Changing investment preferences

At the end of November 2008 , ETFs (exchange traded funds) posted net buying, or inflows, of $138 billion for 2008, while long-term mutual funds saw an exodus of $185 billion, according to consultants Financial Research Corp,

John Spence of The Wall Street Journal writes:

In recent months, investors have been moving into index funds managed by Vanguard Group, Fidelity Investments and other fund giants, experts say. What is behind the trend?
Firstly, many financial advisers and investors use passive funds and indexed ETFs as part of a conservative asset-allocation plan. In general, they have a long-term perspective and haven't been selling during the market downturn. "These investors haven't been panicking," said Scott Burns, Morningstar's director of ETF analysis.
Secondly, short-term traders have been driving trading volume to ETFs, which are baskets of securities that can be bought and sold during the day. For example, overall ETF trading volume spiked this fall along with market volatility. "When markets are this volatile, investors tend to trade whole sectors with ETFs rather than individual stocks," Mr. Burns said.
Finally, in bear markets, many investors go back to basics and focus more on tax efficiency and the fees they are paying, which matter even more in low-return environments. "The same thing happened after the dot-com bust, and snake-bitten investors went into index funds and focused more on asset allocation," Mr. Burns said.