Many investors might be curious about what’s going to happen after the sale of iShares‘ popular line of exchange traded funds (ETFs) takes place.
Word on the Street is that Barclay’s plans to sell its paramount iShares ETF business to a limited partnership established by private equity giant CVS Capital Partners Group for a whopping $4.4 billion, states John Spence of The Wall Street Journal.
Some worry that this move could take away from one of the most attractive characteristics of ETFs: their low expense ratios. These low costs were one driving force which enabled ETFs to snatch away several billions of dollars worth of assets from mutual funds which tracked the same indexes but cost a lot more in fees. Fortunately, there is plenty of competition in the market place to keep prices fair.
In conjunction with low costs, ETFs also offer tax efficiency, transparency, investor exposure to a specific sector or commodity, the ability to offer leveraged exposure to the markets and are traded on an exchange, much like regular stocks. These versatile investment tools made it possible for short-term traders and buy-and-hold investors to coexist, and this will continue to be true.
Advocates of this sale suggest that these advantages and characteristics of ETFs will remain intact and open up a whole new playing field for the ETF market. They suggest that this could spark a new trend of consolidation in the industry and potentially nudge more financial institutions into the ETF business. They could be right: Charles Schwab and bond king PIMCO have already made it clear that they will be launching ETFs.
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.