Investors are opting out of actively managed mutual funds in favor of more "passively-managed" funds, like ETFs, that track stock indexes, Kevin McDevitt, Morningstar editorial director told CNBC on Tuesday.
"It's just a very crowded marketplace," he said. "You're also seeing an almost institutional way of managing money. There's more of a focus on tracking error now and people are less looking for that star manager and more looking for someone who won't blow up."
Investors are on track to withdraw more money from mutual funds in 2010 than any time since the 1980s with the exception of 2008.
McDevitt pointed out, however, that the $30 billion in outflow from U.S. equity funds makes up just 1 percent of overall assets for all U.S. equity funds. At the same time, $142 billion has poured into taxable bond funds year-to-date.
"Advisors want to take more control over their client asset allocation, and they'd rather be in control rather than seeing that control go to managers, and not wanting to take on that active-manager risk," he said.