Fewer wealthy Americans are using mutual funds, and among those investors who continue to use these investment products, allocations are down significantly.
Exchange-traded funds, however, continue to gain popularity and proportional share of retail investor assets, according to a report by Cogent Research of Cambridge, Mass.
As this trend continues, Cogent said, Vanguard leads other providers in investor impressions across both product categories.
The report, from a survey of 4,000 investors with investable assets of at least $100,000, said 75% of investors owned mutual funds as of October.
That was down from 78% a year earlier and 19 percentage points below the 94% of investors who owned at least one mutual fund in October 2006.
Within the same four-year period, the proportion of investors who reported owning exchange-traded funds increased by 57%, from 7% to 11%.
Despite the decline in use over the past year, the proportion of assets current mutual fund owners allocate to these products was steady. But since 2006, the average allocation investors make to mutual funds has eroded markedly, from 53% to 44%.
During that time the average ETF allocation increased 45%, from 11% to 16%.
"These numbers reflect a dramatic shift in preference among investors for both mutual funds and ETFs," said John Meunier, a principal at Cogent. "And while it's impossible to know exactly how things will play out, it's clear that a major realignment is under way."
"Traditional mutual fund providers are fighting tooth and nail for a shrinking piece of real estate, while established ETF providers face a different challenge: fending off a rush of new providers in a rapidly expanding marketplace," Meunier said.
Still, some mutual fund providers remain top of mind for investors. Vanguard leads in investor favorability in both mutual funds and ETFs. According to Cogent, half of all investors who know Vanguard have strong positive impressions of the firm as both an ETF (52%) and mutual fund (50%) provider.
Vanguard's strongest competition on this measure among mutual fund providers comes from Riversource (47%), Fidelity Investments (44%) and American Funds (40%).
Among ETF providers, iShares (46%), PowerShares (43%), Claymore/Guggenheim (43%), PIMCO (42%) and Charles Schwab (40%) all resonate favorably. At least four in 10 investors were familiar with each brand in the Cogent survey.
"These investor favorability scores not only reflect the strong positive net flows earned last year by Vanguard in both the mutual fund and ETF categories," Meunier said. "More importantly, they suggest the company's momentum is very likely to continue in 2011."
