If you don't have ETFs in your retirement plan yet, get ready, because the odds are in their favor.
While they don't yet make up a major offering in plans, that's likely to change if growth continues at its present rate. Lipper data indicate that, as of Christmas Eve, U.S. ETFs had swallowed investor cash at a breakneck pace during the year, setting a new record — $143 billion in inflows during the year, compared with $137 billion in 2013, itself a record.
Moreover, the assets in U.S. ETFs passed the $2 trillion mark for the first time during the same week.
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Commission-free ETFs are included in only about a quarter of the largest defined benefit plans — they're more popular in public defined benefit funds and endowments — and Greenwich Associates research this year indicated that 41 percent of RIA survey respondents use ETFs for more than a quarter of the assets they manage. But overall, the market for ETFs as a whole is only about a tenth the size of that for mutual funds.
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That could be changing, though, particularly if the market overall continues to perform as it has. Mutual funds are showing the strain as money flowing into them has slowed, even as they have underperformed benchmarks.
Add to that the fact that most funds, under active management, charge more than most ETFs, which are index-based, and you have a recipe for defection. A hot market that practically demands investment is likely to spur investors to move to the new hot thing — ETFs — as the numbers seem to indicate.
One particular ETF has reaped the benefit of all this attention: the SPDR S&P 500 ETF not only set a new record, bringing in almost $25 billion this year, but nearly doubled what it took in last year. According to ETF.com data, that's the most to flow into an ETF since it started tracking them in 2009.
But if you're thinking that surely not all ETFs can be doing that well, you'd be right.
Stress in emerging markets has cost the iShares Emerging Markets ETF lots of dinero, with outflows among the largest for two years in a row. And the gold bears have taken a toll on the SPDR Gold ETF, also in that losing company.
Still, what goes around comes around, and neither emerging markets nor gold are likely to stay down forever. If they start coming back, look out — the gains they make will likely be in ETFs rather than in mutual funds.
Also read: SEC backs first non-transparent ETF
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