Legg Mason, Inc. (LM), Janus Capital Group Inc (JNS): Why Mutual Funds Are On Their Way Out

An even more interesting proposal came from Eaton Vance Corp (NYSE:EV) earlier this year, which asked the SEC to allow it to create what it calls an exchange-traded managed fund. Ideally, Eaton Vance would like to see the SEC allow it not to make daily disclosure of its holdings, with the company seeking to use what’s known as NAV-based trading to help facilitate trade. With NAV-based trading, investors would agree to pay not a fixed dollar value for shares but rather a variable price above or below whatever turns out to be the day’s final net asset value for the ETF’s assets. Eaton Vance hopes that such an idea would satisfy any concerns about lack of daily disclosure of holdings while still allowing efficient intraday trading. Given that the SEC allows mutual funds to disclose holdings as infrequently as once per quarter — with a lag allowed between the end of each quarter and the filing date — it’s not unreasonable to expect active ETFs eventually to get similar treatment.

Is a long decline coming?
To be clear, even index mutual funds are far from dead. The ICI pegged 2012 mutual fund assets at more than $13 trillion, or roughly 10 times what the ETF universe has in assets under management. In many areas, such as retirement plan investing, the use of mutual funds is so entrenched that it could take years or even decades for providers to switch away from funds and toward ETFs.

Still, whether it takes years or even decades, the primary advantages that mutual funds had are slipping away toward the ETF realm. Mutual funds won’t disappear overnight, but you can expect them to become less relevant over time as new ETF innovations continue to appear and take root in the money management industry.

The article Why Mutual Funds Are On Their Way Out originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.

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