The ETF Revolution
The conventional mutual fund has stood at the center of the investment management industry for more than 80 years. Its popularity is driven by a simple idea: Allow investors to purchase a managed basket of securities as a single product, providing instant diversification at a relatively low cost.
Mutual fund management companies have translated this simple idea into an enormous business: The mutual fund industry managed $21.66 trillion in assets worldwide heading into the fourth quarter of 2008, nearly $11 trillion in the U.S. alone1. Recently, however, a new product has emerged that has mounted a significant challenge to mutual funds around the world: the exchange-traded fund, or ETF.
ETFs are similar to mutual funds, in that they hold a basket of securities in a single wrapper. But unlike mutual funds—which can be bought and sold just once per day—ETFs can be traded on an intraday basis on an exchange, just like any stock. They may also have cost advantages over conventional funds, and can be more tax efficient, more flexible and more transparent.
Investors seem to have responded to these advantages. In the U.S., investors poured more than $100 billion in net new money into ETFs in 2008, even as they pulled a record $320 billion from traditional mutual funds2 . Globally, ETFs held more than $711 billion in assets at the end of 2008, more than double the size of the ETF industry in 20043.
Many industry experts believe that the ETF industry is still in its early stages of growth. This paper explores the role ETFs are playing in the investment market, what opportunities remain for firms looking to enter the ETF market and the challenges they face.
Find out More:
| A Growing Industry | Next-Generation Growth Drivers | The Fund Sponsor’s View | Entrance Strategies | The Opportunity Landscape |
1 Investment Company Institute
2 IndexUniverse.com
3 Barclays Global Investors