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Mutual funds have been mostly lagging on getting into ETF, but now they might be making a huge push to get in.

Last month, the investment management department of The Charles Schwab Corp. (SCHW) filed for exemptive relief to create its first ETF. Charles Schwab had previously not involved itself with ETFs due to low-margin business compared to funds.

This step could force other mutual fund firms to finally get involved with ETFs more than they have been.

In an erratic market, investors seemed to have been attracted to ETFs, which grew by $176 billion in 2008, because of their relative cheapness to mutual funds, transparency, and intra-day trading options, reports David Hoffman for InvestmentNews. Investors pulled a total of $181 billion out of mutual funds in 2008.

Schwab has lots of money for investment ventures, but any newcomers may have trouble developing new and tantilizing products based on indexes that others are already using. Its first ETF would track the Dow Jones U.S. Total Stock Market Index, which measures the total return of the entire U.S. stock market. The description sounds similar to that of the SPDR DJ Wilshire Total Market ETF (TMW), which State Street already has in place.

Schwab gets 0.4% from mutual funds in their mutual fund market place. With equity markets down 40% to 50% and financial advisors moving money to money market funds and ETFs, creating their own ETFs is a natural move.

It is also rumored that Fidelity Investments of Boston is also going to join the ETF bandwagon with more than just their one fund. There are also some small number of other mutual fund companies that have already plunged into the ETF world, such as Pacific Investment Managment Co. LLC, The Dreyfus Corp. and Invesco Ltd. of Atlanta.

Source: Why Schwab’s ETFs Could Open Doors