The exchange traded fund (ETF) market is growing and evolving. While passive products are likely to always remain the order of the day, there’s room for a growth explosion in other types of ETFs, too. And that explosion could ultimately make ETFs more versatile than they’ve ever been before.
Now that assets in U.S.-listed ETFs have topped $1 trillion, it’s prompted a bit of soul-searching in the industry.
- In their first decade, from 1994 to 2004, ETFs became a favorite for institutional investors. Between 2004 and 2006, they began attracting individual investors and advisors both for trading and for buy-and-hold strategies.
- Today, ETFs account for 38-45% of the trading volume of the New York Stock Exchange and the major broad based players continue to be the most heavily traded funds.
- Although most ETFs are passive, there is a “nascent” move toward actively managed ETFs and rapid growth in “managed ETF solutions” with tactical structures that allow managers to pick up on momentum.
- Even though ETFs are not going to kill off mutual funds, the major mutual fund players have began to offer ETFs as a way to offset any potential lost business.
Temm Ehrenfeld for Financial Planning reports that while most ETFs passively track indexing, there’s been increasing growth in the actively managed fund space, as well. [More Advisors Are Putting ETFs to Work.]
This hardly means that passive investing is on the way out, but it may provoke a sea change in how ETFs are used, according to Morningstar’s Scott Burns. A greater variety of ETF types will give advisors and investors the opportunity to implement more managed solutions in which funds can be used to capitalize on short-term market movements. [Actively Managed ETFs Primed for Take-Off.]
Tisha Guerrero 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.