Exchange traded funds are becoming a household name as retail investors become familiar with the investment tool. Nevertheless, institutional investors hold the majority of total assets in fund space and could shape future growth within the industry.
“Retail traders are going to increasingly face the threat of being outmaneuvered by institutional traders with deeper pockets and more resources,” Michael Rawson, an ETF analyst at Morningstar, said in a MarketWatch report.
Some observers note that retail investors may think twice before taking on ETFs, especially in light of the recent Knight algorithm glitch. [ETFs Withstood Knight Mishap: Burton Malkiel]
In theory, “if individual investors keep having bad trading experiences with ETFs, they could decide to just use mutual funds or other securities,” Rawson added.
“Institutions are good and bad – they create liquidity,” Andrew Feldman, an adviser in Chicago, said in the article. “On the negative side, trading glitches can give them a bad rap by causing issues with smaller players since they’re dealing in such large volumes.”
The ETF universe has a combined $1.2 trillion in assets under management, showing growth at an average of 30% compounded annually over the past 10 years.
Deutsche bank calculates that institutional investors accounted for 53% of the U.S. ETF market as of the end of last year – still, institutions mainly concentrate their holdings in about 50 of the most popular ETFs in their respective asset classes. In contrast, individual investors held over 70% of the market by 2000.
For more information on the ETF industry, visit our current affairs category.
Max Chen contributed to this article.