Exchange traded funds (ETFs) have been encroaching upon mutual funds’ territory. The lucrative 401(k) market, however, is one area that the fast-growing industry has yet to fully infiltrate.
Assets in ETFs last year surged a whopping 46% from a year earlier and now make up more than 7% of total mutual fund assets, Joe Morris for Ignites reports. The 401(k) market represents a wall that the ETF industry must surmount if it will make more inroads into that market share.
Technically, the barrier to entry has been blown up, but only small players are providing the service. It will be many more years until ETFs play a large role in the mutual fund giants 401(k) programs. That said, anything is possible. [401(k) plans, ETFs and you.]
The key hurdle for ETFs in 401(k) plans is the trading commission that comes with each trade, which discourages dollar-cost-average investing. That hurdle may be surmountable now that Schwab began offering free trades of its own ETFs. [What does dollar-cost averaging have to do with it?]
Mutual funds are ceding some of their dominance in the active management space to ETFs, as well. As more actively managed ETFs hit the scene, it could further erode mutual funds’ top-dog status. [ETFs poised to gain market share.]
Don’t feel bad for the ETF industry – it’s still growing and Index Universe’s Matt Hougan notes that they’re on pace to increase their market share to 10% this year and double that within a few years, even without the 401(k) market.
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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.