If the recent volatility in the markets persists, it will likely push more investors toward exchange-traded funds, says Michael Iachini, managing director, ETF research, for Charles Schwab Investment Advisory.
Investors may have only a tiny slice of their portfolios invested in ETFs -- less than 5 percent -- but the investments are a way to hedge bets on individual stocks, said Iachini during a recent conference call organized by Schwab on innovations in ETFs. They offer a way to diversify one's portfolio, simply and easily, he noted.
ETF investments can be tactical, with an eye toward holding them briefly until it's a good time to sell, he said, or they can be part of a buy-and-hold strategy.
Access was the reason ETFs were created in 1993 to give individual investors opportunities to buy products that were previously available only to institutional investors or the extremely wealthy, said Bruno del Ama, co-founder and chief executive officer of Global X Funds.
Clearly, ETFs supplied a need, said Jeremy Held, senior vice president and director of research for ALPS. The amount invested in them has grown from zero to $2 trillion in the last two decades, he said.
The access goes two ways, Held said. ETFs also give smaller companies like ALPs a shot at attracting individual investors that they would not otherwise have.
Larger funds dominate the mutual fund market, he said, with the top 25 funds controlling 80 percent of the money invested.
Clients want companies to continue to develop new kinds of ETFs, he said. Sixty-six percent said in a recent survey that there is room for more ETFs.
Global X tries to create products that match clients' wants, del Ama said. One-third of its new products were sparked by clients' suggestions, he said.
Among the ETFs popular with clients are those invested in master limited partnerships in the energy industry, said Kenny Feng, president and chief executive officer of Alerian.
That popularity shows no signs of waning, he said. Among the innovations Feng expects in this sector are more ETFs focused "upstream" -- on companies that extract and produce oil and natural gas. Up to now, the ETFs have been mostly "midstream" -- focused on the pipeline and infrastructure part of the business.