What’s Next for ETFs? New Trends for the Coming Decade

The previous two decades have been an interesting journey for the Exchange Traded Fund. A relatively humble beginning in the 1990’s as a simple way to track a few different indices soon gave way to a mass proliferation of products with ever-increasing complexity in the 2000’s. Funds suddenly had every available sector, asset type, and geographic region covered and many have now adopted leverage, short sales, and even (as oxymoronic as it may sound) active management.

As this decade comes to a close, the bond ETF is the current product du jour and led all asset classes for net inflows in 2009. Overall investor sentiment still reflects a defensive mindset from the 2008 financial crisis, and this trend is projected to continue heading into the 20-teens. Michael Johnston of ETF Database, takes a look at this theme and other interesting projections in a recent article, ”Ten ETF Trends for the Next Decade.” Here’s a summary of his predictions for this growing and evolving industry:

10. More fixed income ETF products will enter the marketplace (a lot more)

9. Expense Ratios will decline as the marketplace becomes increasingly competitive

8. The competitive landscape will undergo massive transformations and traditional mutual fund providers (Fidelity, American Funds et al) will enter the ETF game

7. Investors will increasingly utilize Macroshares and other “hedged” ETFs for their investing strategies in event-driven movements

6. The ETF Marketplace is far from reaching its saturation point and will continue to expand both in products and assets

5. Vanguard will continue to gain momentum and will challenge both Ishares and State Street as the largest ETF fund family

4. ETFs will become more common-place in the financial advisor community and be utilized more heavily as standard portfolio investments for advisor clients

3. Leveraged ETFs will continue their expansion boom and will reach broader coverage of asset/sub asset classes

2. Active-Managed ETFs will remain second fiddle to traditional, passive managed vehicles

1. ETFs will penetrate the platforms of 401k plans and become more available as retirement options, but happen slowly

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