5 Things You May Not Know About ETFs - But Should

How much do you know about ETFs, one of the hottest investment products on Wall Street? Here are a few facts that may surprise you:

1. ETFs aren't new. Canada claims the first exchange-traded fund, but first U.S. ETF launched in 1993: S&P 500 Depository Receipts, also known as SPDR and pronounced "spider." While the first wave of ETFs tended to track broad market indexes, such as the S&P, the current generation slices and dices the market by industry, country, and sometimes obscure niches. HealthShares Infectious Disease ETF (HHG), anyone?

2. Their proliferation isn't completely abnormal. Worldwide, the ETF industry is approaching $800 billion in assets (70 percent of those assets are in the United States) in more than 1,100 funds, according to Morgan Stanley. But consider that between 1984 and 1994, more than 4,000 mutual funds were launched. "[The growth of ETFs is] very consistent with what you would have seen in the mutual fund business during its growth phase," Bruce Bond, president of PowerShares Capital Management, said at the Investment Company Institute general membership meeting in Washington, D.C., last week. Granted, mutual funds were slower growing in the beginning: It took 45 years for mutual funds to reach $600 billion in assets and five more for their assets to reach $1 trillion. According to Morgan Stanley, ETFs are on track to surpass that $1 trillion mark in the first quarter of 2009.

3. ETFs still claim a relatively small slice of investors' dollars. At the end of 2007, assets in U.S. exchange-traded funds stood at just over $600 billion, while U.S. mutual funds held $12 trillion in assets, according to the ICI.

4. A handful of companies hold most of the ETF money. The top four ETF sponsors—Barclays, State Street, Vanguard, and PowerShares—account for 75 percent of all ETF assets.

5. Many ETF ideas trickle down from the big investors. Institutional investors are responsible for some of the best ideas over the last year and a half, said Anthony Rochte, senior managing director of State Street Global Advisors, at the ICI meeting. One example is the firm's recently launched SPDR DB International Government Inflation-Protected Bond fund (WIP), he said.

Disclosure: none

Comments

[RHW:]

Not much content here!

2008 May 16 10:27 AM

[Argent:]

What else is new? Good thing it's free.

2008 May 16 10:42 AM

[adan:]

i thought it was a very nice article, learned a bunch - so what if i'm brand new to all this :-)

now, in re to # 2, "...It took 45 years for mutual funds to reach $600 billion in assets..." vs growth in etf's - i wonder how much of this was due to the rise of 401's, and the limited choices in most of those 401's (no etf's in many)

imagine how much actual u.s. treasuries might be in individual's hands if those were allowed to be purchased in all 401's ?

how would that chg the investing landscape?

2008 May 16 01:10 PM

[Jona:]

Guys, not everyone who reads this site is already an "expert". Some of us are fairly new to investing and ETFs. Please forgive us.

Anyway ... There is some interesting information in this article. For instance, given all the hype and press that ETFs have received in the last few years, I had no idea that mutual fund assets ($12 trillion) still dwarfed ETF assets ($.6 trillion).

And I appreciated the size of the post. A lot of the contributors go on and on and don't say much--or worse, their content is just a big advertisement for their products or services. It's nice to see useful, "nuggetized" information without having to wade through a bunch of self-promotional dreck.

2008 May 17 12:18 PM

[DaveyH:]

A well researched and succinct article, of interest to novice and experienced investors.

2008 May 18 04:11 PM