6) Commodity ETFs will continue their expansion and gain even more popularity.
In 2007, the commodity ETF offerings and assets in them grew by leaps and bounds, thanks in large part to the excitement small investors were feeling at having this asset class available to them and the success of certain commodities ETFs. As of December 27, PowerShares DB Commodity Index Tracking Fund (DBC) was up 31.4%; iShares S&P GSCI Commodity-Indexed Trust (GSG) was up 32.9%.
Next year will be no exception. A number of commodities-based ETFs are already in filing with the SEC, including:
- iShares GS Commodity Energy Trust
- iShares GS Commodity Industrial Metals Indexed Trust
- Greenhaven Continuous Commodity Index Fund
- ProShares Ultra Dow Jones – AIG Commodity Precious Metals
- ProShares Ultra Gold
- ProShares Ultra Crude Oil
- Market Vectors – Coal
- United States Heating Oil Fund
7) Fixed-income assets will grow.
Fixed-income ETFs are just getting started, and 2008 could be their year for really taking off. Fixed-income ETFs are bond index funds that trade like stocks on an exchange. They’re attractive to certain types of investors, namely, those with more conservative portfolios, who are looking for more stability, since the bond market is generally less volatile than the stock market.
Assets in the funds have been steadily growing since the first ones appeared on the market in 2002. Fixed-income ETFs ended their inaugural year with $3.9 billion in assets; by the end of 2006, their assets climbed to $20.5 billion. In October 2007, assets in them stood at $31 billion. Expect bigger and better things for these funds in 2008.
8) U.S. investors will begin realizing that they can look abroad for their investments.
International investing is losing its reputation for being extremely risky. In 2008, U.S. investors are going to become aware of the fact that they’re underinvested in global markets. According to JP Morgan, the average defined contribution plan participant only invests 5% internationally. We predict that investors are going to realize that they’re missing out on a golden opportunity, especially as the U.S. economy continues to face challenges.
Global markets, especially emerging ones, are having gross domestic product growth in the double digits. True, these areas are more volatile, but the upside potential appears to be stronger, and U.S. investors are seeing it in increasing numbers.
At the end of 2006, $111.2 billion was invested in global indexes. By October 2007, the number had ballooned to $183.7 billion. We fully expect this trend to continue.
9) Individual investors will start asking their financial advisors why ETFs aren’t part of their portfolios.
In fact, it’s already started to happen: financial advisors are beginning to embrace and learn about increasingly sophisticated tools, such as ETFs. The survey by Cogent Research showed that over the next two years, the open-end mutual fund will lose more than 10% of its share of the product mix by 2009, partially in response to pressure on advisors to be productive wealth managers.
There has been tremendous growth in the ETF industry in recent years, and the word about them is continuing to spread. As more and more investors learn about them and the advantages they offer, we predict that they’ll be running to their advisors and asking, "Why aren’t these in my portfolio?"
10) An ETF of ETFs will finally hit the U.S. market.
So, Canada beat us to the punch on this one. Claymore in Canada launched the Claymore Global Balanced Income ETF and the Claymore Global Balanced Growth ETF on the Toronto Stock Exchange earlier this year.
An ETF of ETFs for those of us in the U.S. is surely the next step in 2008.