Will exchange-traded funds, separately managed accounts, private equity and hedge funds become more popular among investors, much as the iPod and MP3 have overtaken CDs and CDs overtook cassette tapes, Investor’s Business Daily asks. The possibility seems entirely real, as ETFs took in only 2% of the $7 billion inflow into funds in 2000 and a whopping 40% of the $60 billion inflow last year.
Nonetheless, experts don’t think so. Sophisticated investors, they say, are likely to choose alternative investments, but the average investor will remain true to mutual funds, especially through 401(k) plans. However, warns T. Rowe Price Vice Chairman Edward Bernard, that could change should someone come up with a successful model for an actively managed ETF that appeals to 401(k)s. T. Rowe, in fact, is looking into doing just that, Bernard said, “and so is everybody else.”