Tag Archives: etf v. mutual funds

ETFs Hit New Milestone As Individuals Put More Into ETFs Than Mutual Funds

MarketsMuse blog update profiles the new milestone exchange-traded funds have reached as now more than ever, individual investors have pouring more money into ETFs than traditional mutual funds. This MarketsMuse blog update is courtesy of an analysis done by Broadridge Financial Solutions and found in the Wall Street Journal’s article, “A New Milestone for ETF Adoption“, with an excerpt below.

Individual investors have a lot more money invested in traditional mutual funds than in exchange-traded funds. But as people continue pumping dollars into ETFs, their ETF holdings grew by more in dollar terms than their mutual-fund investments over the year through March—apparently for the first time—according to an analysis by Broadridge Financial Solutions.

That conclusion is based on the company’s tally of fund and ETF holdings in accounts at “retail” companies, including full-service and discount brokerages, which cater to individual investors and their advisers. Broadridge, based in Lake Success, N.Y., sells communications and technology services to financial-services companies.

Individual-investor holdings of ETFs grew by $267 billion in the year through March, a 24.4% increase, according to Broadridge. Over the same period, individuals’ holdings of long-term mutual funds grew by $255 billion, or 5.6%, the company said.

“This is the first period in which we’ve seen that the actual dollar amount in the retail channel is higher in the ETF space than in the mutual-fund space,” says Frank Polefrone, senior vice president at Access Data, a Broadridge unit in Philadelphia. ”It’s a big shift over what we’d seen a year ago or two years ago.”

Broadridge has been tracking the data for more than four years.

To continue reading about the latest ETF milestone, click here.

ETF Providers Look To Level Playing Field

MarketsMuse blog update profiles ETF providers pushing to level the playing field with their mutual fund competitors by pushing to gain more information on clients who invest in ETFs, just like mutual funds already do. A new initiative from the Canadian ETF Association is doing just that. An excerpt from The Globe and Mail’s article, “ETF providers want to know who’s buying” is below explaining more about the initiative.    

Exchange-traded fund providers say they’re at a disadvantage compared to their mutual fund competitors and are aiming to level the playing field with a new lobbying effort to obtain data on the financial advisers who sell ETFs.

The initiative, which is being spearheaded by the Canadian ETF Association (CETFA), will provide ETF companies with information on the financial advisers who are selling exchange-traded funds, and the breakdown on which funds they are selling to their clients. Mutual fund companies already receive such information.

If implemented, it could result in a surge of ETF sales within the Canadian marketplace.

The lack of adviser information has plagued the rapidly growing ETF industry, which competes in a market where investors are heavily invested in mutual funds. Canadians hold more than $1.22-trillion in mutual funds compared to $80-billion in ETFs, as of February, 2015.

Currently, ETF providers may receive a report from an individual investment firm that shows the total number of ETFs held by their clients. But the reports are not sent on a regular basis and do not include information on the individual financial advisers who purchase the funds on behalf of clients.

To read the rest of the article from the Globe and Mail, click here.

Mutual Funds Issuer Hoping to Enter the ETF Ring

MarketMuse update courtesy of ETF Trends’ Tom Lydon

American Funds, one of the largest mutual funds issuer, are waiting for the SEC to approve an application for the issuer to enter the ETF industry. 

Capital Group Cos., the parent company of American Funds, submitted an application for ETFs to the SEC a year ago. A notice from the SEC indicates approval of American Funds’ ETF foray appears likely though there is still time for opponents to request an SEC hearing, though such a hearing is unlikely, reports Trevor Hunnicutt for InvestmentNews.

California-based American Funds has $1.2 trillion in assets under management, or more than half the current AUM tally for the U.S. ETF industry. However, ETFs are the fastest-growing corner of the asset management industry, underscoring the desire of mutual fund companies to become involved with products that institutional investors and advisors are increasingly adopting.

