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.
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Similarly, rival Vanguard Group has attracted robust investor inflows as well as more increasingly look to low-cost products to gain market exposure. The two firms combined now manage about $10.7 trillion in assets.
In its latest quarterly review, BlackRock revealed it had attracted a net $96.1 billion in new investor money over the third quarter, more than half of which went into iShares ETFs, which helped contribute to its better-than-expected quarterly earnings result.
With the ongoing demand of ETFs steadily increasing and the rising usage of ETFs as a core component of many investment portfolios, the ETF industry and others associated with the rise of ETFs may continue to grow.
Meanwhile, investors who are interested in tapping into the rising growth story of the ETF industry can look to the ETF Industry Exposure & Financial Services ETF (NYSEArca: TETF) as a way to play ETF providers. TETF tries to reflect the performance of the Toroso ETF Industry Index, which tracks publicly-traded companies that directly or indirectly provide services or support to ETFs, including management, servicing, trading or sales of ETFs.
These companies include ETF sponsors; asset managers; index providers; broker-dealers; securities exchanges; and service providers, such as custodians, transfer agents, and administrators, according to the prospectus. The ETF also includes a 6.6% tilt toward BlackRock, along with other companies heavily involved in the ETF industry like WisdomTree Investments 7.1%, Invesco 6.4%, MSCI 6.3%, Charles Schwab 6.3% and S&P Global 6.2%, among others.
For more information on ETFs, visit our ETF Performance reports category.