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Rating:Age of Unreasonable Expectations for ETFs? Not Rated 3.0 Email Routing List Email & Route  Print Print
Tuesday, April 10, 2001

Age of Unreasonable Expectations for ETFs?

Reported by Sean Hanna, Editor in Chief

The bear caught the booming exchange-traded fund (ETF) industry with its pants down. Despite heady growth among ETFs, all of the 97 existing products are based on stock indices. Look for the Bank of New York (BoNY)to be among the firm's rectifying this oversight.

Joseph F. Keenan, vice president, exchange-traded products at BoNY, said that the bank is contemplating finding a sponsor for a fixed-income ETF. He made the remarks to attendees at Tradeworx Symposium on Online Asset Management, yesterday at the Princeton Club in New York City.

"Today there are no fixed income or cash equivalent products," Keenan explained, adding that "hopefully we will work with a fund sponsor soon" to introduce these products.

The American Stock Exchange's Erik Liik also told the attendees that one of the challenges facing alternative products such as ETFs is that product development has gotten ahead of the development of tools to use the products.

"Now 70 percent of the buyers are institutional investors," Liik said. He added that retail investors have not yet embraced these products since the tools to assist advisors in constructing portfolios with ETFs either do not exist yet or are too cumbersome.

Keenan stated that one of the mistakes made by early entrants in the ETF business was to create too much diversity among products. This left advisors in the dark about how to use these instruments in client portfolios.

"Everyone thought there would be a shift to products being bought, not sold, but that did not happen," Keenan elaborated.

Liik noted that the assets in SPDRs have doubled each year since 1995 and now stand at $25 billion. Assets in the "Cubes" (QQQ) product based on the Nasdaq 100 and managed by BoNY have reached $22 billion, added the BoNY official.

Despite the growth, Keenan called the last few years the "age of unreasonable expectations" for the ETF business.

"It took sixty years for the US fund business to grow and mature," he concluded. 

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