SmartInMoney

 

 

 

Exchange traded funds (ETFs), which trade on exchanges like individual stocks, continue to enjoy considerable momentum as an investment vehicle given their ability to offer exposure to such a wide variety of asset classes, regional markets, and sectors with relative ease on a real-time basis during the trading day at a lower cost than many other forms of investment vehicles.

 

The ETF benefits have attracted many institutional investors and retail investors since the first launch in U.S. in 1993. In contrast with regular mutual funds that have been around for more than 80 years, the U.S. ETFs enjoyed $47.4 billion inflow in the first seven months of 2009 while regular mutual funds suffered an outflow of $50.6 billion.

 

During the first seven month of 2009 global net sales of ETFs was $65.7 billion, which was still lower than the net sales of mutual funds of $97.5 billion, according to Strategic Insight.

 

 

 

 

 

A worldwide trend has seen global ETF assets hit an all time high of $891 billion at the end of August 2009 according to the September 2009 edition report from Barclays Global Investors (BGI). The new high of global ETF assets is 3.9% above the previous all time high of $858 billion set in July 2009. Year-to-date assets have risen by 25.3% which is more than the 18.0% rise in the MSCI World Index in US dollar terms. The universal ETF industry had 1,773 ETFs with 3,137 listings from 95 providers on 41 exchanges at the end of August 2009.

 

The U.S. ETF assets also hit an all time high of $607 billion at the end of August 2009, a 4.3% increase from the previous all time high of $582 billion set in July 2009. Meanwhile, the U.S. ETF industry had 710 ETFs, from 22 providers on 3 exchanges.

 

 

 

 

 

Although the impressive growth, the dollars invested in ETFs is still only about 5.8% of the total of $10,431 billion in the U.S. traditional mutual fund industry at the end of August 2009.

 

Issues of structure and suitability have drawn ire from U.S. regulators in recent months. Commodity ETFs like United States Oil (USO) face a possible transformation as the Commodities Futures Trading Commission debates futures exchange position limits. A number of ETFs providing exposure to commodities have recently issued notices that they have suspended their creation process.

 

Leveraged and Inverse ETFs achieved unsavory reputation in 2009 as an influx of assets led to a scrutiny of suitability. The leveraged funds use futures and swaps to achieve investment goals on a daily basis. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) issued an alert about extra risks of these ETFs for buy-and-hold investors. Some investors might have erroneous expectation that the Leveraged and Inverse ETFs may meet their objectives over the long term.