I recently talked to ETF Radar magazine about investing opportunities in exchange traded funds and the rapid growth of the ETF business.
With all the economic uncertainty building up, we might very well be teetering on double-dip territory. But surprisingly, U.S. equity ETFs experienced greater inflows compared to fixed-income ETFs year-to-date, with $25 billion versus $21.4 billion, respectively. Additionally, precious metals actually saw net outflows, along with energy ETFs, despite their strengthening markets in most of 2011.
As investors grow more familiar with ETFs, the industry is trying to expand its offerings. Fund sponsors are now focusing on more niche investment strategies in an attempt to differentiate their products from their competitors and step into untapped areas of the market.
For instance, new ETFs coming out are based on hedge fund strategies and other alternative themes as seen from WisdomTree, and the industry is trying to make headway in the 401(k) business. Furthermore, competition among major providers, most notably Schwab and Vanguard, is creating a price war that has pushed down costs for investors. [ETF Spotlight: WisdomTree Managed Futures Strategy (WDTI).]
For investors, ETFs provide liquidity and a range of options. Yet some products such as leveraged and inverse ETFs require more understanding and are designed for day traders anyway. Only active traders should use these high-octane ETFs and ETNs because they require regular monitoring and rebalancing.