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Next Steps for ETFs

Anthony Rochte, senior managing director at State Street Global Advisors, answered our 10 Questions.

Anthony Rochte, 10/18/2010

How long have ETFs been your primary focus?
I have worked in the ETF Industry for the past 10 years.

For you, when did the light turn on that ETFs would be a big business?
As the broader equity markets peaked in early 2000, it was clear to me that advisors were focused on more than just single-stock exposure and mutual fund returns.

Trend you like most in the ETF market?
Investors continue to increase their exposure to fixed-income ETFs. In 2006, there were only six fixed-income ETFs, with $20.3 billion in assets. Today, there are more than 100 products, with approximately $128 billion in assets.

What's the downside of the ETF industry's explosive growth?
While the rapid increase in the number of ETFs in the market has provided investors with access to asset classes and strategies that were once only available to large institutions, it has also made evaluating ETFs more challenging for many investors.

Biggest misconception investors have about ETFs?
That all ETFs are created equal.

Biggest blemish on ETFs thus far?
Index-based funds do not lend themselves to much controversy. Some industry observers have criticized the rapid rate at which new ETFs are being launched. However, the number of ETFs in the market today, around 920, still pales in comparison with the number of traditional mutual funds.

Will the flash-crash reforms work?
We support steps taken to ensure uniform rules across the exchanges and welcome the inclusion of ETFs in the SEC's pilot circuit-breaker program.

What's the next chapter in ETF development?
Actively managed ETFs. However, as with any new investment vehicle, actively managed ETFs will need to establish a track record of adding value before they are readily embraced.

When will ETFs break into the 401(k) market in a meaningful way?
While a number of record-keeping challenges remain, the momentum is clearly moving in the right direction.

Best investing book you've ever read?
When Genius Failed by Roger Lowenstein. It's a story about investor psychology, hubris, fear, and greed, and ultimately how history can, and did, repeat itself.

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