Market Pulse: Major trends in the ETF industry
INCLINE VILLAGE, Nev. — The growth in exchange-traded funds (ETFs) over the last decade has been nothing short of phenomenal.
In 2002 there were 120 ETFs, now there are 1,240. Assets have grown from $140 billion to more than $1.4 trillion.
When I wrote my best seller Exchange Traded Profits in 2006, I predicted that someday the term “ETF” would be as well known as “mutual fund.”
That day is near. There are three major trends in the ETF business:
1. Dividends are all the rage, and investors have poured $70 billion into dividend focused ETFs. There are now 50 dividend focused ETFs and more are on the way. Wisdom Tree just filed to launch a small-cap dividend ETF, but most money is flowing to choices from Vanguard, SPDR and Barclays. One fund that I’m beginning to evaluate is the Global X Super Dividend ETF (SDIV), which yields 7.5 percent.
2. Trading ETFs is becoming commission free. Charles Schwab recently introduced ETF OneSource, which gives clients commission-free trading on over 100 ETFs. TD Ameritrade also provides commission-free trading on a set of ETFs. Under pressure from its competitors, Fidelity announced commission-free trading on 65 iShares ETFs. Unfortunately for Fidelity clients, there is a catch. Fidelity removed some popular ETFs from the list and will charge individual investors a fee if they sell within 30-days, or advisors if they sell within 60-days.
3. ETFs are giving people more choices, but investors are making the wrong moves. During this amazing bull market, net inflows into bond funds topped $1 trillion, while outflows from stock funds totaled $400 billion. In 2013 the S&P 500 index has reached a new high, but investors have pulled over $8 billion out of SPDR S&P 500 ETF. This is the most unloved bull market ever.
The growth in ETFs is giving investors easy, low-cost access to many market segments. Competition among ETF providers is fierce and fees are being slashed.
That’s good news for investors.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
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Kelley R. Carroll, a certified specialist, handles estate planning and will contests in our office with the help of our firm’s litigation department. I do not handle any, be forewarned.