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ETFs vs. Mutual Funds — The Advisor Divide Keeps Growing
Plus, the latest in market news.
Happy Sunday, and welcome to Benzinga’s financial advisor newsletter.
Today we're discussing retirement strategy. Advisors are increasingly favoring one investment vehicle over another — a shift that could have major implications for long-term portfolio construction. Read on for all the details.
Plus, a look at all the top stories and market activity from this past week.
Advisor Spotlight: If you would like your company to be featured in our upcoming Advisor Spotlight, click here to send us an email.
INDUSTRY CHATTER
ETFs or mutual funds? Advisors are increasingly leaning one direction and the gap keeps growing wider. As ETF issuers continue cutting fees in the battle for investor flows, ETFs are becoming harder to ignore — particularly in long-term portfolios where even small cost differences can add up over time. What was once viewed as an alternative to mutual funds is now becoming the default wrapper for many advisors.
A recent survey by ISS Market Intelligence, found that 60% of advisors now prefer ETFs when offered the same strategy across three wrappers: an ETF, mutual fund, or SMA. That’s up from 53% in 2022. Over the same period, mutual fund preference was cut in half, falling from 20% to just 10%.
The trend is strongest among RIAs, where 80% selected ETFs as their preferred vehicle. But the more interesting story may be what’s happening beneath the surface.
This is no longer just about fees or tax efficiency. The data suggests advisors are increasingly designing portfolios around ETFs as the default building block. According to AdvizorPro’s latest RIA ETF Trends Report, RIAs are not just using more ETFs — they’re building broader portfolios around them. The average number of ETFs held per firm increased 13.7%, rising from 77.7 to 88.3 holdings. More than 70% of firms expanded their ETF lineup over the period, while only 20.5% reduced exposure and 8.1% made no changes. The trend suggests RIAs are diversifying across a wider range of funds and strategies rather than consolidating into fewer positions.
There’s also likely a generational component. Younger advisors entered the industry after ETFs had already become mainstream. Many have little attachment to the traditional mutual fund model and are more accustomed to constructing portfolios through modular exposures, model portfolios, and tax-aware customization.
Client expectations reinforce that shift. Investors increasingly expect transparency, flexibility, and lower friction — characteristics that align naturally with ETFs.
Interestingly, growth isn’t going to the largest issuers. While the industry’s largest ETF providers remain dominant, several saw fewer RIA firms using their funds over the past year. iShares allocator counts fell 7.7%, Vanguard declined 3.8%, and Invesco dropped 4.6%. At the same time, smaller and more specialized firms gained traction. Dimensional increased its RIA allocator base by 6.7%, JPMorgan rose 2.0%, and VanEck posted a modest 0.9% increase in market share.
For advisors, the takeaway is that ETFs are no longer simply replacing mutual funds — they’re reshaping how portfolios are built. From creating broader, more diversified, and increasingly customized portfolios over time, the shift only continues to deepen.
WEEKLY MARKET RECAP
If April was Wall Street’s most extraordinary month in two decades, the first week of May made clear the rally has no intention of cooling.
The S&P 500 – tracked by the SPDR S&P 500 ETF Trust (SPY) – booked its sixth straight winning week above record highs at 7,400, while the Nasdaq 100 broke 29,000 for the first time ever.
All-time highs lit up screens across the board as the AI-driven advances kept defying gravity.
The U.S. tech sector – tracked via the Technology Select Sector SPDR Fund (XLK) – has now rallied 34% in six weeks — the best six-week run on record, outpacing every comparable stretch of the dot-com era.
Micron Technology (MU) gained over 30% on the week, its strongest run since December 2008. Advanced Micro Devices (AMD) climbed more than 20%, with shares jumping 17% in a single session after a blowout data-center beat — booking its ninth straight weekly gain.
Chart of The Week: A Tech Rally Like No Other
A Colossal Divergence
But a colossal divergence unfolded between Wall Street and Main Street.
While champagne flowed on the trading floor and President Donald Trump celebrated record highs, pessimism spread like wildfire outside Wall Street’s doors and straight into the kitchens of average American families.
U.S. consumer sentiment, surveyed by the University of Michigan, collapsed to 48.2 in May — the lowest reading in the survey’s nearly 80-year history.
That is worse than the depths of the 2008 financial crisis, worse than the 2020 COVID-19 lockdowns, and worse than the June 2022 inflation panic.
About one-third of consumers spontaneously mentioned gasoline prices, and roughly 30% mentioned tariffs. Real income expectations have declined since March.
The Michigan survey also exposed a stark divide in inflation anxiety between large stockholders and paycheck-to-paycheck households.
Chart: U.S. Consumer Confidence Tumbled To Record Lows In May
Pump Pain Persists
Even with crude sliding back below $100 a barrel on hopes of a final U.S.-Iran agreement, AAA kept reporting rising prices at the pump. The national average for gasoline crossed $4.55 per gallon and diesel surged above $5.65.
In California, diesel hit $7.50 — within a hair of the 2022 record.
On Friday, a stronger-than-expected jobs report offered brief relief. The U.S. economy added 115,000 jobs in April, nearly twice the consensus, with unemployment holding at 4.3%.
Still, the picture stayed the same: two Americas, one tape.
On the trading floor, the strongest tech run in history. In the kitchens, the worst mood ever recorded.
Eventually, only one of them will be right.
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THE WEEK AHEAD
Economic Data
Monday: Existing home sales, Consumer inflation expectations
Tuesday: Consumer Price Index (CPI), NFIB optimism index
Wednesday: Producer price index (PPI), Fed Speech (Susan Collins)
Thursday: Initial jobless claims, retail sales, Import price index
Friday: Manufacturing survey, Home builder index, Oil rig count
Earnings
Click here for the full calendar of economic data and earnings reports.
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