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Rating:Deloitte Sees More Market Share Gains for ETFs Not Rated 0.0 Email Routing List Email & Route  Print Print
Wednesday, September 23, 2009

Deloitte Sees More Market Share Gains for ETFs

Reported by Sean Hanna, Editor in Chief

Increased revenue sharing disclosure by mutual funds may give ETFs a leg up in their competition. That is just one take away in Deloitte's just-published white paper "Will ETFs Challenge the Dominance of Mutual Funds?".

The paper was authored by Cary Stier, who heads Deloitte's US Asset Management practice [download the file as a pdf].

The paper points out that ETFs will not be forced to disclose revenue sharing agreements as they do not typically have such agreements.

Stier also predicts a number of areas that may drive ETF growth in the coming years.

The foremost driver will be the SEC's proposed rule 6c-11, which promises to simplify the creation of ETFs.

Another helping hand from the SEC could be proposed rule 12d1-4, which would allow mutual funds to invest up to 25 percent of their portfolio in the outstanding shares of ETFs, pushing demand for the shares.

Stier also predicts that additional mutual fund firms will enter the ETF game.

One driver will be more closed-end funds converting to the ETF structure. One attraction for current closed end fund advisors is that ETFs allow the sale of additional shares, something closed end funds cannot easily do. ETFs also typically trade with a much smaller discount or premium to their NAV. Stier also points out that the conversion can be tax free.

Stier also predicts an increase in the use of funds of ETFs (what he calls wraps). He points to Claymore Investments June 2007 creation of two ETF wraps for the Canadian market as a model of how this is being done. Last year PowerShares launched a similar product in the United States (PowerShares Autonomic Global Asset Portfolios). 

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