ETF cheerleaders see good times ahead, with a few clouds

ETF.com brain trust forecasts $15.5T in exchange-traded assets in 10 years

Jan 27, 2014 @ 12:20 pm

By Jeff Benjamin

The future of the $1.7 trillion exchange-traded-fund industry looks glaringly bright to the brain trust behind ETF.com, which is calling for ETF assets to reach $15.5 trillion in 10 years and to eclipse the size of the mutual fund industry.

“Growth in the ETF space is just getting started and it will explode from here,” said Matt Hougan, president in charge of analytics and publications at ETF.com.

Mr. Hougan, joined ETF.com chief investment officer Dave Nadig during a presentation Monday in Fort Lauderdale at the Inside ETFs annual conference.

Among the driving forces behind the projected growth is the sleeping giant represented by the institutional investor market.

According to Mr. Hougan, institutional investors currently represent 55% of all ETF assets, but only 18% of institutions invest in ETFs.

Showing the full 20-year history of the ETF industry, Mr. Nadig called the growth period from 2003 through 2010 “the age of the adviser.”

“That was the period that saw a slow trickle of early adopter advisers showing up,” he said.

Perhaps not surprisingly, the ETF.com duo took some shots at the mutual fund industry.

“When it comes to taxes, the record in the ETF space is nearly flawless,” Mr. Nadig said. “And mutual funds are the least fair tax vehicle ever created in the history of mankind.”

For extra emphasis, he presented a slide showing a predictable pattern of mutual fund selling toward the end of the year when investors are trying to avoid tax distributions.

“Investing is not one sizes fits all, so there's clearly a need for ETFs, mutual funds and other products that offer different options and benefits to investors,” said Ianthe Zabel, a spokeswoman for the Investment Company Institute.

Mr. Nadig said the outlook for 2014 is a steady growth of pure active ETF strategies.

“This year is probably the year we start seeing these things show up,” he said. “If you don't think active management will have an impact on the growth of the ETF industry, I think you're just wrong.”

But, even with an uber-bullish outlook, Mr. Nadig acknowledged that all is not rosy in the ETF world.

“There's a gold rush going in in ETFs, and it's really not that hard to launch your own ETF,” he said.

He cited “four worries,” including “products that are actually toxic and will hurt investors, half the smart beta is junk, pay to play is a reality in this business, and a lot of active management strategies that probably aren't very good are trying to ride on a wave of ETF growth.”

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

Nuveen's Farris: How ETFs are democratizing ESG investing

What are firms doing to enable more investors to invest in ESG? Nuveen's Jordan Farris explains how ESG has evolved and how more can get involved in this sector.

Video Spotlight

Help Clients Be Prepared, Not Surprised

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

Brace for steepest rate hikes since 2006 in new year

Citigroup, JPMorgan Chase predict average interest rates across advanced economies will climb to at least 1 percent in 2018.

Why private equity wants a piece of the RIA market

Several factors, including consolidation in the independent advice industry and PE's own growing mountain of cash, are fueling the zeal to invest.

Finra bars former UBS rep for private securities transactions

Regulator says Kenneth Tyrrell engaged in undisclosed trades worth $13 million.

Stripped of fat commissions, nontraded REIT sales tank

The "income, diversify and interest rate" pitch was never the main draw for brokers.

Morgan Stanley fires former Congressman Harold Ford for misconduct

Allegations against the wirehouse's former managing director include sexual harassment, which Ford denies.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print