Exchange traded funds, or ETFs are on a tear these days. Some $95 billion flowed into U.S. ETFS during the first eleven months of 2011, Deutsche Bank reports. That compares to $34 billion that went to mutual funds. And the researchers predict 15% to 20% growth this year.
ETFS -- “basically mutual funds that trade like stocks,” in the words of Scott Burns, director of ETF research with investment research firm Morningstar Inc. -- consist of a group of securities that trade throughout the day. Mutual fund transactions, in contrast, are completed at the end of each day.
ETFs can be limited to a specific sector, like commodities, or type of investment, such as government securities. Many ETFS try to replicate a particular security index. For instance, Invesco’s PowerShares Dividend Achiever Portfolio normally invests at least 90% of its assets in the dividend paying common stocks comprising the Broad Dividend Achievers IndexTM.
An Option for Corporate Investors? Part of the growth in the ETF market is due to the expanding number of products across different ranges of asset classes, says Ed McRedmond, senior vice president of institutional and portfolio strategies with Invesco PowerShares, Invesco’s ETF arm. Over the past few years, CFOs and other corporate investors have been able to more easily find ETFs that meet their investing parameters.
In addition, many investors are looking for low-cost products, says Morningstar’s Burns. ETFs tend to have low expense ratios.