Dave Mazza, CEO of Roundhill Investments, discusses the outstanding performance of the DRAM ETF and how AI is influencing demand for memory stocks during an interview with Making Money.
More investors are turning to Exchange Traded Funds (ETFs). Though there are significant differences between ETFs and mutual funds, both can serve as viable options for structuring an investment portfolio.
Since their inception in the early 1990s, ETFs have surged in popularity, with total assets in U.S.-listed ETFs hitting around $13.5 trillion by the end of 2025, reflecting an impressive annual growth of 30%, as noted by the Business & Finance Institute.
On the other hand, data from IBF indicates that U.S. mutual fund net assets were approximately $31.4 trillion at the end of last year, marking a 10% increase from the previous year.
“Both ETFs and mutual funds allow investors to pool their resources and invest across a diverse range of stocks and bonds, enhancing diversification and supplying professional management,” Kathy Kellert, head of index equity products at Vanguard, mentioned. “Many are index funds where managers aim to mirror specific benchmarks closely.”
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Indeed, ETFs are outpacing mutual funds in terms of total U.S. assets, per IBF statistics.
When weighing the pros and cons of ETFs versus mutual funds, various elements should be considered, including trading methods, tax implications, and whether management is active or passive.
“In the end, both ETFs and mutual funds can significantly contribute to a diversified long-term investment strategy. What’s right for you really hinges on your trading flexibility, tax issues, and overall financial objectives,” Kellert elaborated.
Trading Insights
Kellert explained that ETFs are traded on exchanges, similar to stocks, with prices updated in real-time. In contrast, mutual fund prices only become available once a day after the market closes, ensuring all investors receive that same closing price.
Rizwan Hussain, a senior investment portfolio strategist at Schwab Asset Management, pointed out that ETF prices mirror the values of their underlying holdings, allowing for real-time liquidity.
When purchasing or selling ETF shares, it’s important to note that the price might sometimes be less than the ETF’s net asset value (NAV). This difference is known as the ‘bid/ask spread’ and can be more pronounced for less actively traded ETFs.
Hussain noted that mutual funds are priced based on NAV at the market’s daily close.
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Tax Considerations
Kellert stated that ETFs usually offer tax advantages over mutual funds owing to their trading practices and how fund managers manage asset rebalancing.
“Because ETF shares often change hands between investors without incurring tax liabilities, they tend to avoid triggering capital gains. Rebalancing is frequently achieved ‘in-kind’ using securities instead of cash, whereas mutual funds might have to sell assets to meet redemptions, potentially leading to gains that are distributed to all shareholders,” he explained.
Hussain emphasized that, especially for passive ETFs, lower turnover rates often lead to diminished capital gains, which is beneficial from a tax standpoint.
Historically, these distinctions have made mutual funds a better fit for certain tax-deferred accounts.
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Management Styles
According to IBF data, by the end of December 2025, approximately $19.3 trillion of U.S. fund assets were passively managed, while actively managed funds accounted for around $17.4 trillion.
“While many ETFs are passive, focusing on specific index performance, ‘active’ ETFs have gained notable traction recently,” Hussain remarked.
Additionally, disclosure practices vary between ETFs and mutual funds; ETFs generally report their portfolio holdings every day, whereas mutual funds do so less frequently—usually monthly or quarterly—which can benefit active mutual fund managers.
“ETF managers must disclose their holdings daily, while mutual funds are less rigid, revealing their entire portfolio at longer intervals. This gives active mutual fund managers an edge by keeping their strategies more secretive from the competition,” Hussain added.
