I’ve Seen the Future of ETFs

May 29th at 11:38am by Tom Lydon

How many exchange traded funds are enough? With over 1,400 ETFs available today, can investors expect to see new ETFs that will be impactful for future portfolios?

Probably not in huge way, but that hasn’t cooled the demand for ETFs. With over $1.4 trillion in ETFs today, many feel ETFs will one day take over mutual funds as the investment vehicle of choice. New ETFs won’t get assets to top $2 trillion, but new and creative ways managers are constructing ETF portfolios just might.

I just returned from a two day meeting in New York City hosted by iShares, a division of Blackrock and the largest producer of ETFs. Named “Connect,” this two day event brought together a hand-picked group of advisors and asset managers providing expertise in exchange-traded portfolio construction. Sue Thompson, Head of iShares Registered Investment Advisor/Asset Management Group at BlackRock, refers to these specialized money managers as “ETF Investment Strategists.”

Financial advisors seek help with ETF investment management as they recognize these ETF Investment Strategists reduce time and resources spent constructing and maintaining portfolios. Thompson pointed out that advisors are challenged with managing time between investment management, managing the firm, maintaining client relationships and building new business relationships.

Both Morningstar and iShares follow over 100 managers accounting for more than $50 billion in ETF assets.  iShares estimates that ETF Investment Strategists could manage $120 billion in assets by 2015.

Katharine Earhart, the Head of the iShares Connect Program at Blackrock, told me we’ve arrived at the next inflection point.

“We’re a service company. It’s all about sharing and cooperation,” she said.

There’s a two-pronged message here. Find the best ETF Investment Strategists and help them organize market and grow. Then, educate advisors on the benefits of using the ETF Investment Strategists and provide an easy way to evaluate the managers and the variety of portfolios they offer.

At a time when the mutual fund industry continues to have leaks in the dike, “skunk-works” around the country have been incubating ETF portfolios. More than 75% of actively managed mutual funds are underperforming their benchmarks while charging healthy management fees. Are these ETF Investment Strategists poised to give the fund industry a run for its money?

Earhart quipped, “The growth in this sector is real. We’re ready to leverage large and execute small.” [iShares Sees Demand for ETF Managed Portfolios]

The opinions and forecasts expressed herein are solely those of Tom Lydon, 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.

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