Just a decade old, exchange-traded products have now garnered more than $102 billion in assets, according to Morgan Stanley data.
ETF assets grew by 21% last year, even as mutual funds saw net outflows. And their average daily trading volume rose to $6.3 billion from $3.2 billion a year earlier, according to Morgan. Meanwhile, their number has grown to well over 100 in the United States, with most being traded on the American Stock Exchange.
Michael Ryan, a CFP with Professional Planning Group, in Westerly, R.I., said he uses ETFs as a core holding for client portfolios for clients who cant afford to buy individual securities.
They offer broad diversification without mutual fund management fees, and they dont pay out capital gains, which makes them especially attractive for non-qualified accounts when tax season rolls around.
"Its a real uncomfortable conversation with clients when their [stock and mutual fund] portfolio goes down but they have to pay tax because gains have been distributed," he said. Ryan said he typically uses ETFs for 10% to 15% of the stock portion of a clients portfolio.
The big daddy of ETFs in the United States are the Standard & Poors Depositary Receipts, otherwise called Spiders or SPDRs. Tracking the S&P 500 index, SPDRs now have nearly $40 billion in assets, or 38% of all the U.S. ETF assets, according to Morgan Stanley.