US ETF Sales Forecast to Continue Exploding Through Decade

December 21, 2005 ( - Net sales of US exchange-traded funds (ETFs) are expected to grow 32% a year for the next four years, outpacing all other investment products.

Financial Research Corporation (FRC), the Boston-based data company, predicted that sales of US ETFs baskets will grow to $61 billion in 2006 and to $164 billion by 2010, the Financial Times reported. Net sales of hedge funds are anticipated to grow 12% next year, while net sales of mutual funds are expected to fall 10%.

“Clearly ETFs are the product of the moment,” said David Hayward, director of alternative investment research at FRC, according to the Times report. “They’re low-cost, tax-efficient and relatively easy to understand. Mutual funds, on the other hand, are a mature market and hedge funds have yet to make it to Main Street.”

First introduced in 1993, ETFs have proliferated considerably in recent years. Since 2000, the total number of ETFs has jumped nearly 118%, according to Paul Mazzilli, equity analyst at Morgan Stanley. This year, 38 new ETFs were launched, tracking everything from insurance stocks to the euro. Assets within ETFs have risen from $71 billion in 2000 to $302 billion today, with Barclays Global Investors making up the bulk of those assets, said Mazzilli said.

ETFs are also capturing a rising share of net flows and beginning to edge out index funds as the favored low-cost investment product. According to Lipper, the data company, over the first 10 months of 2005, ETF flows were $33.2 billion, where flows for equity index funds were $18.4 billion.