What’s Stopping ETF Growth in 401(k)s?

June 14, 2013 ( - Significant hurdles stand in the way of wider adoption of exchange-traded funds (ETFs) in 401(k) plans, according to research from Cerulli Associates.

By PLANSPONSOR staff | June 14, 2013
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As of 2012, total ETF assets stood at $1.3 trillion, growing 27.3% for the year and boasting an astounding 10-year compound annual growth rate (CAGR) of 29.3%. For comparison, open-end mutual fund assets grew 15.8% in 2012 with a 10-year CAGR of 9.6%.  

It is premature to declare that ETFs are challenging the dominance of mutual funds, the report said. Open-end mutual fund assets stood at $9 trillion at year-end 2012. ETFs are competition for mutual funds and active managers, but there is still significant ground between these two products.  

ETFs have yet to gain traction in some distribution channels, most notably defined contribution (DC) plans, which could eventually drive growth even further. Though ETFs continue to grow at astounding rates and penetrate the market, their failure to gain traction in 401(k) plans is the prime example of a future opportunity to accelerate growth even further, Cerulli said. If ETFs are ever going to reach the asset levels of mutual funds, cracking this market will be essential. One roadblock is technological, the report said, though progress is being made.