Despite the market crash and credit crisis of 2008, exchange traded funds (ETFs) have seen prosperity and made unconventional headway.
The prosperity of the ETF industry has come at the expense of mutual funds. In 2008, there were 160 new ETFs launched as compared to a measly 21 new mutual funds. Additionally, net inflow into U.S. equity ETFs were a positive $120.8 billion versus $162.4 billion net outflow for U.S. equity mutual funds.
In March, the National Stock Exchange reports that more than $8 billion in net inflows went into ETFs. This reverses February’s anomaly, which saw $5.8 billion in net outflows, reports Murray Coleman for Index Universe. Additionally, there were 752 ETFs with $484.6 billion in assets by month’s end. ETNs also gained $4.6 billion in assets.
- There are 737 ETFs that are offered to investors and range from everything as going short on gold to taking long positions on Malaysia
- Over the past three years, ETF assets have skyrocketed 77%, while non ETF mutual fund assets climbed a mere 9%
- ETFs account for 40% of all index fund market share, and this number is expected to increase in the near future
- Most mutual fund providers are offering a vast array of ETF products. Vanguard offers 39 different ETFs and holds $45 billion in ETF assets and Fidelity just recently broke into the ETF world
- 2008 was the year the actively managed ETF was launched, building an empire of 13 actively managed ETFs and $240 million in assets
So why have ETFs become so popular? The answer is fairly simple, investors and money managers have educated themselves on their benefits, which include tax efficiency, transparency, low costs, intraday trading, diversification and exposure to just about any sector or market.
Additionally, the rise of ETFs will help accelerate the purging of assets from the mutual fund universe. In a market turnaround, look for ETFs to get more than their fair share of the assets.
Kevin Grewal contributed to this article.
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.