There are around 900 exchange traded funds (ETFs) in existence. While some funds could close without much fanfare or notice, that doesn’t mean the industry has hit the point of saturation. Far from it; the ETF industry still has plenty of room to grow.
Just because a particular ETF is not your cup of tea doesn’t mean it isn’t relevant to someone somewhere, remarks Paul Justice for Morningstar. In fact, the number of ETFs available should be counted as a good thing for investors. The increased existence of ETFs has resulted in lower fees and the investment vehicle has expanded product selections to deliver a specific niche investment plays. [Why Self-Directed Investors Rule.]
In comparison, that U.S. market has 6,700 unique mutual funds and the funds can be sorted into 25,000 different share classes. It is seen that mutual funds, based solely on a strategy perspective, have more products that overlap than the ETF industry happens to. [Is the ETF Industry in a Bubble?]
While there are some actively managed ETFs, the majority of the ETF space is still passive. Investors sift through ETFs based on asset-class exposure, cost and liquidity. Typically, most investors focus on two or three solid choices in each investment niche and ignore the rest. [More on Actively Managed ETFs.]
The true conundrum in the ETF industry is really new providers and products coming into the space. The ETF space already has many asset classes and sectors well-represented, so providers have to find other ways to gain a foothold, whether it’s through lower costs, unique twists on existing plays or being a “first mover” in a new category.
For more information on ETFs, visit our ETF 101 category.
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.