While it took nearly two decades for the ETF industry to reach $2 trillion in assets, it will not need nearly as long to get to $5 trillion, according to a new report by PwC. The PwC repots says the global ETF industry will reach $5 trillion in combined AUM by 2020.

News of American Funds potentially entering the ETF business represents a reversal from the company’s previous stance on ETFs. The company has been a strident supporter of active management at a time when data indicate many active managers consistently fail to beat their benchmarks.

In September 2013, Capital Group published a study that “argued that its stock-picking mutual funds outperformed their benchmark indexes in the majority of almost 30,000 periods examined over the past 80 years. That included 57 percent of one-year stretches, 67 percent of 5-year periods and 83 percent of 20-year ranges. The Capital Group study examined 17 of the company’s mutual funds that invest in equities or both equities and bonds. It measured their performance over every one-, three-, five-, 10-, 20- and 30-year period, on a rolling monthly basis, from Dec. 31, 1933, through Dec. 31, 2012.”

Still, “only about 13% of actively managed, large-company stock funds posted returns above that of the S&P 500 for 2014,” the Wall Street Journal reports.

Although the SEC notice did not specify whether American Funds will issue active or passive ETFs, the firm’s reputation for active management implies the company would favor actively managed ETFs, a still small, but fast-growing segment of the ETF business. Some industry observers also see actively managed ETFs being a key driver of ETF industry growth in the coming years. For the week ending Jan. 16, U.S.-listed actively managed ETFs had a combined $17.24 billion in AUM with nearly half that total allocated to PIMCO and First Trust ETFs, according to AdvisorShares data.

While that is just a fraction of the overall U.S. ETF industry, increased demand for active ETFs and the potential for a more favorable regulatory environment could make actively managed ETFs a $500 billion asset class by 2020, according to a report by publishedSEI Investments last year.


ETFs Passive No More in Challenge to $7.8 Trillion Market

By Christopher Condon on June 26, 2012

Exchange-traded funds are posing a new threat to the $7.8 trillion market for active mutual funds by challenging the notion ETFs are only good for tracking benchmarks.

The $552 million First Trust Health Care AlphaDex Fund (FXH) (FXH), offered by Wheaton, Illinois-based First Trust Portfolios LP, follows an index that selects and weights U.S. health-care stocks based on a proprietary mix of financial measures such as sales growth and return on assets. Since its creation in 2007, the ETF has beaten the S&P 500 Health Care Index — 52 stocks chosen to broadly represent the industry — by almost 6 percentage points a year, and the actively managed Fidelity Select Health Care Portfolio by 3 percentage points annually.

“This isn’t an ETF that’s trying to track a benchmark,” Todd Rosenbluth, an analyst at research firm S&P Capital IQ in New York, said in an interview. “Its aim is to beat it.”

The AlphaDex fund is one of 155 ETFs, collectively holding about $12 billion, that are blurring the line between active and passive investing and threatening to further erode the market share of traditional stock and bond mutual funds. Unlike their passive peers, which use broad indexes to match a benchmark’s return, their goal is to capture outperformance, or alpha. While their assets are still a tiny slice of the fund industry, the payoff for such ETFs is potentially enormous: The pool of money chasing market-beating returns is almost four times larger than the $2.1 trillion held by investors in passive products.

Pimco ETF

Asset managers for years have pondered how to effectively combine the security-selection element of actively managed mutual funds with the tradability, tax advantages and other efficiencies of ETFs. Most have been dissuaded by the product’s necessity to reveal its holdings daily, which allows dealers to create new shares by delivering large baskets of a fund’s underlying securities to the ETF.

Active managers, especially those focused on equities, say that transparency would make it too easy for others to front-run their movements or simply copy them without paying to be in their fund. Some firms, including BlackRock Inc., the world’s biggest ETF provider, have asked permission from the U.S. Securities and Exchange Commission to introduce active ETFs that don’t reveal holdings daily. The agency hasn’t approved any such plans. Continue reading