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The ETF Year in Review

ETFs experienced in 2005 another year of impressive growth.

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By many measures 2005 was another strong year for exchange-traded funds. A record number of new ETFs began trading; asset growth and inflows stayed healthy; and awareness of and interest in ETFs spread. There were also signs that ETFs finally had injected some much needed price competition into the fund industry, as Fidelity Investments cut the expense ratios of its traditional index funds and Vanguard lowered the fees for some of its funds' exchange-traded share classes. Lower costs are always better for shareholders, but ETFs also continued to make good on their promise to deliver tax-efficient equity exposure to shareholders. Most of the funds avoided capital gains distributions in 2005. The following is a look at the year that was and the year that will be for ETFs.

Leaders and Laggards
ETFs, which are all still index funds, acted like their counterparts in the conventional mutual fund universe. Most broad equity ETF categories ended the year in positive territory. Broad market ETFs, such as  Vanguard Total Stock Market VIPERs  (VTI) and  StreetTracks Total Market ETF (TMW), were up more than 6% for the year to date through Dec. 30, 2005.

Dan Culloton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.