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.
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.