Daniel’s third point, which I think is the most interesting, is that some so-called experts expect to see more product development aimed at the trader community.  They envision ultra-volatile funds that jump and dive 10% in a given day.

Focused On Traders

I’m not sure such volatility is necessary, but I do agree that more ETFs will be launched focused on the trader community.  One flaw in a lot of what passes for ETF analysis these days is that it views funds through the lens of a buy-and-hold investor, measuring their validity using mutual fund-type metrics.

That makes sense for many ETFs and ETF users, but not everyone: There are some ETFs that are designed and exist primarily for the trading community, and there’s nothing wrong with that.

The SPDRs S&P 500 ETF (NYSEArca: SPY) consistently trails the iShares S&P 500 ETF (NYSEArca: IVV) on a total return basis because it is structured as a grantor trust, and does not automatically reinvest dividends.

But SPY is the most liquid security in the world, and is better for trading.  I think we’ll see increased bifurcation in the ETF market over the coming years, with more trading tools (think leveraged funds) and more investor tools (think ultra-low-cost buy-and-hold securities).

The biggest impact of all this recent activity is that many experts expect global ETF assets to grow towards $2 trillion-$3 trillion over the next few years.

I think that’s either accurate or conservative.  A number of big factors are lining up in favor of a substantial jump in ETF assets, including not just the move of big companies into the space, but also the growing understanding of ETFs among investors and recent breakthroughs in applying ETFs to the 401(k) market.

This still feels like an industry in its infancy, and despite a few challenges, it feels like significant growth is ahead.

Matt Hougan is director of analytics for IndexUniverse.com. He welcomes comments and suggestions for columns at: This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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