Posing threat to mutual funds, ETF assets expected to hit $1T before 2011, report says

Exchange-traded funds are poised to take a bite out of traditional mutual funds and are expected to grow from just over half a trillion dollars to $1 trillion before 2011, according to a soon-to-be-released report. Between March 2001 and March 2008, total ETF assets grew at a compounded annual rate of 44%, according to the report, by Cary Stier, a managing partner in U.S. asset management services for Deloitte & Touche LLP. “At that pace, it was expected that they would likely exceed $1 trillion before the end of 2009,” the report, “Exchange-Traded Funds: Challenging the Dominance of Mutual Funds?” noted. “However, given current volatile market conditions, at a conservative growth rate of 20% compounded annually, total ETF assets will exceed $1 trillion in mid- 2011.” Despite the dominance of mutual funds — which had a little more than $10 trillion in assets at the end of July, according to the Investment Management Institute — ETFs are a threat to mutual funds. “Mutual funds have a 69-year head start on ETFs, and it is unlikely that ETFs will become bigger in terms of net assets anytime in the near to medium term,” according to the report. “However, ETFs will increase their share of investment dollars as more investors find them to be an attractive option.” There are several reasons to expect ETF growth to continue: New Securities and Exchange Commission rules make it easier to launch them, new disclosure rules should make ETFs more popular with retail investors, more 401(k) retirement plan money is starting to flow toward them, and more mutual fund complexes are entering the ETF business, according to the report.