ETF Sales Surge 20% in 2004

November 03, 2004, 1:00 a.m. EST 1 Min Read

Assets in exchange-traded funds rose 20% in the last nine months, buoyed, perhaps, by the continuing fallout from the mutual fund scandal.

In its monthly report on ETFs, the Investment Company Institute found that assets grew to $180.8 billion compared to $151 billion at the end of 2003. The $180.8 billion represents a 3.6% increase from last month, when ETF assets stood at $174.5 billion.

The low expenses associated with ETFs, as well as their tax efficiency, seem to be drawing customers who would normally be drawn to conventional mutual funds, even though each ETF trade does produce a brokerage commission.

Ever since State Street Global Advisors introduced the first ETF 12 years ago, they have steadily become a more popular investment vehicle. In the wake of the mutual fund scandal uncovered last September, ETFs have experienced a marked increase in assets. In response, fund companies have begun to offer more ETFs. At the end of 2003, there were 119 ETFs. Thats now up 20% to 143.

A large part of their allure is the method in which they are traded. ETF prices fluctuate throughout the day, like individual securities, instead of having their prices set once a day, as is the case with regular mutual funds. This gives investors a feeling of greater control over their portfolio, which is a comforting feeling to have during such tumultuous times.

At the end of September 2003, the value of ETF shares issued to investors was lower than the value of shares redeemed by $753 million. At the end of September 2004, the value of the shares issued outweighed the value of those redeemed by a whopping $28.9 billion.