ETFs top $2 trillion in U.S. for first time

A once-niche fund becomes the fastest-growing product in asset management

Dec 23, 2014 @ 2:38 pm

By Trevor Hunnicutt

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ETFs have crossed a symbolic milestone, topping $2 trillion in assets under management in trading Monday, as institutional and retail investors increasingly relied on the funds for exposure to capital markets.

The exchanged-traded fund industry this year has broken its previous asset-gathering record, bringing in $232 billion, beating 2013's $190 billion, according to data Tuesday by ETFGI, a London-based industry consultancy. The $2 trillion figure was also reported by ETF.com.

Exchange-traded funds and related products increased assets 18% this year, as of Dec. 22, driven by rising financial markets, and new assets from financial advisers and institutional investors, ETFGI said.

The milestone is seen as a coming-of-age for the funds, which started as a dream to trade entire financial markets with the ease of buying or selling a single stock or commodity. Since securities regulators approved the first U.S.-listed ETFs in 1993, the products have been adopted by a wide range of clients, from hedge funds looking to make short-term bets to individual investors who want to “buy and hold” the markets.

Financial advisers have been a key part of the growth. Wirehouses, independent registered investment advisers and independent broker-dealers together accounted for $1 trillion in assets in ETFs as of Sept. 30, according to Broadridge Financial Solutions Inc., a data service.

But analysts said gathering the next $2 trillion may depend on broader changes, including the success of proposals for actively managed funds that wouldn't have to disclose their holdings and adoption of the funds within closed platforms, such as those supporting defined-contribution retirement plans.

Dave Mazza, head of research at State Street Corp.'s asset management group, said one of the major factors in ETF growth this year was broader use in asset categories like fixed-income.

Fixed-income ETFs took in $48.7 billion in the first 11 months of the year, compared with $12.6 billion over the same period last year. That compares with $143.7 billion that went into equity ETFs over the same period, according to BlackRock Inc.

Mr. Mazza said the technology surrounding retirement accounts remains an obstacle to ETFs' growth and that their broader adoption in retirement accounts would promote “another rapid” uptake in the funds, possibly at the expense of mutual funds.

Mutual funds managed $15 trillion at the end of 2013, according to the Investment Company Institute.

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