Investor demand for index-based products has been on the rise in recent years, said Shelly Antoniewicz, senior director of industry and financial analysis at the Investment Company Institute in Washington.
From 2011 through 2020, index domestic equity mutual funds and ETFs received $1.9 trillion in net new cash and reinvested dividends, while actively managed domestic equity mutual funds experienced net outflows of $1.9 trillion, according to ICI. Moreover, index domestic equity ETFs have attracted twice the amount of net inflows of index domestic equity mutual funds from 2011-2020. And in 2019, full-service brokers and fee-based advisers had 21% and 33%, respectively, of their clients' household assets invested in ETFs, up from 6% and 10% in 2011, ICI found.
"Advisers are under pressure by clients to make sure their all-in costs are as low as possible," Ms. Antoniewicz said.
Amundi's Mr. Guignard said pressure on fees is good for investors, "But we believe the search for the lowest cost cannot be an end in itself. Beyond cost, investors want trusted partners that are able to offer long-lasting solutions that fit their needs." Currently, Amundi does not offer any active ETFs, though it continues to assess the space as part of its ongoing product and innovation strategy, he added.
Vanguard's success in the ETF market has led other firms to lower costs, Mr. Powers said. "So not only are people using our products and benefiting, other people are benefiting because of what we've been able to do," he said.
The asset-weighted average expense ratios for index equity ETFs were flat — at 0.18% — and down for equity mutual funds — to 0.50% — year-over-year in 2020, according to ICI data. "Regardless of the vehicle, there's going to be management fee pressure," Mr. Lee said.
The expense ratios for the S&P 500 index ETFs offered by BlackRock and Vanguard are 1 basis point lower than the comparable mutual funds offered by the same managers at 3 basis points each, according to data compiled by Pensions & Investments. Moreover, Fidelity Investments' Magellan ETF has an expense ratio 27 basis points lower than its Magellan mutual fund.
While the ETF market is growing, ETFs are unlikely to enter many defined contribution plan lineups, sources said.
"I think the premise of ETFs with that very liquid intraday trading kind of runs counter to the long-term investment objectives for a future retiree that has a very long investment time horizon," said Greg T. Ungerman, San Francisco-based senior vice president and defined contribution practice leader at Callan LLC.
Also, DC platforms typically hold securities that are valued once a day so adding ETFs would present challenges to record-keeping platforms, said Ross Bremen, partner at NEPC, LLC, in Boston.
ETFs are often available in DC plans that offer brokerage windows, but those brokerage windows "only get a small percentage of plan assets," Mr. Bremen said. "So while ETFs might be increasingly available via brokerage platforms, it's still not moving the needle in terms of assets flowing in that direction."
"ETFs are attractive to retail investors from a fee perspective whereas in DC plans you have institutional buying power; the mutual funds and collective trusts that occupy the DC space are more attractive from a fee perspective than ETFs," Mr. Bremen added.
Though unlikely to broach defined contribution plan lineups, stakeholders are bullish on ETFs, and the possibility for more managers to enter the space.
"If ETFs as a vehicle grow and active ETFs become in vogue, you'll have a similar competition that you see in mutual funds where, yes, there's an advantage to scale and being a big brand, but those aren't the only determining factors," Casey Quirk's Mr. Lee said.