ETFs became larger than mutual funds by total assets in 2023

Exchange-traded funds (ETFs) surpassed mutual funds in total assets under management (AUM) sometime in 2023, marking a shift in how Americans hold invested money. The crossover happened gradually — there was no single date when one became larger than the other — but by mid-2023, ETF assets exceeded mutual fund assets for the first time. This matters because it signals which investment vehicle is drawing new money and which is losing it.

The exact timing depends on how you measure. If you count only U.S.-domiciled funds, ETFs crossed above mutual funds in assets during 2023. If you include global funds or count by number of funds rather than dollars, the picture shifts. But the core fact is simple: after decades of mutual funds being the dominant way Americans invested through funds, ETFs have now become larger.

Key Takeaways

  • ETF assets exceeded mutual fund assets in the United States during 2023, ending mutual funds' decades-long reign as the largest fund category by total dollars.
  • The shift happened because new money flowing into funds went overwhelmingly into ETFs, while mutual fund assets stayed flat or declined.
  • Mutual funds still hold trillions of dollars and remain common in retirement accounts and employer plans, so the crossover does not mean mutual funds disappeared.
  • The speed of the shift accelerated after 2015, when ETF costs dropped and more fund types became available as ETFs.

Why ETFs grew faster than mutual funds

ETFs grew because they cost less to own and trade than mutual funds. A typical ETF charges 0.03 to 0.20 percent per year in fees, while an average mutual fund charges 0.50 to 1.00 percent or more. Over decades, that difference compounds into thousands of dollars per investor. As more people learned about fee differences, money flowed toward ETFs.

ETFs also trade on stock exchanges like individual stocks, which appeals to people who want to buy and sell during market hours rather than waiting until the end of the day. Mutual funds only price once per day, after markets close. This flexibility, combined with lower costs, made ETFs attractive to both individual investors and financial advisors managing client money.

Tax efficiency also favored ETFs. The structure of ETFs — the way they handle buying and selling shares — typically generates fewer taxable gains than mutual funds do. For investors in taxable accounts (not retirement accounts), this meant keeping more of their returns instead of paying taxes on fund distributions.

What happened to mutual fund assets

Mutual fund assets did not disappear. They remain substantial — still in the trillions of dollars. But they stopped growing. From roughly 2010 onward, new money going into funds went into ETFs instead of mutual funds. Existing mutual fund investors mostly stayed put, especially in retirement accounts where switching costs money or creates tax problems.

Mutual funds remain common in 401(k) plans, IRAs, and other retirement accounts because many employers and financial institutions default to offering them. A person who opened a 401(k) in 2005 and never changed it still holds mutual funds. But when that same person opens a new brokerage account or switches advisors, they often choose ETFs.

Some mutual fund companies responded by converting their funds into ETFs or launching ETF versions of existing mutual funds. This allowed them to keep the same investors while moving assets into the faster-growing structure.

When the crossover became visible

The crossover was not sudden. From 2015 to 2020, ETF assets roughly doubled while mutual fund assets stayed flat. By 2020, the gap was closing visibly. In 2021 and 2022, ETF growth continued while market declines hit both categories, but ETFs still gained relative to mutual funds. By the middle of 2023, ETF assets had moved ahead.

Different sources report slightly different dates because they measure different things. Some count only stock and bond funds. Others include money market funds, which skew the numbers because money market mutual funds are still very large. Some measure by number of funds rather than dollars. But all major tracking sources agree the crossover happened in 2023.

What this shift means for investors

The crossover does not mean you must switch from mutual funds to ETFs. Many mutual funds are good investments, and switching can trigger taxes or fees. If you hold mutual funds in a 401(k) or IRA and they are performing well, there is no urgent reason to change.

The shift does mean that new products, research, and innovation are flowing toward ETFs. New fund types — from narrow sector funds to international funds to bond funds — are more likely to launch as ETFs first. If you are building a new portfolio or choosing between a mutual fund and an ETF that track the same index, the ETF will usually cost less.

It also signals that the financial industry is moving in one direction. Over time, as mutual fund assets decline and ETF assets grow, some mutual fund companies may close funds or consolidate offerings. This is not an emergency, but it is worth knowing if you hold mutual funds in accounts you plan to keep for decades.

How the numbers compare today

As of late 2023 and into 2024, ETF assets in the United States stood at roughly $7 to $8 trillion, while mutual fund assets were roughly $7 to $8 trillion as well — the two categories are now close in size and the exact ranking shifts slightly depending on market performance and the measurement date. The gap will likely widen in favor of ETFs because new money continues to flow that direction.

Globally, the picture is different. Outside the United States, mutual funds remain larger than ETFs in many countries. But in the U.S. market, where ETFs originated and where they are most developed, the shift to ETFs as the dominant fund type is now complete.

Frequently Asked Questions

Does this mean I should sell my mutual funds?

Not necessarily. If your mutual funds are in a retirement account or have performed well, switching may trigger taxes or fees that outweigh the benefit of lower ongoing costs. If you are choosing between a new mutual fund and an ETF tracking the same index, the ETF will usually cost less. But existing holdings do not require immediate action.

Why do mutual funds still exist if ETFs are cheaper?

Mutual funds remain in employer retirement plans because switching costs money and requires coordination with plan administrators. They also serve investors who prefer automatic investing or who want funds that are not traded on exchanges. Some mutual funds offer active management strategies that are not yet available as ETFs. Inertia also plays a role — many investors keep what they have.

Are ETFs safer than mutual funds?

Safety is not the difference. Both ETFs and mutual funds hold the same underlying investments — stocks, bonds, or other assets. The difference is cost and how you trade them. An ETF holding the same stocks as a mutual fund carries the same investment risk but costs less to own.

Will mutual funds disappear?

Unlikely. Mutual funds will probably remain available for retirement accounts and for investors who prefer them. But the growth phase is over. New money and new products will continue flowing toward ETFs, and some mutual fund companies may consolidate or close underperforming funds over time.