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Mutual Funds Gain Ground on ETF 'Fad'

NEW YORK ( TheStreet) -- While the $1.1 trillion exchange traded fund industry has been gaining in popularity, especially with younger investors, many industry professionals agree that it will never replace the mutual fund.

"Mutual funds showed some decline in the last months and ETFs have grown in a faster pace in the last month, but they are certainly not dead," said Pamela Carello DeBolt, a senior analyst at Cerulli Associates. "ETFs are growing they will not be able to keep the explosive pace that they have over the next couple years."

Mutual funds are in no way being depleted, said Vanguard (VTI) founder John Bogle. While Bogle admits that the ETF has gained in popularity, he believes that the latest rise in ETF investing won't stick around long.

It's, in fact, more of a fad, he argues.

"It's not going to do well because investors chase fast returns. It is not a business where you should trade all the time, and ETFs are designed to have you trade," said Bogle. "I think eventually investors will figure that out and will come to a more centrist strategy, particularly with respect to all of the crazy ETFs that exist out there. "

Younger investors prefer ETFs because they are more user-friendly and transparent in the uncertain economic environment, said Lawrence Golub, president of Golub Capital (GBDC - Get Report). He adds that ETFs also provide a greater degree of options especially for investors that actively manage them.

"There is more of a generational development with ETFs," Golub said. "ETF shares are marginal or if you want to you can borrow against security holdings to hedge your investments."

The ability for investors to transact during the day is one of the main reasons ETF popularity has grown, said Sean Crawford, a portfolio manager at Barclays Wealth (BCS).

"ETFs are great for tactical and narrow trading ideas that are strategic. We run an ETF portfolio with very narrow trades. It is more of a way of expressing a more defined opinion," said Crawford. "I don't think they will kill mutual funds. ETFs are good at replicating the performance of the S&P 500."

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