How The ETF Industry Is Showing Its Strength

First-quarter numbers are out for exchange traded funds (ETFs), and the data is setting up the industry for some rapid growth when the market heals.

ETFs in the United States produced net outflows of $1.5 billion in the first quarter, according to data collected from Strategic Insight, reports Index Universe.

The firm has predicted that ETF assets globally will top $1 trillion within two years. As of March of 2009, there were 735 ETFs in the United States - with assets totaling approximately $482 - and they were managed by 22 ETF managers. Assets within the industry were up 6.8% or $30.8 billion, reports State Street’s ETF Snapshot.

This is adding to the competition for market share within the mutual fund industry, which posted its worst year yet. Mutual fund investors paid $15.8 billion in taxes last year for distributions, according to a report released by Lipper Inc. of New York, so says Sue Asci for Investment News. Funds paid out $261.1 billion in long- and short-term capital gains and income distributions in 2008, the firm reported.

Last year’s tax bill was a 53% decrease from the $33.8 billion that investors paid in taxes in 2007, the report said. These types of numbers will only continue to drive up the interest in ETFs.

ETFs are going to get more than their fair share of the incoming assets when the market finally recovers. Investors are tired of surprises and a lack of transparency, and they’re going to start insisting on it when they invest.

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