At the
Institute for Business Communications conference on "
Electronic Distribution of Mutual Funds,"
Deborah Fuhr, vice president for
Morgan Stanley Dean Witter, spoke about the state of the exchange traded funds industry.
Exchange traded funds (ETFs) are funds (also known as composite stocks) which trade like stocks. The
SEC treats them like mutual funds, but they're priced in real time and trade throughout the day. At this point, all ETFs track various indices, the most popular being SPDRs (
Standard & Poors Depositary Receipts) which track various indices monitored by S&P. All ETFs trade on the American exchange.
ETFs are booming, according to Fuhr. There are currently 30 ETFs on the AMEX exchange, and they account for 50%-70% of the daily trading volume. Each of the major asset classes has one ETF among its top 10 funds.
The boom can be attributed to a number of factors. Investors are attracted by the low expenses. As traders become more active, they like the freedom to move in and out of the funds quickly. The funds provide a quick means or fund managers to invest cash. And to the extent the price of the ETF diverges from the price of the index it's tracking, arbitrage opportunities are created.
And the boom will keep growing, she said.
Barclay's Global Investors and
State Street, two of the leading players in the ETF field, will be rolling out new ETFs in a matter of weeks. She predicts that, by year-end, $150 billion will be invested in various ETFs.
ETFs are also going global. Within the year, they'll be trading in Europe, Hong Kong and Japan. Eventually, ETFs will move beyond tracking indeces and become actively managed.
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