| HOLLYWOOD, Florida
HOLLYWOOD, Florida Jan 28 At a time when the
number of exchange-traded funds has skyrocketed to more than
1,500, major fund providers say they see a need to rein in
product proliferation and focus on developing ETFs that are more
targeted to specific investor needs.
ETFs, first launched in 1993, now account for roughly $1.7
trillion assets in the United States alone, and are expected to
double over the next few years as more investors move toward the
low-cost funds as a way to gain exposure to a variety of asset
classes. But the hype around ETFs has also led to an explosion
of new product launches, with some 150 new ETFs that came to
market last year.
"While the era of expansion has created much to be proud of,
it's also created a lot of clutter," said Martha King, managing
director of Vanguard's Financial Advisor Services division,
speaking at ETF.com's annual industry conference in Hollywood,
Florida on Tuesday.
In 2009, the number of ETFs stood at just under 800,
according to data from the Investment Company Institute. This
means the number of available products has roughly doubled in
just five years.
"While new ETFs continue to launch...we do think the frenzy
has peaked," King said.
ETFs are largely passive investment funds that track a
basket of securities such as bonds, commodities, or stocks and
seek to deliver the performance of their underlying index. While
product diversity is good, issuers say, the number of ETFs
coming to market can overwhelm investors who need to understand
how to incorporate them into their portfolios.
"We need to make sure the pace of innovation does not
outpace the pace of education," said Kevin Quigg, global head of
ETF strategy and consulting at State Street Global Advisors
, the second-largest U.S. provider of ETFs, speaking at
ETF providers say they are turning their attention toward
targeting areas of the market where they see specific client
demand or need, for example, by creating funds designed to
mitigate against expected volatility or protect investors in a
rising rate environment, and closing funds where they see less
"The marketplace will decide what is the wheat and the
chaff through asset growth," Quigg said.