Exchange-traded funds, which have grown by leaps and bounds since their introduction in 1993, are now attracting attention from what is seemingly the unlikeliest of corners: 401(k) plans. While mutual funds have been the cornerstone of 401(k)s, it's ETFs' ultra-low cost and avoidance of internal capital gains that is providing them this new lure. Any slight boost to performance in an age of single-digit returns, financial planners say, is worth a close look.
Last year, ETF assets swelled to $222 billion, an increase of 47%, according to Morningstar of Chicago. In fact, ETFs took in $54.4 billion in net flows in 2004, accounting for a whopping 30% of the $180.3 billion in net flows to all types of equity funds, according to TrimTabs Investment Research of Santa Clara, Calif.