Are Innovative Exchange Traded Funds Threathening the Turf of Traditional Mutual Funds?

Sammanfattning: The ETF market has grown at a remarkable pace over the past decade. But has this rate been justified with regards to their performance? And have their growth come at a cost to investments in traditional mutual funds? The purpose of this paper is to answer these questions by examining the return and growth rates of 51 ETFs tracking 32 difference indices, spanning domestic and international equity to fixed income, and compares those rates to the return and growth rates of over 12 000 mutual funds tracking the same indices over an 11 year time period. OLS regressions and summary statistics show that the monthly returns of ETFs have been lower than the average of mutual funds tracking the same index. Despite this ETFs have attracted investor capital at an awe inspiring rate. Event studies on the introduction of 37 ETFs comparing the difference-in-difference during this time period, show that increasing the amount of ETFs usually results in a decreased flow of funds to mutual funds in the following months. This would imply that at least some of this growth, or flow of funds, to ETFs have come at the expense of the mutual funds tracking the same indices. The study shows that this is especially frequent when the ETF introduced is the first to track that particular index.