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ETF Specialist

The IRA Fund Flow Tidal Wave

ETFs displayed impressive asset inflows in 2008, but 2009 could be even better.

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You may wonder why there are very few, if any, ETFs to choose from in corporate-sponsored 401(k) plans. It's a simple answer: Just like when you buy a stock, every time you buy shares of an ETF, you pay a transaction fee. With open-end mutual funds in 401(k) plans, the contributing employee pays no transaction fee. Even an $8 fee would be a material performance drag against an investor that is contributing a few hundred dollars every other week.

ETF providers would love to break down this barrier given that the majority of the $2.5 trillion parked in 401(k) plans is invested in open-end mutual funds. We don't see an easy solution to this issue, but it may be irrelevant. We predict that over the next few months, 401(k) money will be rushing to ETFs--but in the form of newly converted IRAs.

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John Gabriel does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.