ETFs gathered a record $520 billion in net flows during 2020, propelled by taxable fixed-income ($195.9 billion) and US equity ($131.8 billion) funds, Cerulli said. 

Investors in the US are pushing more money into exchange traded funds and products at the expense of more traditional funds, figures show.

The recovery in stock markets during 2020 after the March selloff resulted in mutual fund assets topping $18 trillion at the end of 2020, even though they lost more than $289 billion in outflows during the year.

Separately, exchange traded fund assets reached $5.5 trillion at the end of 2020, adding more than $1 trillion from year-end 2019, according to Cerulli Associates, the research and analytics firm. Its findings came in The Cerulli Edge - US Monthly Product Trends Edition.

ETFs gathered a record $520 billion in net flows during 2020, propelled by taxable fixed-income ($195.9 billion) and US equity ($131.8 billion) funds, Cerulli said. 

Cerulli’s report said there is a continued switch from mutual funds to ETFs. However, it said that the transfer is not preordained or rapid. Inertia will result in a long uptake period for semi-transparent ETFs while the conversion use cases may remain limited.

“As both the asset and wealth management industries battle fee compression, attractive partnerships will remain critical. Educational partnerships may help guide assets into products that are attractive to both parties." Instead of shunning more risky and innovative elements of the ETF ecosystem, Cerulli recommends that "issuers evaluate whether they can or should play along,” the report said. 

“Mutual funds remain the most common vehicle choice for investors, but managers offering the vehicle face a challenging 2021 landscape,” it said.

Data from a 2020 survey of product executives at mutual fund companies reveals that 88 per cent of firms plan to prioritize development and distribution of other vehicles over the mutual fund, Cerulli said. Of mutual fund product executives, 60 per cent indicate that they will offer fewer share classes, while another 44 per cent expect to offer fewer strategies. Cerulli said fee compression will continue as managers move more investors toward lower-cost share classes.

Separately, global figures from ETFGI, a firm tracking exchange-traded entities like ETFs, found that that assets invested in the global ETFs and exchange traded products increased by 25.6 per cent from $6.36 trillion to a new milestone of $7.99 trillion at the end of December 2020. (ETFs are typically open-ended, index-based funds, with active ETFs accounting for 1.1 per cent of the market share. ETPs, on the other hand, are similar to ETFs in the way that they trade and settle, but do not use an open-end fund structure.)