Mutual funds performed a nosedive during the financial crisis and investors are looking for alternatives to this long-held investment vehicle. As investors search for an alternative, exchange traded funds’ (ETFs) market share may begin to grow.
ETFs are popular because of their fee structure, tax efficiency, level of transparency and exposure to niche markets, writes Sheryl Nance-Nash for Daily Finance. In addition, more retail and institutional investors and advisors are incorporating ETFs into their overall investment plans. (Advisors and ETFs: a match made in heaven).
Craig Stier, U.S. leader of Deloitte Asset Management Services Practice, believes that ETFs will capture a larger portion of current and future investment capital. He also states that research suggests a higher rate of assets being shifted out of mutual funds and into ETFs in the future. (ETFs vs, Mutual Funds).
The reasons for this shift to ETFs include:
- Launching future ETFs will become easier (What ETFs need to overtake mutual funds)
- New disclosure rules that will attract retail investors
- More 401(k) money finding its way into ETFs
- Tax efficiency, liquidity, lower costs and greater transparency
- Market-exposure diversification
- More mutual fund complexes going into the business of ETFs (Why mutual funds want in on ETF game)
Stier also thinks that ETFs have some room to grow and the investment vehicle will have to make some tactical moves to enhance ETF positions:
- Less exotic, more simple. “Some of the best performing ETFs are linked to less exotic indexes such as commodities and equities,” explains Stier. Investors aren’t understanding the intricacies of exotic ETFs. Furthermore, the simpler betas are cheaper compared to the more exotic.
- Long-term. Investors, especially retail investors, are attracted to ETFs that track an index with a long-term horizon.
- 401 (k) money. Currently, 401(k) funds investing in ETFs cost more than index mutual funds. The ETF industry is working hard to get in on this market and made some headway in 2009.
For more information on ETFs, visit our ETF 101 category.
Max Chen 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.