The exchange traded fund universe has attracted over $1 trillion in assets, but growth has tapered off as market volatility crippled the outlook on stocks last year. Still, with the economy and markets on the mend, the ETF industry could see $2 trillion by the end of the year.
Currently, low market volume has some speculating that a lot of cash is still sitting on the sideline. Investors, discouraged from the high volatility in equities, have moved money out of stocks and into bonds or cash holdings. Once the investors feel more comfortable, we might see a surge in market interest. [Why is ETF Trading Volume Down?]
ETFs offer quick and easy access to a multitude of asset classes, and they have become a preferred method of market exposure for both institutional and the average retail investors.
“Investors definitely sense the improvement in the global macro picture and need their quick sugar high exposure to equities,” Brian Stutland of Stutland Equities said in a CNBC report. “Thus, rather than figure out which stock to pick in a sector, they can just bang out exposure to oil, gold, emerging markets, industrials, etc.”
“Pros are using the ETF space to quickly trade in areas that used to be tougher to trade in, i.e., foreign currencies,” Michael Murphy, president of Rosecliff Capital, said.
“Everyone is using ETF’s, from the retail investors, the investment professionals, to the day traders,” Mitchell Goldberg of ClientFirst Strategy, said. “ETF sponsors really tout diversification and unique slices of the market, such as trading volatility or tracking metals prices. They give investors a ‘go anywhere at any time’ ability.”
Additionally, ETFs are making greater inroads into 401(k) plans dominated by mutual fund names. More companies are beginning to shift towards ETF 401(k) plans ahead of the new Department of Labor’s fiduciary and fee disclosure rules. [ETFs Make Strides in 401(k) Plans]
In the actively managed ETF space, PIMCO has announced that it will offer an ETF similar to its flagship Total Return Bond fund. With this heavyweight committed to the actively managed ETF arena, others might follow suit. [Will PIMCO ETF Mark Beginning of the End for Mutual Funds?]
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.