to understand fixed income benchmarks, Fuhr said. Many don't know that fixed income ETFs exist, she added.

Mary Schroeder writes for Securities Technology Monitor.

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