Several new ETFs are designed to appeal to buy-and-hold investors. The launches expand the ranks of ETFs that try to take the edge off market volatility, or invest in solid dividend-paying stocks. Other new ETFs are moving beyond their traditional approach of tracking a broad stock index like the Standard & Poor’s 500. Many use formulas to screen for the lowest-volatility stocks or the highest dividend payers, without the cost of having pros pick investments.
But most investors know little about ETFs, which are similar to index funds. Both seek to match rather than beat the market by investing in a basket of stocks or bonds. Fees are typically low because investors aren’t paying managers to pick investments. A distinct feature is that ETFs can be traded throughout the day like stocks.
It wasn’t until the past decade that ETFs began to gain traction with do-it-yourself investors and their financial advisers.
ETFs have recently begun to appear in 529 college-savings plans and 401(k)s, and they continue to draw stock investors at the expense of mutual funds. US stock ETFs have attracted nearly $63 billion in net deposits since January 2010, while a net $112 billion was withdrawn from stock mutual funds, according to Morningstar.
There’s a dearth of data on how much of the current $970 billion in ETF assets is invested directly by individuals, vs. ETFs in portfolios constructed by advisers, or in pension or hedge funds. But professional money managers continue to drive trading of the 1,100 ETFs investors can choose from.
One reason is that many ETFs track such narrow market segments that they’re unsuitable for average investors. There are ETFs that invest in the stocks of small countries like Norway and Singapore. There are also narrow industry options, for instance newly launched ETFs that specialize in natural gas futures.
But there’s a growing number of ETFs with the potential for much broader appeal. Here’s a look at recent efforts by big industry names to attract individual investors:
