Exchange Traded Funds - US - December 2010
Although ETFs have been available since 1993, it is only relatively recently that they have exploded in popularity. A direct competitor of mutual funds, ETFs offer the same benefits as mutual funds but with additional trading flexibility.
ETFs are perhaps the fastest growing investment product available. ETF assets under management (AUM) have grown exponentially over the past several years, and that growth shows no sign of abating. Advisors show increasing interest in the products, driving interest on the parts of their clients. And there has been so much press about ETFs that no client who is even remotely interested in being involved in making investment decisions for themselves could help but at least consider using ETFs.
However, ETFs still make up only a small percentage of Americans’ portfolios. The primary reason for this is that most people, while they may have heard of them, don’t really know what they are or understand how to use them. Many advisors are also not as conversant on how to make ETFs work for clients as they could be. While investments in ETFs continue to grow and AUMs continue to set records both for certain single ETFs and the industry as a whole, the lack of knowledge about the product means that there is still upside potential for the ETF market. Mintel’s research found that only 5% of respondents hold ETFs in their portfolios. That leaves a lot of room for advisors to add ETFs. The challenge will be for those advisors to get their clients comfortable enough with the product to allow them to add the products to their list of investments.
The following themes are discussed in this report:
- Historical growth patterns for the ETF business, and where there are still opportunities to grow
- The type of ETFs that are expected to experience the greatest growth
- Who the leading ETF players are and how the balance of power may be shifting among them
- What drives the investor’s decision as to what ETF provider to use
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