ETFs in Trouble: Fact or Fiction?

The economy at large has had its effect upon the exchange traded fund (ETF) industry, with many providers liquidating their funds or closing up shop.

The main reason an ETF liquidates is because it is unable to drum up enough assets and trading and this recent market belch has caused around 50 ETFs to call it quits. Diya Gullapalli for The Wall Street Journal reports that there are still around 500 new ETFs in the pipeline, however, many are waiting for better circumstances before they debut.

Of the more than 730 U.S.-listed ETFs, some 70% were issued over the past three years – and the pace slowed this last fall. Nevertheless, this is simply a hiccup for the long term and this type of setback is an ill-timed circumstance for securities in general – not just ETFs. The markets have been battered this year, and many investors are sitting on the sidelines as they wait it out.

The upside is that ETFs now have a chance to comeback full swing, possibly encroaching on mutual fund territory. There will also be a big opportunity to perfect and develop better ETFs.

But even in the market downturn, ETFs have still been pulling in assets. And when the market recovery begins, ETFs are going to get more than their fair share of the assets. Investors are fed up and angry, and ETFs are a solution to many of their concerns.