The ETF Industry: Still Alive and Thriving

Exchange traded funds have been criticized as some observers claim that they are to blame for losses and big swings in the financial markets. However, the numbers tell a different story, as there are over 1,500 ETFs trading, and assets have surpassed the $1 trillion mark.

“The ETF is to the mutual fund, what the Internet is to the newspaper,” Jonathan Steinberg, founder & CEO of WisdomTree, said. “Because of the added functionality, full transparency, greater liquidity, greater tax efficiency, those characteristics are so important for investing. That’s why I think it’s a better mouse trap.” [Advisor ETF Usage Rose 10% Last Year]

The ETF industry has a large piece of daily trading volume, and has risen to fame rapidly. The first ETF, the SPDR S&P 500 (SPY - News), launched in 1993, and the fund industry has never been the same. So why do some still criticize the industry and look at it as an underdog? [What are ETFs? Portfolio Building Blocks]

One area where ETFs have failed to take off is in the actively managed ETF business. The battle for assets against the mutual fund industry has been uphill, which still have almost 10-times the assets under management, reports Matt Nesto for Yahoo Finance. [TVIX Washout Raises Questions Over ETNs]

“Last year was a mixed year for ETFs,” says Moody’s vice president Rory Callagy, in a note. “The European sovereign debt crisis, concerns about use of derivative in synthetic ETFs and elevated market volatility all proved to be strong headwinds against asset growth.” [Investors Actively Manage Passive ETFs]

Moody’s Investor Service claims that the industry is still thriving and is far from a declining. 2011 was a poor year for the stock market in general. However, the ETF industry still managed to gain $148 billion in new assets and over 500 new funds launched, reports The Globe and Mail.

Moody’s claims that in 2011, ETF asset only grew 3%, which is down 85% from 2008-2010. This had to do more with less public offerings and the fact that the assets in already existing ETFs did not grow much, reflecting the minor movement in the S&P 500 and other major indices.

“Fundamentals point to further positive growth trends this year, though the pace of growth likely will continue to be tempered by macroeconomic uncertainties and credit pressures on sovereigns and banks,” the credit rating agency said in a release.

Tisha Guerrero contributed to this article.

Full disclosure: Tom Lydon’s clients own SPY.