Exchange Trade Funds Cross $1 Trillion

Exchange traded funds (ETFs) are growing in popularity. Blackrock reported that exchange traded funds held globally now contain in excess of $1 trillion. Blackrock, which bought the iShares business from Barclay’s PLC last year, is the largest provider of ETFs.

Exchange traded funds trade like stocks on major exchanges. The issuance and redemption process for ETFs makes them more tax efficient than conventional mutual funds. The first generation of ETFs was created as index funds and has very low internal costs. We use many ETFs to build client portfolios. … Today there are actively managed ETFs popping up like weeds in the neighborhood park. Unfortunately, the newer ETFs tend be more costly than the first ETFs.

The growth in the use of ETFs has been breathtaking. They grew by 45% in 2009 alone bolstered by the recovery of the financial markets and a movement away from traditional mutual funds. ETFs still lag far behind mutual funds by a large margin. The Investment Company Institute reports that conventional funds held $19 trillion at the end of 2008.

Incidentally, hedge funds hold $1.53 trillion according to Hedge Fund Research and separately managed accounts contain $527 billion according to Cerulli Associates.