On our most recent radio broadcast, we discussed a Fortune Magazine article titled “The Great ETF Mega-War”, which included several noteworthy data points relating to ETF fund flows and fees. Regarding fund flows for both mutual funds and ETFs, the article stated: “The mutual fund industry has seen steady outflows from equity funds in the past few years — $122 billion in the first 11 months of 2012, according to ICI. During the same period, $100.6 billion moved into equity ETFs”. Pertaining to fees, the article examined the so-called ETF price war between Vanguard, State Street, and iShares: “Vanguard isn’t just the cheapest of the three. Its fees — 0.15% of assets for stock ETFs — are about a quarter of the average 0.56% for equity ETFs, according to data through September provided by Lipper. (The equivalent figure for mutual funds is 1.29%)”.
We explored some of the key factors driving investors out of equity mutual funds and into equity ETFs, not the least of which is obviously the lower ETF fees highlighted in the second point above. We further noted that the takeaway here is not so much that Vanguard ETFs are perhaps cheaper than some of the other ETFs, but that the Vanguard equity ETFs average almost 1.15% less than the average equity mutual fund. We also explained how even with more investors turning bullish in January with the S&P 500 up over 6%, investors still preferred to access US equities through ETFs (with this additional food for thought from Reuters: “ETFs are generally believed to represent the investment behavior of institutional investors, while mutual funds are thought to represent the retail investor”).
In addition to covering the Fortune Magazine article, we also fielded several listener questions including an interesting one on the Health Care Select SPDR ETF (ticker XLV). In our weekly market update, we discussed the Dow Jones Industrial Average finally crossing over the 14,000 mark for the first time since October 2007 and what that could mean for bonds. Finally, in our ETF spotlight segment, we highlighted an extremely low cost, broad based US equity ETF, the Schwab U.S. Broad Market ETF (ticker SCHB), and compared this ETF to a mutual fund behemoth – the American Funds Growth Fund of America.