Why the US ETF market is growing


Oct. 13 2014, Updated 4:10 p.m. ET

U.S. exchange-traded fund (or ETF) market

We provided you with a complete overview of the U.S. ETF market in our series “A must-know overview of ETF investments in the US.”

In this series, we’ll quickly discuss the growing popularity and size of the ETF industry in U.S. Then, we’ll discuss certain new entrants in this space and their offerings. These include three of the biggest financial firms in the U.S.—JPMorgan (JPM), Well Fargo (WFC), and Goldman Sachs (GS).

So, why have these global banks entered—or expressed their willingness to enter—the ETF space? The answer lies in the sheer popularity and growth prospects of the expanding ETF market in the U.S.

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There are close to 1,500 ETFs that trade on the U.S. market alone. According to a Deutsche Bank report, global ETF assets grew 28.2% in 2013. They crossed the $2.3 trillion mark. The U.S. ETF market led this overall growth. It saw record inflows of $214 billion in 2013. ETF assets in the U.S. finished 2013 at $1.7 trillion—up 33% from the previous year.

The U.S. market dominates the global ETF space, with ~72% of global ETF assets.The dominant ETF issuers in U.S. include BlackRock (BLK), State Street Corp. (STT), and Vanguard. These three issuers command over 80% of the ETF space.

An ETF is an instrument that offers trading flexibility, cost-saving—compared to a mutual fund, instant portfolio diversification, tax efficiency, and transparency of holdings to its investors. As a result, ETFs are preferred over mutual funds in the U.S. This is the main reason that prompted global asset managers—like JPM, WFC, and GS—to enter the ETF space.


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