(Dow Jones) At the Morningstar investor conference a decade ago, the biggest names in the fund business talked about new products called exchange-traded funds that would someday supplement the typical mutual fund. Last week, the news out of Chicago was that there might soon be a day when at least half of the mutual-fund community converts its traditional funds into ETFs.
The changes about to hit both the fund and ETF business were on display last week at Morningstar's annual conference in Chicago, and ordinary investors should be aware of what is coming, because it will change the landscape of the business.
Three separate announcements fueled the speculation.
Vanguard Group, the world's largest fund company by assets, announced 19 new funds with ETF shares, essentially adding an ETF share class to existing traditional mutual funds. The biggest name among the issues going to the ETF side is the Vanguard 500 Index (trading symbol: VFINX), the granddaddy of the index-fund world.
The real news behind the Vanguard announcement was unspoken. By coming in to compete with established ETF providers-by offering products on the exact same indexes as the other guys, but doing it at a lower cost-Vanguard is bringing price competition to the ETF business for the first time.
Next came the news that Grail Advisors is introducing an actively managed bond ETF run by DoubleLine Capital. Bond-fund manager Jeffrey Gundlach, a keynote speaker at the Morningstar conference, established DoubleLine last year. While there are actively managed ETFs-and bond-fund manager Pacific Investment Management, or Pimco, already has plowed the ground in bonds-active competition means the ETF landscape is starting to look more like the rest of the fund world.
Finally, before the conference started, Huntington Asset Management, which runs 24 traditional mutual funds, filed plans to roll two of its funds into ETFs. Huntington may use assets from its Rotating Index Fund to seed the launch of Huntington Global Rotating Strategy, a new ETF. The move actually would allow Huntington to start its new fund using the old fund's track record and ratings from the major services like Morningstar.
Vanguard's ETF shares should get to keep the ratings generated by their traditional fund sisters, too.
"With the conversion of a fund, or the opening of ETF shares on an existing fund, you should see the record, the star rating and everything transfer," said Scott Burns, director of ETF analysis for Morningstar.
"It's the same money management, just another wrapper, and since people will only buy a fund when it has an established track record, being able to move it over to an ETF is a big deal," he said.