• Both mutual funds and ETFs offer ways for investors to spread their money across a basket of stocks and shares, but the two investment vehicles are not the same. This doesn't only impact investor decisions, but also the ways that fund owners and investment houses manage their marketing strategies, and ultimately decisions about which kinds of funds to offer to investors. 
  • As simpler products, ETFs are marketed in a different way than mutual funds
  • Mutual funds are struggling with marketing in today's digital world
  • The flow of assets from mutuals to ETFs could be a result of the differences in marketing

Both mutual funds and ETFs offer ways for investors to spread their money across a basket of stocks and shares, but the two investment vehicles are not the same. This doesn't only impact investor decisions, but also the ways that fund owners and investment houses manage their marketing strategies, and ultimately decisions about which kinds of funds to offer to investors. 

The marketing differences between mutual funds and ETFs

The differences between marketing mutual funds and marketing ETFs stem from the variant ways that each product is structured. 

Mutual funds are more complex than ETFs, with a more involved fee structure. When mutual funds are bought and sold, the trade takes place with the fund owner, so there's no secondary market for mutuals, and most mutual fund transactions are completed through financial advisors.

ETFs, on the other hand, are simple to understand and easy to buy, traded on secondary markets just like stocks and shares. Retail investors can buy them through a range of channels, including from robo-investing platforms like RobinHood and E*Trade, 

As a result, mutual funds and ETFs appeal to different markets and require different marketing strategies. Because ETFs are simple, passive, and continually priced like stocks and shares, they can be marketed directly to investors who manage their own portfolio. Mutual funds on the other hand, thanks to being actively managed, priced just once a day, and far more complicated to understand, are mostly marketed to financial experts who manage funds on behalf of their customers.

How to do marketing of mutual funds

Mutual fund advertising can be challenging. Mutual funds have an extended purchase journey and tend to take a long time to transact, so marketers lean towards account-based marketing and in-person interactions. Because they are so much more complex, investment houses need to spend time educating potential customers about the details of their fund, which again brings them to target a more knowledgeable audience of financial advisors. 

It is often hard to differentiate one mutual fund from the next. Marketers rely on details like Sharpe ratios or the track record of the expert managing each fund to make their financial product stand out, but this doesn't lend itself to compelling branding. Some marketers tell a story about individual holdings, but this rarely results in a cohesive narrative about the fund itself. 

Additionally, since mutual funds are only transacted with the fund itself, the funnel is a different shape. Brand awareness is less of a focus because there's a single path to purchase, leading to a lower emphasis on generalized promotion and branding. 

The traditional approach is effective, but time-consuming, with sales representatives and wholesalers forging personal relationships with individual fund managers to convince them to buy into their funds. Mutual fund advertising tends to concentrate on building trust relationships with financial experts, with purchase relying mainly on the connection between the customer and the wholesaler. 

How to advertise an ETF

As a financial product, ETF marketing still involves a level of education and information, but it is far easier to explain an ETF to a beginner investor. A single ad is enough to communicate what the fund is about, how it is managed, and the fee structure. 

This simplicity, together with their multiple access channels and the rise of thematic ETFs, means that brand awareness is a powerful marketing tool for ETF owners. ETF managers just need customers to remember the fund name, and then they can search and buy the ETF through any platform or channel, making digital marketing tactics like paid social and display ads highly effective. 

Ticker branding is a prime example. ETF provider WisdomTree was the first to come up with descriptive and memorable ETF tickers that describe the fund's focus, like HEDJ for its top-performing currency hedging ETF. Mutual funds, however, tend to use the name of investment house in "ego-branding," trading on the reputation of the institution behind the fund. This might work for heavyweights like Blackrock or JP Morgan, but smaller investment houses struggle to gain attention. 

The trend towards thematic ETFs also generates a compelling marketing narrative and reason to buy, which is missing from mutual funds. Thematic ETF assets jumped from $50 billion over 2 years from 2019 to 2021, and are forecast to continue to grow throughout this year.

Thematic ETF can focus on a single sector, like tech or green energy; an ideology, like ESG or women-led businesses; or an innovation, like crypto or blockchain. “Thematic ETFs, which track specific sectors such as technology, biotech and healthcare, have been the big winners in our global analysis. They have out-performed ETFs tracking a single geography or industry segment,” says Keith Chau, Asset and Wealth Management partner, PwC Hong Kong.

ETFs are seeing a surge

In the past 10 years, $900 billion in net assets shifted from mutuals to ETFs, and more than $240 billion flowed out of mutual funds thus far in 2022 alone. Almost $200 billion of that has been absorbed into ETFs.

Investment houses are reading the room. Guinness Atkinson blazed a trail in March 2021 when it converted two mutual funds to ETFs, and giants like Adaptive Investments, Dimensional Fund Advisors, Foothill Capital Management, and JPMorgan have followed suit, with ETF conversion solutions like Foreside proving highly popular. Other institutions like Vanguard offer ETF versions of their mutual funds, and myriads of investors are choosing the latter.

The differences between marketing mutual funds and ETFs are not likely to be the only reason why ETF assets are skyrocketing, but they are bound to have an impact. The pandemic led a lot more people to experiment on the stock exchange using robo-investing platforms, and it's far easier to market simple, thematic ETFs to these new customers than jargon-heavy, hard to distinguish mutual funds. 

While mutual funds are unlikely to die out entirely, those responsible for marketing them need to find more innovative ways to effectively communicate their financial products in an environment increasingly dominated by ETF marketing. 

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