ETF Popularity Continues to Increase - Three companies control over 80% of the market

Traditional Mutual Fund Companies are entering the space but are late to the game.

An ETF (exchange traded fund) works much like a mutual fund except that it can be traded daily on the stock exchanges. They function the same way by holding a basket of stocks, providing diversification benefits.  On average they have lower costs and are more tax efficient then traditional mutual funds, which is why we prefer to use them in our clients' portfolios over their mutual fund counterparts.

First Bridge, a provider of ETF data, came out with their mid-year review which shows that total ETF assets have grown to $1.86 trillion, almost a 10% increase in only 6 months. Partly due to an upward trending market but also due to increased inflows as more investors choose ETFs over traditional mutual funds. Below is a chart which shows the three largest ETF providers, Vanguard, Blackrock, and SSgA.  Blackrock provides the popular iShares funds and SSgA owns the SPDRs funds.  Overall these three hold just over 80% of the mutual fund market.

Vanguard provides some of the lowest cost ETFs and are best known for their index funds but Schwab, which currently only has 1.1% market share has been able to compete with Vanguard on costs.  This is great for investors, who are the primary winners in cost reductions.  Schwab actually offers two ETFs with a 0.04% expense ratios (SCHB & SCHX).  This is about as close to free as you can get when investing.  I anticipate both Schwab and Vanguards market share in the ETF space will only continue to increase.

Questions about ETFs? Ask them in the comments below.