ETFs Primed and Ready for a Market Comeback

By Tom Lydon | November 13, 2008 | 4:13 PM | 0 Comments

As a result of the mess that has been made of our financial markets, one shift we're already beginning to see is an investor flight to transparency. And it's not just happening domestically - investors all around the world are quickly learning the advantages of exchange traded funds (ETFs) and flocking to them accordingly.

Deborah Fuhr, global head of ETF research at Barclays Global, said she expects global ETF assets to hit the $1 trillion mark next year, and double that by 2011.

We're not surprised. In the wake of secrecy, a lack of transparency and the damage done to millions of investors by complicated sliced-and-diced investments, it's no wonder that people are looking for something that will give them peace of mind and the ability to "know what they own." We see this happening now, and we'll see it happening to an even greater degree once the markets begin a comeback.

One survey conducted by Ignites in October found that investors are increasingly feeling dissatisfied: 36% of those surveyed reported increasing wariness of equity and fixed-income mutual funds.

Other surveys have also uncovered a changing landscape. Financial Research Corp. studied the market and found that the market share is being divided up much differently than before, when mutual funds were in their heyday.

Cheaper alternative vehicles are increasingly the choice among financial advisors, as well. The Boston-based research study found that 70% of advisors surveyed think the actively managed mutual fund is still the best bet for international investing, and 50% think that they are the tool of choice for large-cap equity investing, reports Sue Asci for InvestmentNews.

Other numbers bear this out, too.

As of the end of October, mutual funds saw more than $70 billion in outflows, while ETFs witnessed $70 billion flow in. The outflows for equity mutual funds, in fact, are perched at near-record levels. In September alone, investors put $56 billion into ETFs, while $49 billion came out of equity and bond mutual funds (this doesn’t include fund of funds or money market mutual funds).

iShares Global CEO Lee Kranefuss pointed out in a CNBC appearance last month that most days, eight of the top 10 equities traded are ETFs.

We conducted a survey of our own about what our readers intend to do with their ETFs in the coming weeks.  47% said they would buy, 43% said they would stick with what they have, and 10% are planning to sell.

ETF investors are resilient, smart and don’t get caught up in their emotions. Our survey reveals that most of these investors are spying buying opportunities are that they plan to hold for the long term. These qualities are going to serve ETF investors well when the market rights itself once again.