The exchange traded fund industry has been slowly gaining presence in the investment industry, and old mutual funds are finally beginning to jump on the ETF bandwagon lest they get left behind.
“With $2 trillion in assets and investors indicating plans to expand their ETF usage in the intermediate term, we expect additional firms to roll out exchange-based products over the next year,” Todd Rosenbluth, Director of ETF Research at S&P Capital IQ, said in a research note.
Erik Oja, S&P Capital IQ equity analyst covering the asset management sub-industry, pointed out that low-fee passive investments and bonds have been slowly chiseling away market share of more expensive, underperforming actively managed equity funds. In the year ended August 31, the trend has accelerated, with $152 billion pulled out of active U.S. equity funds and $145 billion flowing into passive funds.
“While some of the money has gone into index-based mutual funds, we think investors are increasingly adopting the ETF wrapper that typically provides daily transparency, and tax efficiency,” Rosenbluth added.
Charles Schwab also recently revealed that ETFs are growing on investors. In a recent ETF Investory Study, Charles Schwab discovered that investors already using ETFs are allocating 21% of their investments to ETFs, compared to 16% in 2012. Additionally, the investors expect that number to rise to 25% in the next five years, and one third of respondents believe ETFs will form the core of their investment portfolios.
Here Come Goldman!
Mutual fund companies have noticed the worrying trend and are trying to stem the asset outflows by launching ETFs of their own. For instance, Goldman Sachs and John Hancock are the latest fund companies to join the ETF crowd.
Goldman Sachs Management, which has 200 equity mutual fund share classes with $43 billion in AUM, launched two multi-factor ETFs and have more smart-beta ETFs strategies lined up. The fund provider recently launched the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (NYSEArca: GSLC) and Goldman Sachs ActiveBeta Emerging Markets Equity ETF (NYSEArca: GEM), which promise to be among the cheapest smart-beta ETF offerings in their respective categories. [A Cheap, Smart-Beta ETF to Track Emerging Markets]