Exchange-traded funds were a hot investment product last year, the Investment Company Institute reports, but apparently mostly among institutional investors.

The ICI reported that the combined assets of the nation's exchange-traded funds stood at $151 billion at Dec. 31, up 48% from the year before.

"We don’t have data, but we don't think exchange-traded funds have hit the mainstream yet," said James Doyle, an ICI spokesman. "Anecdotally, it seems that the assets are coming from institutional investors."

Vanguard, the nation's second-biggest fund company, appeared to take note with its launching last month of 14 exchange-traded funds, which it expects will give it access to banks' broker/dealers - and the retail market.

Vanguard is betting on rising interest in the product from individual investors. On the day it launched the 14 exchange-traded funds, George U. "Gus" Sauter, a managing director and the chief investment officer at Vanguard, said he believes they will gain momentum with retail customers.

A side benefit of the big launching is expected to be the products' acceptability to bank brokers, who will collect commissions for their sale just as they do for sales of individual companies' stocks. An impediment for Vanguard in the broker channel has been its refusal to pay for distribution of its products. Vanguard has $20 billion of bank-sold fund assets, almost all coming through trust departments.

Exchange-traded funds have had hefty asset increases in each year since 2000, according to the ICI. Assets in the product were $65.6 billion at Dec. 31, 2000, $83 billion a year later, and $102.1 billion at the end of 2002.

Of the $151 billion in exchange-traded fund assets last Dec. 31, $16 billion had come through new investments. "The rest of [the growth] came from performance," Doyle said.

Equity index exchange-traded fund assets were $146.3 billion, and bond index exchange-traded funds stood at $4.7 billion, the ICI reported.

Seventy-two exchange-traded funds tracked domestic stock indexes in December and held assets of $132.3 billion. Forty-one such funds tracked international equity indexes and held assets of $14 billion. Six exchange-traded funds tracked bond indexes.

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.