Mutual fund execs: brace yourself for ETFs hitting the $1 trillion mark in assets

trillionA trillion dollars (US$) in exchange-traded funds or ETFs? If you’re a mutual fund executive, the prospect of the new kid on the block achieving such a milestone would be a nightmare. But the combination of investor acceptance and resurgent equity markets could make it a reality sooner than you might think. “This trend of asset inflows into ETFs will most likely continue and take the market to the trillion dollar market,” writes ETFtrends this week in a piece entitled “The Numbers Don’t Lie: Why Investors are Warming up to ETFs.”

It always used to irk Canadians that we couldn’t buy Vanguard’s index mutual funds, whose Management Expense Ratios (MERs) are about as rock bottom as you can get. As the full and empty glasses indicate in the illustration, the less the investment management company takes in fees, the more money the investor gets to keep.  

When Vanguard added ETFs, it no longer mattered that Canadians couldn’t buy its index funds 

The day Vanguard expanded into ETFs was when I realized how big ETFs were going to be. And while Canadians still can’t buy Vanguard index funds, it’s a moot point because they CAN buy its ETFs, no matter what stock exchange they trade on.  

Admittedly, ETFs still have a way to go before they reach $1 trillion. They were around US$593.3 billion by February of this year, according to this article in the Financial Times published late in April. But that’s hardly reason for mutual fund execs to let their guard down. Consider that in the last ten years, ETFs assets have surged 15-fold from just US$39 billion in 1999. They now account for almost 25% of the trading volume in American markets. Add that growth rate from new money thrown at ETFs from investors to the kind of market growth we’ve seen since early March, and $1 trillion is hardly a fantasy number.

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