ETFs: The Blessings and Burdens of Choice
Depending on your perspective, ETF proliferation is either good or bad.
With nearly 900 ETFs available on the U.S. market, it should come as no surprise that many people feel the market is oversaturated with choices. We are often asked how can it be that so many funds are relevant enough to exist. It is a straightforward question, but we often provide a counterintuitive answer. First, we think that roughly 200 ETFs in existence today could cease to exist and very few investors would care or even notice. However, we believe that the number of products in the ETF industry will continue to expand alongside assets under management for several more years.
Many people believe that products that do not fit their particular needs must also be quite useless to everyone else, but the fact is that the ETF marketplace has become increasingly relevant to several different types of investors as the list of funds has ballooned. Long-term investors have benefited from increased competition resulting in lower fees. Traders have benefited from expanded product selections that can more accurately deliver the specific investment exposure they seek. Even former single-stock selectors have found utility in narrowly focused industry ETFs that allow them to invest (or divest, depending on their luck and skill) in an idea or theme using a diversified portfolio that rounds up all the critical companies.