Last Friday we noted Michael Sesit's Bloomberg column on the threat posed by ETFs (and indexation more generally) to conventional long-only investment vehicles such as actively-managed mutual funds.
As Jeff Miller noted over the weekend at A Dash of Insight, this is a significant development. There's just no doubt about it. That said, there remains a vast chasm between the open-end mutual fund business and the ETF business--both in numbers of funds and in assets under management. The other side of that coin, however, is that ETF assets continue to grow at a much faster clip than do open-end funds. Consider the following three charts, all produced using data (through year-end 2007) from The Investment Company Institute.
First, a comparison of the number of open-end funds (not counting multiple share classes of the same funds) and ETFs. The last points in the series are 8,017 and 629, respectively.
Next, a comparison of total assets under management. The final points in the series are $12.04 trillion and $608 billion. (And yes, there are entries for the ETF column in each year; they're just too small to show up until 2000--which is exactly the point.)
Finally, a comparison of growth rates in the two categories. Note that ETF growth has outstripped open-end fund growth every year since 1995, in each case by a wide margin.
Now, given the scale of each business, and the limits on investable assets in any given year, it's clearly easier to expand ETF assets at a faster clip. But given the enormous difference depicted in our second chart, it'll take a long, long time for ETFs to close the asset gap with open-end funds in any meaningful way.
Our next project: Assessing the changing share of open-end funds in indexed strategies. After all, the threat in question isn't so much to open-end funds per se as it is to long-only money management delivered through big, diversified, expensive mutual funds.
