Every year, we take the crystal ball out of a dark closet and examine it for clues about what’s in store for the exchange traded fund (ETF) industry in the coming year. Last December, we made 10 predictions about the industry for 2010. Did the crystal ball steer us in the right direction? Let’s find out.
1. There will be more actively managed ETFs, and most will land with a thud.
Road block. Many actively managed ETFs got held up in the registration process this year, thanks to a regulatory review of the use of derivatives. Fund providers that swore them off were able to bring their funds to market, while the rest await approval. We certainly anticipated that more would launch this year, but the majority of those that did landed with the thud we predicted. We’ll extend this prediction into next year. Assets will be slow to move, but PIMCO is one of the exceptions. They’re a fixed-income leader and have done a great job showing the real benefits of active management when it comes to ETFs.
2. ETF assets under management in the United States will hit $1 trillion.
We did it! On Thursday, the ETF industry officially broke through the $1 trillion barrier for the first time. That includes all ETFs and exchange traded notes (ETNs). This is a huge milestone for the industry, which has been waiting to reach that number for some time.
3. The 1,000th ETF will launch to much fanfare.
Yes! When you include both ETFs and ETNs, the industry is well above 1,000 – 1,092, to be exact. There are 963 ETFs, and at the rate they’ve been launching lately, 1,000 isn’t a matter of if, but when.
4. Fidelity will finally crack and make a commitment to ETFs.
You know it. Although Fidelity’s lone ETF is still the Fidelity NASDAQ Composite Index Tracking Stock (NASDAQ: ONEQ), the brokerage indeed made a commitment to ETFs this year. To be exact, they made a commitment to battle for the assets of ETF investors by striking a deal with iShares to trade 25 iShares ETFs on the Fidelity platform for free. Although other brokerages came out with similar deals this year, Fidelity was the first to throw its hat in that particular ring. In addition, Fidelity is also offering ETF research and tools on its site. But if you want more Fidelity ETFs, you’ll have to wait: it looks like Fidelity has thrown in the towel on offering a suite of ETFs.
5. The Commodity Futures Trading Commission (CFTC) will back down a little.
A little bit. The CFTC has indeed backed down, but it doesn’t look like that will be the case for long. Despite the fact that little evidence has shown that speculation in the commodity markets drives up prices, the regulatory body recently began examining the commodities markets and ETFs and weighing the prospect of implementing limits on the number of positions any one person can own in certain commodities.
6. Schwab will launch an ETF supermarket.
Not quite. But considering the moves made by Fidelity and TD Ameritrade, which began selling 100 ETFs commission-free on its platform this year, some might be willing to bet that it’s only a matter of time before Schwab does the same.
7. The Federal Reserve’s interest rate hike will catch fixed-income ETF investors by surprise.
We admit it: we were dead wrong on this one. In fact, rates did the opposite this year and plummeted. It’s another case of the U.S. economic recovery taking longer than expected. Many believed the economy would have been further along at this point, which would have led the Fed to raise rates. Regardless of how long it’s been, the Fed will raise rates at some point, so watch for signs that it may happen and be ready to act.
8. Global ETF offerings will expand.
And how! Not only did we see more single-country ETFs launch, including Market Vectors Vietnam (NYSEArca: VNM), Global X FTSE Norway 30 (NYSEArca: NORW) and iShares MSCI Poland (NYSEArca: EPOL), but providers got even more creative with it. A number of small-cap single-country ETFs appeared, including Index IQ South Korea Small Cap (NYSEArca: SKOR), along with some sector-specific single country funds, such as EGShares Brazil Infrastructure (NYSEArca: BRXX). If you’re an investor looking for global exposure, it’s safe to say that you have more choices than ever.
9. We’ll see more creative uses of ETFs: for example, in life cycle funds, ETFs of ETFs, separately managed accounts.
This has absolutely been true. More mutual funds of ETFs and ETFs of ETFs launched, such as the AdvisorShares Mars Hill Global Relative Value (NYSEArca: GRV), which is an actively managed ETF of ETFs. We’ve also seen providers get more creative when it comes to giving exposure to certain asset classes. A case in point is iShares‘ line of municipal bond ETFs with an end date, which trade like other ETFs and generate monthly income but they adjust the end-date distribution in line with the monthly payouts.
10. Emerging market ETFs will be at the top of the performance charts for 2010.
True, true, true. Emerging markets were an investor favorite this year, thanks in large part to lackluster growth in developed economies. Although commodities look like they’re going to be the ones sitting at the top at year-end not far behind are a slew of emerging markets. Some of the best ones so far include iShares MSCI Thailand (NYSEArca: THD), iShares MSCI Peru (NYSEArca: EPU), Global X/InterBolsa FTSE Colombia 20 (NYSEArca: GXG) and iShares MSCI Chile (NYSEArca: ECH).