How ETF Investors Can Capitalize on Rapid Growth in ETFs

The ETF universe is quickly expanding as more investors and financial advisors turn to the convenient investment tool. ETF investors can also capitalize on the growth in the space through a targeted strategy that focuses on companies and fund providers directly participating in the industry.

There are about $17.3 trillion dollars invested in U.S.-listed mutual funds and ETFs, and assets are slowly shifting between the two industries in favor of ETFs. ETFs account for $3.1 trillion in fund assets or 18% of the overall industry.

Of the $17 trillion in fund assets, $11.4 trillion is in equities, and of that, $8.3 trillion is classified as either U.S. or sector equity, according to Toroso Asset Management. This asset class has experienced the largest reversal of preference among asset allocators.

Within the $8.3 trillion in equity fund assets, ETFs make up $1.8 trillion while the remaining $6.5 trillion is in mutual funds. However, Toroso pointed out that the huge lead in mutual fund assets was not due to flows but through capital appreciation, whereas assets in ETFs have been slowly accumulated through greater investment inflows.

“While flows towards ETFs overall have just recently surpassed Mutual funds, it’s interesting to see here that ETFs have been the vehicle of choice when allocating towards US equities basically all the way back to 2007,” according to Toroso Asset Management.

Looking ahead, Toroso argued that a pullback in equities, diminishing tax liabilities of investors using mutual funds to access equities could likely cause more to favor ETFs.

The ongoing preference for index-based ETFs is also reflected in growing assets of BlackRock Inc. (NYSE: BLK), the money manager behind the popular iShares ETF brand. BlackRock assets under management surged to $5.98 trillion at the end of September, or almost $1 trillion more than it managed a year ago.