The exchange traded fund industry is growing at a faster pace than the mutual fund business. However, experts say the new phase of ETF growth will be dependent on sales and distribution as it becomes more difficult for funds to stand out in an increasingly crowded field.
“We’re close to a tipping point in terms of numbers,” said Todd Rosenbluth, director of ETF research at S&P Capital IQ, in a recent media report.
Mark Jewell for Associated Press reports that the ETF industry has attracted $100 billion in new cash, each year, for the past six years. Total assets under management have grown to $1.4 trillion, and there is potential for it to grow to $3.5 trillion by 2016.
Yet timing is everything for providers in the ETF business, and experts warn that new entrants into the industry will find it difficult to gain traction. In fact, new ETFs that are launched by existing providers are having a tougher time gathering assets, as products currently trading are of the highest quality at the lowest price point.
The total number of ETFs trading are set to fall this year, as there were 1,190 ETFs on the market at the end of March, four less than the end of 2012, according to Investment Company Institute research. The problem is many ETFs are not garnering enough assets to remain profitable. Last year, 81 ETFs closed, the most in one year. [Which ETFs are More at Risk to Closures?]