Exchange traded funds provide a low-cost, efficient and liquid ways to capture the broader markets, but there is a shift in the way the industry is engineering new fund products.
The ETF industry has quickly expanded. There were only 79 ETFs to choose from back in 2000, reports Suzanne McGee for The Guardian. In comparison, there are now 1,503 U.S.-listed ETFs; however, the industry is beginning to show signs of slowing down as it matures.
“The ETF market is pretty saturated right now in terms of ‘plain vanilla’ funds,” Samuel Lee, Morningstar ETF analyst, said in the article. “You can get almost free exposure to, say, U.S. stocks. Even emerging markets, once an exotic and expensive-to-access asset class, can be had for a low 0.20% annual fee.”
Consequently, Lee expects the next stage of ETF growth to come out of alternative strategies beyond the plain-vanilla, beta index ETFs we have become accustomed to.
“ETFs have been a field where providers have been able to innovate historically,” Lee added. “There have been lots of examples of providers offer products that are very niche-like, for instance, but also offering exposure to very creative parts of the market, like stocks deemed to be of ‘high quality,’ or offering above-average momentum.”