The Markets September 16, 2010

FRC Expects Solid Growth for ETFs

Exchange‐traded fund (ETF) assets are expected to achieve an annual growth rate of nearly 19% between 2010 and 2014, according to Financial Research Corporation’s (FRC’s) newly released Mid‐Year 2010 ETF Review. 

 

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FRC noted this is a somewhat slower pace than the 23% annual growth rate over the last five years. Looking forward to 2014, ETFs are forecast to comprise 14% of total mutual fund assets, up from 12% as of June 2010.  

According to a press release, the FRC study found that the trading influence of ETFs, lower fees, and tax efficiency relative to mutual funds, as well as expected wider adoption by institutional and financial advisers, will drive ETF growth. “ETFs will continue to pick up assets at the expense of mutual funds, and we expect nearly 15% year‐over‐year growth in 2010,” said Lynette DeWitt, the study’s author, in the announcement.  

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The FRC points out that growth of ETFs during the next five years will face challenges. To a large degree, many of the features that define ETFs, such as intra-day trading and structural diversity, are sources of potential issues. While FRC does not foresee growth being derailed by these challenges, product managers and distributors are advised to self‐regulate, lest more formal regulation be imposed.  

Additional topics covered in the report include: 

  • Other drivers and challenges to ETF growth; including product cannibalization, product diversity, impact of the Internet and trade media, and tracking error; 
  • Product management style and industry analytic tools; and 
  • Future market direction of ETFs, and in particular, distribution opportunities. 

 

Findings in the study are based on an analysis of FRC’s IMPACT database of fund assets and net sales, third‐party research, and publicly released industry white papers.  

 

Data & Research September 16, 2010

Study Finds Market Opportunity for High-Balance Rollovers

Research from Spectrem Group found high-balance retirement plan participants aren’t showing much loyalty to their plan providers when rolling over their money.
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Just 25% of plan participants who performed a rollover of $200,000 or more since mid-2008 rolled all or some of the funds into an account held by their existing plan provider, according to the report “High Balance Rollover 2010.” In addition, less than two-thirds (59%) of high-balance participants used an adviser in the rollover process.  

Spectrem Group estimates the high-balance IRA rollover market, which includes both high-balance rollovers and the consolidation of IRA accounts totaling $200,000 or more, consists of more than 935,000 individuals with assets of $365 billion, according to a press release.  

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The research found 53% of high-balance participants rolled over at least part of their balance to firms where they held other investments, and 39% transferred funds to firms where they had an existing IRA.  Of those who did not use an adviser during the rollover process, 22% requested a hard-copy rollover application directly from their providers and 19% handled the process online.  

The Spectrem report, available at http://www.spectrem.com, is based on an online survey conducted in July 2010 of 650 individuals who rolled over or consolidated balances of at least $200,000 from employer-sponsored retirement plans within the prior two years.  

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