S&P’s ETF Forecasts for 2013

December 17th at 9:44am by Tom Lydon

The year is almost behind us and companies are ripe with outlooks and predictions for the exchange traded fund industry in 2013. S&P Capital believes that the ETF industry asset base will continue to grow in 2013, along with plenty of other positive implications.

“While many forecasts for 2013 are tied to the state of the U.S. economy and the likelihood of Congress having resolved the fiscal cliff, S&P Capital IQ believes the ETF industry will continue to gather assets. Part of this is related to previously mentioned expense reductions, which make it more appealing for investors to consider an ETF relative to other securities,” S&P Capital wrote in a recent note.

As of the end of November, there was $1.45 trillion invested in ETFs, with 1,276 funds trading. As common as it was for low asset ETFs to close, many new ETFs came to market in 2012, with a focus on emerging market products. Meanwhile, the year has wrapped up amid an ETF fee war, with cost-cutting taking place across the board among various large ETF providers, and trickling into the mutual fund space per Fidelity Investments.

Todd Rosenbluth of S&P Capital IQ predicts that more international and emerging market tools will attract attention. The chance of investors taking on more risk in 2013 is apparent and emerging markets simply have the capacity to grow more than other developed nations. They tend to have less debt ratio to GDP, more active central banks, and more excess capital in their coffers. The higher risk will facilitate higher returns in the long run. [Total Bond Market ETFs Maintain Momentum]

The iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) and the PowerShares S&P Emerging Markets Low Volatility Portfolio (NYSEArca: EELV) are options for investors. S&P Capital recommends these ETFs for gaining emerging markets exposure. [What is Driving the Performance of Low Volatility ETFs?]

Another prediction from S&P Capital is further growth in the fixed income ETF space. The hunt for yield at a low cost will continue. The PIMCO Total Return ETF (NYSEArca: BOND), iShares Core Total Return US Bond Market (NYSEArca: AGG) and Vanguard Total Bond Market Index Fund (NYSEArca: BND) will enjoy continued success in 2013. [Investors Come Out on Top of ETF Fee War]

The low cost structure of an ETF, along with the transparency and exposure to key investment themes will continue to bolster this industry in 2013.

Tisha Guerrero contributed to this article.

Full disclosure: Tom Lydon’s clients own BOND.

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.