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Brian Chappatta

Mutual Funds Are Not Long for This ETF World

The stalwarts of the investing industry are struggling relative to upstart exchange-traded funds in every direction.

Planet ETF.

Planet ETF.

Photographer: Joel Saget/AFP/Getty Images

In my first column this year, I picked on fixed-income exchanged-traded funds, arguing that without the Federal Reserve’s unprecedented intervention in corporate credit markets, it’s unclear whether these relatively new vehicles for investing in bonds would have survived the liquidity crunch of March 2020.

Unsurprisingly, this didn’t sit well among those in the $5.5 trillion ETF industry. After getting an earful from several ETF defenders, I’m now convinced that talk of an “illiquidity doom loop” in ETFs was misplaced and that the Fed stealthily came to the rescue of the more entrenched fixed-income portion of the $18.2 trillion mutual-fund industry. And I’ll go one step farther: The lessons learned from the coronavirus crisis will accelerate the rise of ETFs and diminish mutual funds even faster than previously anticipated.