Over the past year there has been a lot of talk about exchange-traded funds. Industry conferences have been held on the subject, the media has written widely about them and analysts have researched them. But, are they really worth all of the attention? Do they really pose a threat to mutual funds? After all, total exchange-traded fund assets are equivalent to less than one percent of total U.S. mutual fund assets.

Exchange-traded fund assets, however, are growing rapidly, more than quadrupling in the past two years to $65.6 billion at the end of 2000, according to the Investment Company Institute of Washington, D.C. And that number does not take into account Holding Company Depository Receipts, the exchange-traded funds sponsored by Merrill Lynch of New York, since the ICI only includes exchange-traded funds that are issued by registered investment companies. With HOLDRS included, total year-end assets for exchange-traded funds was about $70.8 billion, according to Lipper of Summit, N.J. Although that is equivalent to only about one percent of total mutual fund assets, it is equivalent to more than 20 percent of assets in index funds, which totaled $332 billion at the end of 2000, according to Lipper.

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