The American Century fund is a "good" fund, but it is more expensive, less tax efficient, less transparent and less flexible than GDX. Conversely, GDX is 20% less expensive, more tax efficient, more transparent and more flexible, allowing intraday liquidity.

GDX has outperformed since its May 2006 inception as well as in 2008 on a pretax, and of course, post-tax basis.

Is it any wonder that GDX, not even three years old, has $2.7 billion in assets, while American Century Global Gold has $700 million after being in existence for more than two decades? Is it any wonder the market has responded positively to GDX?

Markets do work. As former Citigroup Chairman Walter Wriston used to say, "Capital will flow to where it is best treated."

Clearly, GDX is better serving most investors.

The fact is the mutual fund's managers are accomplished professionals who really do care about their investors. But the issues are clear. They are up against some structural competitive forces, some of which are out of their control, that are reshaping the investment landscape in a huge way.

The competitive forces are shaping a massive paradigm shift in how money is managed and distributed in this country. GDX took in $1.6 billion in net new flows in 2008. Framed another way, GDX took in more in one year than American Century accumulated in BGEIX in 20 years.

This stunning statistic is symptomatic of these larger forces. Through November 2008, $197 billion had been redeemed from long-term mutual funds, which included stock, bond and hybrid mutual funds, while $133 billion had flowed into ETFs.

The paradigm shift is under way.

What's Ahead?

The tax-efficiency train is going to pick up steam. Irrespective of what the new administration does regarding tax policy, there is a demographic driver at play. Knowledgeable, thoughtful, veteran investors I talk to who are recently retired have repeatedly reiterated how important this whole notion of tax efficiency is going to be in future years.

Consider that the oldest of the baby boomers are approaching 63. The youngest of the baby boomers are going to hit 45 this year. After you hit 45, you tend to think about the world a little differently. Things like taxes mean a whole lot more to you at 45 then they did at 35. As baby boomers age, they are going to stimulate a lot more focus on the tax-efficiency issue.

There is certainly going to be more dislocation in the world of mutual funds. I especially see greater disruption among sector mutual funds. For example, we now live in a world where an investor can buy the Health Care Select Sector SPDR (NYSEArca: XLV) with an annual expense ratio of 0.23%.

So where does a "run of the mill" 1.35% ER health care fund fit in? They may be "sold," but who is going to buy that type of sector fund?

In this environment, it is not hard to imagine a large number of sector funds going the way of eight-track tape players.

We owe Ted Aronson a tip of the hat. Ted, you were right in 1999. You are right in 2009. However, what is different today is now there is an antidote to the "skewering" you discussed 10 years ago. With ETFs, investors have an opportunity to do their own "skewering" of tax inefficiency.

William Koehler is chief investment officer at ETF Portfolio Solutions. He welcomes comments and suggestions for future columns at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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