Promising prospects for ETFs

1. New and innovative ETFs likely to challenge Mutual Funds.

2. Evolving as low cost investment vehicles .

Exchange Traded Funds or ETFs are evolving.The market for ETFs continues to boom with new products in asset classes being listed across different stock exchanges.

The first ETF was introduced on the Toronto Stock Exchange in 1989. ETFs have been gaining popularity ever since they were introduced on the American Stock Exchange in mid 1990s beginning with Standard and Poor’s Depository Receipts (SPDRs) or “Spiders” in 1993 based on S&P 500 index.ETFs are attractive to investors because they offer the diversification of mutual funds with features of a stock.The popularity is likely to increase as new and more innovative ETFs are introduced.

A recent report by Morgan Stanley says that assets under management in ETFs are expected to exceed $2000 billion by 2011 from the $ 487 billion registered at the end of the first half of 2006.

The drivers behind this expected growth are related to a wider acceptance of these vehicles by institutional and retail investors and funds making larger allocations to ETFs following regulatory changes in Europe and the US.Other contributing factors include the expansion in numbers and types of equity, fixed income and commodities indices, as well as plans from different exchanges to launch new ETFs trading systems in the near future.

Today Europe has a total of $75 billion under management in 250 ETFs compared to a total of $350 billion in around 260 ETFs in US.

ETFs will definitely continue to widen the universe asset classes to investors and asset managers and ETFs on active indices are definitely the trend for 2007.