While the $10 trillion U.S. mutual fund market dwarfs the $1.1 trillion exchange traded fund industry, inflows into ETF products have been consistently positive, whereas mutual funds inflows are sputtering.
U.S. listed ETF inflows are at a consistent $118 billion per year, according to a Center for Due Diligence research note. [ETFs Gathering Record Inflows in 2012]
U.S. equity ETFs drew in $85 billion in net inflows in the the three years up to the end of 2011, compared to the $200 billion in outflows experienced in equity mutual funds. Fixed-income ETFs also saw notable inflows of $121 billion over the same period. Additionally, the growing class of “specialty” or niche strategy products is also just getting off its feet, garnering $653 million in assets over the past three years.
BlackRock’s iShares, State Street Global Advisors and Vanguard are the three largest ETF providers, in that order. However, Vanguard has been attracting greater inflows over the past two years, which suggests that the company’s low-cost products are enticing more investors. [ETF Performance Report: Best First Quarter in Over a Decade]
The CFDD also suggested that investors look into the risks found in Treasury-related assets, especially given the current environment.
“Systemic debt risk is still hanging over the markets and a new round of easing is possible, but given the one hundred year lows in treasury rates, the negative real yields, major food inflation on the horizon and a recovering economy, advisors would be wise to communicate the risks inherent in owning unhedged bond funds today,” the CFDD said in the note.
Additionally, the ETF space and asset growth will continue to expand.
“Retail ETF growth will continue to be fueled by an increase in fee-based business, expanded asset class exposure, a wider distribution net, some flight from mutual funds and actively managed ETFs,” according to the note.
Inclusion of ETFs into defined-contribution plans will also stoke ETF growth.
“From a DC plan standpoint, TDFs are poised for significant growth, including advisor constructed custom solutions. The industry may have overlooked it, but these custom solutions will increase the use of ETFs,” the note added.
For more information on ETF fund flows, visit our ETF performance reports category.
Max Chen contributed to this article.