Since the “dawn of the golden age of ETFs” in 2006, said Morningstar’s Scott Burns, exchange traded funds are proliferating–”showing no signs of slowing down”–while the flow of money into ETFs is “gaining steam” with nearly all months showing positive flows into the investing vehicles. Moreover, Burns said, ETFs are taking assets from individual stocks, bonds, and commodities, not to mention mutual funds. “ETFs are growing nominally,” he said, as both a percentage of the total dollars invested, but also when compared to mutual funds–ETFs now account for 10% of total mutual fund assets.
Burns, director of ETF analysis for Morningstar and editor of Morningstar ETFInvestor, was speaking in his role of moderator of a panel of ETF sponsors and at least one advisor–Tom Lydon–at a meeting for the press hosted by Schwab Investment Management Services in New York on Tuesday, August 10. Schwab has rolled out a suite of ETFs itself over the past year, so why was it hosting a panel of its competitors to discuss the current state and future of ETFs? “We are first and foremost a broker,” said Peter Crawford, the IMS senior VP who leads product management for the Schwab unit, which has $1.5 billion in Schwab-denominated ETFs, while ETF assets held in client accounts at Schwab have grown to $88 billion, or 38% over the year ending June 2010, according to Schwab’s latest ETF Investor Snapshot report.
The conversation began by revisiting the “Mutual funds or ETFs?” debate, with Crawford suggesting that ETFs will continue to dominate in passive investing strategies, while mutual funds will dominate active strategies. “There will be more actively traded ETFs,” Crawford admitted, “but they will be on the margin.”