With about $1.3 trillion in assets, exchange traded funds have grown from obscurity to a household name. Nevertheless, the ETF universe is relatively young and will continue to expand.
As ETF providers find new ways to attractive investor interest, Ari I. Weinberg for the Wall Street Journal sees a couple of rising trends within the industry.
For instance, fixed-income ETFs only make up 18% of all U.S.-listed ETF assets, but the overall bond market is about three times the size of the equities market. Overall, ETFs account for 2.2% of global equity securities and 0.3% of the fixed-income markets. So, bond ETFs still have a lot of catching up to do. Recently, iShares came out with a report that predicted global fixed-income assets could hit $2 trillion over the next decade as narrower fixed-income, like target-maturity strategies, non-U.S. and corporate debt ETFs garner greater interest.
Considering the lackluster returns and higher fees of active managers failing to beat benchmarks, there is a rising interest for advisors and easy ETF solutions for portfolio management. For instance, Andrew Gogerty of Morningstar points out that “growth in the fee-based model is tilting portfolios toward lower-cost, broad-based investments,” which can be easily achieved with passively indexed ETFs.
There is $3.14 trillion in U.S. 401(k)s, but only 0.2% of the assets are in ETF products. However, with new fee disclosure rules, 401(k) observers believe that investors will now start to look for low-fee, index-based ETF options to replace costlier mutual funds. “ETFs are particularly helpful in areas of the market where good, cheap options aren’t available,” Michael Iachini, head of ETF research at Schwab, said in the article.