The ETF Succession: Why Mutual Funds Are Losing the Next Generation of Investors

ETFs Take the Throne

Once the undisputed core of American portfolios, mutual funds are losing their dominance — not to regulation or scandal, but to a faster, cheaper, and more transparent rival: the exchange-traded fund.

According to John Roppolo, CFA and ETF Specialist at Manulife John Hancock Investments, the shift is now undeniable. “I haven’t had a single client meeting this year where someone told me they were adding more mutual funds,” he says. “Mutual funds had a great run — they still serve a purpose in retirement plans — but investors today want ETFs.”

It’s a generational change that reflects how investors think about costs, efficiency, and flexibility. ETFs now exceed $12 trillion in global assets, a figure that was below $1 trillion just two decades ago.

Active ETFs Overtake Passive in Growth

For years, passive ETFs defined the category, but that’s changing fast. Actively managed ETFs have exploded in both number and inflows, recently surpassing passive ETFs in new product launches for the first time.

Roppolo notes that John Hancock was early to the trend. “We’re a fundamental active shop,” he explains. “We took what worked inside our traditional funds — our research, our process, our people — and packaged it into ETFs. It’s the same expertise, just delivered in a modern, more efficient wrapper.”

That wrapper matters. ETFs combine the tax advantages and liquidity of stock trading with the expertise of active managers, giving investors a way to get professional management without the cost drag or redemption restrictions typical of mutual funds.

Why Bonds Are the Real Active Opportunity

While stock-picking in large-cap equities remains a tough game to win, Roppolo argues that fixed income is where active management truly shines.

“Fixed income markets are less efficient than equity markets,” he says. “That means skilled managers can still add real value — and ETFs make that expertise accessible.”

John Hancock’s approach has been to “slice and dice” bond exposure, letting advisors pick the exact segment they want instead of relying on one all-encompassing core bond fund.

One example: its securitized bond ETF, which isolates the same segment from its flagship core-plus bond mutual fund. The ETF invests in agency mortgage-backed securities (MBS), asset-backed securities (ABS), CLOs, and even cell tower leases — a targeted sleeve designed for today’s tactical investors.

“In this interest-rate environment, advisors want to position more selectively,” Roppolo says. “Securitized assets are offering attractive spreads, and agency MBS valuations are compelling. If you think rates are near a turning point, this is where you might want to be overweight.”

Advisors Are Done Waiting

It’s not just the structure that’s changed — it’s the mindset.

Financial advisors are now building portfolios with ETFs as their default tool, even in spaces where mutual funds once dominated, like retirement accounts and fixed income.

“The approval process takes time,” Roppolo acknowledges, “but even in 401(k)s, we’re starting to see advisors request ETF options. It’s all about ETFs now — clients want transparency, tax efficiency, and control.”

That demand has transformed how asset managers operate. Legacy firms like Manulife John Hancock, once best known for their mutual fund lineups, are now ETF-first businesses.

The New Era of Asset Management

ETFs are no longer the disruptor — they are the establishment. Mutual funds remain part of the financial landscape, especially for retirement plans, but the growth story has decisively moved elsewhere.

The next stage won’t just be about more ETFs — it will be about smarter ETFs: actively managed, strategically designed, and customized for a market where flexibility is as valuable as returns.

As Roppolo puts it, “Investors don’t want another mutual fund. They want what comes next — and that’s ETFs.”

Disclaimer: This article is for informational purposes only and does not constitute investment advice. ETFs involve risks including market volatility and loss of principal. Investors should consult their financial advisor before making investment decisions.