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ETFs vs Managed Funds: Why ETFs Are Better for Investors (But Managed Funds Keep Growing)

Over the past two decades, Exchange-Traded Funds (ETFs) have transformed the way retail and institutional investors gain exposure to markets. Despite their advantages, however, capital in traditional managed funds has continued to grow dramatically. This blog breaks down why ETFs often provide a better deal for investors—and also why managed funds remain highly popular, especially among large investors.

Why ETFs Are Better for Most Investors

ETFs offer several structural and practical advantages over managed funds, making them a compelling choice for individual investors:

• Lower Fees: Most ETFs charge significantly lower management fees compared to actively managed funds. Over long horizons, lower fees translate into higher net returns.
• Intraday Liquidity: Unlike managed funds, which only trade at the end-of-day NAV, ETFs can be bought or sold throughout the trading day—just like stocks.
• Tax Efficiency: ETFs use an in-kind redemption process that helps avoid triggering capital gains distributions, making them more tax-efficient.
• Transparency: Most ETFs disclose their holdings daily, providing more visibility to investors compared to the quarterly disclosures of managed funds.
• No Minimum Investment: ETFs can be purchased with minimal capital—even fractional shares—while many managed funds require minimums of $1,000 or more.

ETFs are a low-cost, tax-efficient, and flexible way to access broad or niche markets. For most investors, they offer a smarter way to build a portfolio.

So Why Are Managed Funds Still Growing?

Despite their disadvantages for individual investors, the total capital in managed funds—especially those run by large institutions—has grown significantly in recent years. Why?

• Institutional Mandates: Pension funds, insurance companies, and sovereign wealth funds often prefer managed funds for strategic mandates, liability matching, or to access specialist strategies.
• Financial Adviser Distribution: Managed funds are frequently sold via financial advisers or wealth platforms, which incentivizes continued inflows—especially for clients less focused on cost.
• Active Management Demand: Some investors still seek the potential for alpha (market outperformance) through active management, especially in niche asset classes where ETFs may be limited.
• Regulatory and Structural Frictions: In some jurisdictions, managed funds benefit from favorable treatment in retirement accounts or institutional mandates.
• Brand Trust and Track Record: Long-standing fund managers with strong reputations continue to attract flows, especially from investors who value personalized service and active oversight.

The Bottom Line

ETFs offer a better deal for most retail investors due to their lower fees, tax efficiency, and trading flexibility. However, managed funds continue to thrive thanks to institutional demand, distribution channels, and strategic mandates.

The real choice depends on your goals, account type, and preferences—but for the majority of cost-conscious, long-term investors, ETFs remain the superior vehicle.

Always read the product disclosure statement (PDS) and consider your objectives before investing.