ETF Outlook After Markets Recover Is Positive

As bulls stormed through the markets, exchange traded funds (ETFs) were right there with them, delivering big returns and becoming something of a household name.

At the end of 2007, there were 629 domestic ETFs with $102 billion in assets, up from 280 ETFs and $102 billion in assets at the end of 2002.

But this year, “stunned” is the operative word for the markets. Total assets in ETFs are down about 4.2% through August 2008 and 81 new funds have been launched in the first eight months of the year, reports Donald J. Korn for Financial Planning Magazine.

As the markets have gotten turbulent, it hasn’t dented interest in ETFs so much as it has shifted the interest to other types of funds, such as currencies, commodities and funds that allow investors to go long or short on the markets. There are still many aspects of the ETF industry that have room for growth and the potential is endless.

As part of the move toward mainstream, ETFs have found their way into 401(k) plans, as well, with reports indicating $2 billion in 401(k) plans are now in ETFs. Employers keep demanding ETFs to be put into 401(k) plans and with a total of $4.5 trillion in the defined contribution plan market, the potential is there.

So far, planners can still use ETFs while they wait for them to be made available in the retirement spectrum. They can serve as core holdings or asset allocation, or to simply follow trends.

The flexibility of an ETF leads them to be used both as core holdings and to follow trends. They can be used in a variety of ways and in a variety of portfolios and as more managers become educated about them, they can find ways that work best for them and their clients.

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