December 31, 2010

ETF and ETP Assets Crack $1 Trillion Mark

Exchange-traded funds still have a way to go to catch up with mutual funds, which have $11.5-plus trillion in assets

More money is pouring into exchange-traded funds (ETFs) and exchange-traded products (ETPs), according to new data from BlackRock’s research and implementation strategy group.

The combined assets invested in U.S. listed ETFs and ETPs rose above the $1 trillion mark for the first time, BlackRock says.

The bulk of ETF assets are invested with the “Big Three” – BlackRock (iShares), State Street Global Advisors (SPDRs) and the Vanguard Group. Together they accounted for $778.49 billion at the end of November. The remaining portion is scattered among 30 ETF and ETP providers.

The use of ETFs by financial advisors has contributed to their growth along with lower fees and commission-free ETF trading offered by large brokerage firms like Charles Schwab, Fidelity, TD Ameritrade and Vanguard’s brokerage group.

While impressive, the $1 trillion milestone for ETFs and ETPs is just a drop in the bucket. By comparison, mutual funds had more than $11.5 trillion under management at the end of October according to the Investment Company Institute.

If the ETF industry hopes to catch up with mutual funds, they’ll have to get serious about the retirement-plan business.

Even though ETFs have become mainstream inside brokerage accounts, they have yet to receive wide adoption inside employer-sponsored retirement plans like 401(k), 403(b) and 457 plans. The success and future growth of ETFs will hinge on their ability to make inroads in the retirement plans market. 

ETPs encompass grantor trusts, partnerships and exchange-traded notes (ETNs). The SPDR Gold Shares (GLD), which is linked to the price of gold bullion, is the largest ETP in terms of assets. GLD has around $58 billion in assets. ETPs are typically focused on commodities, currencies and other specialized investment strategies while most ETFs follow stocks and bonds.

ETPs, although grouped with ETFs, are not investment company products because they’re registered under the Securities Act of 1933.

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