Advisors debate: ETFs, mutual funds or both?

investmentnews.com:

Take your pick, advisors: ETFs, mutual funds or both?

Exchange-traded funds are considered tax-advantaged relative to actively managed mutual funds because they tend to realize fewer capital gains. Moreover, ETFs generally have lower fees compared to their mutual fund counterparts and are priced continuously throughout the day, enabling greater investor flexibility.

They’re also no longer a secret to either advisors and investors.

Assets invested in the U.S. ETF industry reached a record of $7.6 trillion at the end of July, up 16.8% from $6.51 trillion at the end of 2022, according to a report last week from ETF consultancy ETFGI. During July, the U.S. ETF industry saw net inflows of $56.74 billion, bringing year-to-date net inflows to $284.67 billion.

On a worldwide basis, ETFGI reported assets invested in the global ETF industry reaching a record of $10.86 trillion at the end of July, up 17.3% so far this year.

Because mutual funds have existed significantly longer than ETFs, they still hold the bulk of invested assets worldwide. The first modern mutual funds were launched in 1924, whereas the first ETF was issued almost 70 years later, in 1993.

That said, thanks to a push from advisors and a host of new funds, ETFs have been making up for a lot of lost time — so much so that financial consultancy Oliver Wyman predicts that ETFs will account for 24% of total fund assets by 2027, up from 17% today.

Will Metzner, independent investment executive at Optimus Financial of Stifel Independent Advisors, takes a Solomonic approach by using both types of investment vehicles.      

“We use ETFs for accounts seeking cost and tax efficiency,” Metzner said. “They also work well for clients looking to invest in specific