ETF Growth Outpaces Comparable Vehicles

June 4, 2001 ( - In the last four years, assets invested in Exchange Traded Funds (ETFs) have grown by an average compound rate of 128%, outpacing all other alternatives to mutual funds, which grew at 17% over the same period, according to study by Financial Research Corp.

The popularity of ETFs, which differ from mutual funds in that they can be bought and sold during the day in the same way as equities, has been boosted by their lower cost and their ability to be used in short sales. In this situation, investors sell borrowed shares with the expectation that they will be able to buy them back in the future at a lower price.

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Data from the study shows ETF assets reaching $65 billion at the close of 2000 from their $2 billion level at the end of 1996, a faster growth rate than alternatives such as:

  • separately managed accounts, which grew at a 26% compound rate, increasing to 417 billion from $163 billion over the same period
  • variable annuities, which expanded at a 23% compound rate, grew to $744 billion from $320 billion in 1996
  • hedge funds, increased at a rate of 12%, assets here increasing to $408 billion from $261 billion
  • unit investment trusts, grew at a 4%  to $90 billion from $78 billion, and
  • closed-end funds, grew at a rate of 1% to $150 billion from $142 billion over the four year period.