Many may feel the market is flooded with new exchange traded funds (ETFs), but this may just be the tip of the iceberg as ETFs become more and more popular. Jonathon Clements for The Wall Street Journal reports there are at least 500 funds available and over 300 more in the pipeline. Clements looks at the different sectors and finds there are many ETFs covering those areas, such as 32 technology and 35 natural resources – he is not convinced investors need this many. But, having multiple ETFs within a sector or region is not necessarily a bad thing; it helps create competition. And the ETF that does best will get the assets.
Although ETFs have not had many closings (the last was in 2003), Clements warns with so many ETFs covering a specific area, there could be consolidation. However, the ETFs that did close are insignificant and there is no evidence this is an issue or will be an issue in the near future.
Because many of the ETFs are new, there is speculation on how long an ETF might be around. Clements’ article suggests using $200 million in assets as a mark of security an ETF will be around for the long-term. This is just one interpretation and is not a hard fact. Many of these new ETFs haven’t been around long enough to create a track record; once they have, more assets could follow. We agree it is important to keep an eye on assets and understand some are more thinly traded than others, but this is no reason to put them on the endangered species list.
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.