ETFs Are Gaining On Mutual Funds For 401(k) Investments

Wednesday, June 15, 2011 08:02
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ETFs Are Gaining On Mutual Funds For 401(k) Investments

Tags: ETFs | mutual funds

New data from Brightscope show major growth of ETFs in defined contribution plans. ETFs have been becoming a favorite vehicle for many investors because of lower costs, better liquidity, and better sector tracking than mutual funds, but defined contribution plans had been previously slow to adopt ETFs.

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Of the 6,800 401(k) plans in BrightScope’s system with a 2007 and a 2009 filing, which is the most recent comparative data available, the distribution of ETFs rose 42%, to $1.69 billion in 2009 from $1.19 billion in 2007.
 
“We expect [ETFs’] prevalence to grow dramatically in the future as plan sponsors begin to understand the benefits of including them on plan menus,” said Brightscope CEO Mike Alfred. “The risks of ETFs have been wildly exaggerated. In many ways, ETFs are actually less risky than other instruments if the focus is on long-term returns.”
 
Though still far from breaking the hold that mutual funds have on pension fund investments, employers may be becoming more familiar, and therefore more comfortable with ETFs as choices for the long-term growth of an investment.
 
According to BlackRock, which operates the ETF investment service iShares, at the end of April 2011 the global ETF industry had 2,670 ETFs with 6,021 listings and assets of $1,469.8 billion, compared with 4,354 listings and assets of $1,113.1 billion in April 2010.
 
Mutual funds assets, however still dwarf ETFs with nearly $12.5 trillion in assets as of April 2011, according to the Investment Company Institute.
 

Will ETFs eventually replace mutual funds as the preferred retirement plan investment vehicle? Do you prefer ETFs to mutual funds for your clients’ investment assets?

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