Before funds of exchange traded funds (ETFs) gain popularity, regulatory hurdles must be dealt with for the popularity to materialize.
Current regulations prevent mutual funds from acquiring more than 3% of any other fund, however a pending rule submission would significantly liberalize that 3% limitation, reports Mariana Lehman for Ignites. This would allow mutual funds to invest in ETFs in a much easier way than now.
ETFs are used in lifecycle portfolios and these types have grown in number over the past few years. 2004 saw $85 billion and so far in 2008 there is $238 billion. There are 57 funds with 70% of assets invested in ETFs. These funds hold $2.97 billion in assets, and are dominantly used in a lifecycle setting or tactical sector rotation strategy.
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