Exchange-Traded Funds Losing Favor

While asset flows have continued at a steady clip for exchange-traded funds—the funds have taken in $100 billion so far this year—widespread declines in the values of all asset classes have siphoned about 30% of ETF assets, leaving a net of $440 billion in 716 ETFs, Dow Jones reports.

So far this year, although 114 new ETFs have launched, 43 ETFs have liquidated. And the new launches have only attracted an average of $25 million apiece.

“Many new listings so far this year have struggled to gain meaningful traction,” according to Paul Mazzili, an analyst with Morgan Stanley. “While some of the products offer unique exposure, the challenging market environment has limited flows into many of the newer ETFs, particularly those with a narrow focus.”

On the other hand, because ETFs trade throughout the day, some investors have been attracted to that flexibility. The average trading volume of the total universe of ETFs is $92 billion on any given day, accounting for as much as 40% of daily equity trading volume.

As well, many investors like the diversification that ETFs offer, along with their tax efficiencies, low cost and transparency.