We did pretty well with our exchange traded fund (ETF) predictions for 2009, with nine out of 10 of our forecasts proving to be spot-on. Can we replicate our success again in 2010? Read on!
1. There will be more actively managed ETFs, and most will land with a thud. This isn’t because actively managed ETFs have no use for investors – on the contrary. These funds offer investors the benefit of an experience active manager, alongside the other benefits ETFs offer, including transparency, low cost and intraday liquidity. But providers can’t launch these funds and expect the assets to roll in overnight. Investors will be watching these funds closely to see how they do first, then proceed accordingly. [Active ETFs lure big names.]
2. ETF assets under management in the United States will hit $1 trillion. The ETF industry came pretty close this year, and assets are already at record levels, standing at $751 billion at the end of November. If 2010 is another banner year for the industry, surpassing the $1 trillion mark should be an easy feat. Industry analysts feel similarly, noting that as traditional fund providers like T. Rowe Price enter the space and give the industry more heft, even the most skeptical investors could be persuaded to put their money in ETFs, reports Luisa Beltran for Ignites. [November a record-breaking month.]
3. The 1,000th ETF will launch to much fanfare. The ETF industry is close here, too: At the end of November, there were 819 ETFs. In the last few months of 2009, the ETF industry suddenly saw a flood of new funds launch. But a few have closed, too. Can ETFs keep up the pace heading into the new year? [New ETFs in 2009.]
4. Fidelity will finally crack and make a commitment to ETFs. In 2009, more than 2,000 mutual funds closed their doors and the industry overall suffered outflows. Fidelity stated earlier in 2009 that it had no intention of getting on board with ETFs, beyond the lone fund it does offer – the Fidelity Nasdaq Composite Index Tracking (NASDAQ: ONEQ) – but how long can the fund company really hold its ground? With huge names like PIMCO, Schwab, Jefferies, Guggenheim, T. Rowe Price, BlackRock and Goldman Sachs making moves into the ETF space, Fidelity is going to have an increasingly hard time resisting the lure. The thing is, mutual funds and ETFs don’t have to be enemies. Many providers who also have mutual fund offerings have stated as much: they see ETFs as a natural supplement to what they already do. Hopefully, Fidelity will see the light and begin branching out soon, too. [Why Fidelity isn’t playing along.]
5. The Commodity Futures Trading Commission (CFTC) will back down a little. The CFTC launched an investigation into futures-based commodity funds and is currently toying with the idea of position limits that could impact a number of extremely popular ETFs. After a review of these funds, however, we predict that the CFTC will step back and realize that futures-based commodity ETFs are truly an efficient way for investors to get exposure to commodities such as gold, corn, wheat, oil and natural gas. The CFTC will allow the natural physics of supply and demand to dictate the use of futures in ETFs. [Commodity ETFs brace for regulations.]