ETFs Becoming More Tempting to Investors

The low cost, tax efficiency and transparency of exchange-traded funds continues to attract investors, according to the Investment Company Institute.

In the second half of 2004, ETF assets grew to approximately $243 billion, a 36 % increase from the first half of the year.

"For smaller retail investors, who perhaps do not have the requisite asset base to have professional help...investing in a broad index ETF is a very sound strategy," Robert R. Johnson, a managing director with the CFA Institute confirmed told the Associated Press.

And the more broad, the better, ICI research reveals. The very first ETF - the S&P 500 SPDR - is the most popular and now boasts $49 billion in assets. Another investor favorite is the Diamonds, which tracks the 30 stocks of the Dow Jones industrial average commands assets of $7.5 billion. The most widely traded ETF, however, is the QQQQ of the Nasdaq. It has assets upwards of $19.83 billion.

But whether they'll overtake mutual fund sin popularity, remains to be seen, experts say.

"I look ETFs as an extension of the whole concept of indexing, a newer generation of the trend that started in the '70s," Ronald L. DeLegge, publisher and editor of ETFguide.com, told the AP. Any fair analysis of ETFs versus traditional mutual funds, he said, must examine the entire spectrum of costs and expenses associated with them, including transaction costs, ongoing management fees and your tax liabilities.