Don't Overlook the Performance of Mutual Funds

NEW YORK (TheStreet) - The stock market is enough of a random walk so
most small investors should not try to pick stocks. So they are left
with propositions from mutual funds, ETFs, and wealth managers.
I discard wealth managers because I like, as a minimum, three-year
track records, and most do not have them. That leaves mutual funds and

We have all heard the arguments. ETFs are better than mutual funds
because of lower fees; because they can be bought and sold during
market hours just like stocks; and because mutual funds underperform
the indices that represent them, so why not buy the indices?

If you read much on finance, you might think ETFs had become the
investment vehicle of choice. But how pervasive have ETFs actually
become? And are they better than mutual funds?

! Data On ETFs And Mutual Funds !
Consider first U.S. household holdings of financial assets. Table 1
shows that the largest holding is pension funds. A large portion of
pension funds is invested in mutual funds. The corporate equity
category includes individual stock holdings and ETFs. The *Fed* does
not give a separate breakout for household holdings of ETFs. But
overall, it reports ETF holdings of $875 billion.

Table 2 provides data on both mutual funds and ETFs for the end of
October, 2010 as well as the change since December, 2009. Mutual fund
holdings still dwarf ETFs, but ETFs are growing more rapidly.

Even so, the absolute growth of mutual funds over the last 10 months
exceeded the growth of ETFs. The mutual fund data also reflect
investors liquidating close money substitutes at the end of the bank
panic to get back into equities.