ETF Trends Editor Tom Lydon appeared on Yahoo Finance’s Breakout on Monday to discuss why ETFs continue to outsell mutual funds, and some of his favorite sectors for 2013.

Investors are still pulling money from actively managed stock funds while ETFs are on track for a record inflow year, Lydon tells Matt Nesto. There over 1,400 exchange traded products listed in the U.S. with total assets of about $1.3 trillion.

“Investors like the choices in ETFs, ” Lydon says. The low-cost investment vehicles have also benefited from better transparency, investor disgust with the underperformance of active managers, and a growing preference for indexed strategies in in recent years.

“There has been talk about closing ETFs, and that happens because some ideas don’t stick,” Lydon tells Breakout’s Nesto. “But we continue to see net positive new ETFs in the marketplace.”

Meanwhile, active ETFs are a potential growth area now that the SEC has lifted the ban on the use of derivatives in some ETFs. [SEC to Lift Freeze on Active ETFs That Use Derivatives]

Lydon says fixed-income ETFs could stay hot in 2013. One area to watch is emerging market debt since investors are unsatisfied with the relatively low yields they’re earning in Treasuries or even corporate bonds. Also, short-duration bond ETFs are primed to explode if the SEC moves ahead with money market reform. [Are ETFs the 'Heirs to Money Market Funds?']

Watch the Breakout video to see the full interview.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.