Investors are moving money out of mutual funds and into exchange-traded funds at a pace that signals a major change in how Americans manage wealth.
The latest weekly asset flow data from the Investment Company Institute, covering the week ended July 1, 2026, showed ETFs attracted $32.3 billion in net new issuance. Long-term mutual funds, by contrast, saw $28.87 billion in net outflows. The net result was a modest $3.43 billion inflow for the broader long-term fund industry.
Equities drive the divide
The gap is most pronounced in equities. Domestic equity ETFs added $16.27 billion in the same week, while domestic equity mutual funds lost $22.10 billion. World equity ETFs took in $3.42 billion; their mutual-fund counterparts shed $7.81 billion. Hybrid funds followed the same pattern, with ETFs gaining $316 million and mutual funds dropping $2.69 billion.
Fixed income was the only category where mutual funds performed better—but only slightly. Bond ETFs captured $14.94 billion, led by $13.15 billion in taxable products. Bond mutual funds managed a $3.73 billion inflow, split between $3 billion in taxable and $726 million in municipal bonds.
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Model portfolios accelerate the shift
ETFs now make up 55% of all model-portfolio allocations, up from 43% five years ago, according to Morningstar data. Custom model-portfolio assets reached $258 billion by March 2026, a 40% increase from the previous year.
These portfolios serve as pre-built templates matching an investor’s risk tolerance and goals. Advisors use them to streamline asset allocation, allowing more time for client service. For investors, the benefits include transparency and a lower average fee hurdle. The advantages of ETFs—lower costs, intraday trading, and tax efficiency—make them the preferred option. Mutual funds price once daily after markets close, while ETFs trade continuously. Mutual funds also pass capital-gains taxes to shareholders when managers sell assets to meet redemptions. ETFs avoid this through an in-kind creation-and-redemption process.
The trend’s durability may depend on market conditions.
If volatility rises, some investors might return to mutual funds. For now, the data indicates the shift is more than a short-term preference.
