Is the exchange traded fund (ETF) business suffering growing pains right now? ETFs are growing to give investors and advisers more options than actively managed mutual funds; however, some are questioning their rapid proliferation. While ETFs do boast tax efficiency, transparency, low expense ratio and diversification, John Spence for MarketWatch reports that critics claim ETFs target too narrow of sectors. The main concern with the success of ETFs is that there’s not enough education for investors and advisers to keep up with the array of choices.
ETFs have impressed naysayers and broken optimistic predictions. At the end of May, assets were at $471.2 billion and 480 ETFs were listed on U.S. exchanges. In 2007, 137 of them were launched and 342 were in the pipeline. Underdeveloped regions of the ETF market include the 401(k) marketplace, the fund-of-funds, fixed-income and a truly actively managed ETF. There is still plenty of growing room for the industry, and ETFs are here to stay.
Education is important with any investment. Investors need to do their homework to understand what they’re buying. No matter the investment type, be it ETFs or stocks, there are possibilities for mismanagement.
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.