Although the markets are questionable at the moment, the prognosis for the exchange traded fund (ETF) industry within the next two years looks great.

The use of asset allocation models and fee-based service investment advice is going to drive the amount of cash into ETFs up within the next two years, according to one study. The industry is set to hit the $1 trillion mark, reports Daniel Bases for Reuters.

There are several reasons that ETFs are going to flourish:

  • The recent shift in the way money is invested, mentioned above, helped to pump the industry to $725 billion globally at the end of 2008, according to Strategic Insight.
  • Fees for advice rather than point-of-sale commissions is the trend.
  • Specific asset allocation can be targeted through the use of ETFs; the funds are easy to use, tax efficient and cost little to manage.
  • Even during the market meltdown of 2008, investors worldwide poured more than $260 billion into ETFs.
  • The U.S. mutual fund industry saw assets drop to $9.6 trillion last year from $12 trillion in 2007, according to the ICI. We predict that a fair portion of that money is set to drop into ETFs in the future.
  • New ETF products such as the actively managed ETF, commodity products and currency related funds are taking the industry to new levels.

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.