The Next Five Years In ETFs: What Will They Bring?

Although there’s on crystal ball to tell us what’s in store for exchange traded funds (ETFs), there’s plenty of speculation about what the next five years may bring to the table.

Filings for new ETFs are pouring into the Securities and Exchange Commission (SEC), as providers try to capitalize on the proliferation of the industry. Major mutual fund providers are also trying to get in on the action and launch their own ETFs, adding an interesting dynamic to the industry’s growth.

Matt Hougan for Index Universe has some insight into the meaning of the ETF rush,  supplemented by Daniel Harrison’s blog. Some points to consider:

• Some ETFs in registration could enter the so-called “zombie” class of the ETF world, defined as those ETFs that track narrow slices of the market and trade with wide spreads.
• Important asset classes are becoming accessible through the ETF vehicle. The same manner in which narrow funds are coming to market also leads the way for some mega funds that track broad areas of the market.
• Competition will heat up, which works in investors’ favor. More offerings will keep expense ratios lower.
• The investor’s point-of-view may shift to that of a trader rather than a buy-and-holder.
• Many experts expect global ETF assets to grow to as much as $2 trillion-$3 trillion over the next few years. And this could be conservative, as the ETF industry is still in its infancy, with major growth ahead.

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