ETFs to Capture 15% of Mutual Fund Market by 2014, FRC Says

As the base level of ETF assets grows, the compound annual growth rate figure does shrink somewhat, they note.

"ETFs are more tax efficient, and for some investments, this makes them a better vehicle. And for those who want a more trading-friendly vehicle, like an immediate investment in the S&P 500, ETFs also have less expense than mutual funds," Petrone shared.

"This is why we think ETFs will take some flows from mutual funds, which are still good vehicles for actively managed investments," he added. "With commodities, however, ETFs make better sense, especially if the ETF trades on the underlying commodity as opposed to futures."

Still, the FRC study finds, ETF growth will face challenges related to their intra-day trading feature and structural diversity.

Other drivers and challenges to ETF growth include product cannibalization, product diversity, impact of the Internet and trade media, and tracking error; product management style and industry analytic tools; and the future market direction of ETFs — namely, distribution opportunities.

Last week, the Securities and Exchange Commission approved new rules submitted by the national securities exchanges and FINRA that expanded a recently adopted circuit-breaker program to include all stocks in the Russell 1000 Index and a large number of certain exchange-traded funds.