Giving Thanks for ETFs

Since we’re on the eve of the Thanksgiving holiday, I thought it would be appropriate for me to let you in on a few things that make me feel thankful. First off, I am thankful that I live in a country where, despite its flaws, success and the achievement of one’s goals are still possible. Sure, there are obstacles to success no matter where you live, but being a citizen of the United States in the 21st century certainly gives us all a leg up on making our dreams come true, and that is something we should never forget.

Second, I am thankful to be blessed with great friends, great co-workers, and most of all, a fantastic family. I don’t think you should ever forget to cherish those you love, and Thanksgiving Day is an especially appropriate time to acknowledge just that.

Finally, I am thankful for being able to do what I love to do, and that means I am thankful for you, the Making Money Alert reader, and for subscribers to my Successful Investing newsletter, and for the clients we help via my money management firm, Fabian Wealth Strategies. Without you, I wouldn’t be able to do what I love most, and that’s helping you protect and grow your money.

I am also thankful for the tools that make protecting and growing our wealth possible, and by far the best tools to come out this year are a plethora of new exchange-traded funds (ETFs). To be certain, 2013 has been a banner year for the ETF industry. At last count, the universe of U.S.-based ETF offerings now has climbed to more than 1,500, totaling more than $1.64 trillion dollars in assets. Then there are the international-based ETFs, a number which tops 2,000, with some $2 trillion in assets.

So far this year, there’s been approximately $168 billion that have flowed into ETFs. And while the total amount of assets in ETFs still is only a fraction of the amount of assets invested in mutual funds (mutual funds hold about $10 trillion), the trend definitely is moving toward ETFs.

As you may know, I’ve been a big fan of ETFs for many years, and I use them extensively in my newsletter services and at my money management firm. And while we haven’t abandoned mutual funds altogether, especially for those who have limited choice in a 401(k)-style investment plan, certainly the trend toward ETF industry expansion is one that’s taking the investment business by storm.

According to my research, there have been more than 150 new ETF offerings through the first 10 months of the year. That’s a very big number, and it speaks to the growing demand and the increasing popularity of ETFs among not only individual investors, but also from institutional investors. Given the combination of transparency, liquidity, low cost and even tax efficiency, it’s no surprise to me that investors both big and small have embraced the ETF revolution.

So, which firms are doing some of the most interesting things in the ETF industry?

Right now, there are three companies that I think are leading the way in terms of innovation and new offerings. The first of these is WisdomTree, the second is First Trust, and the third is an old standby in the mutual fund and brokerage industry, Fidelity. These firms are bringing to market some of the most interesting, and potentially most profitable, funds and strategies that can help investors take advantage of current conditions.

In the case of WisdomTree, this fund issuer is breaking most of the current ETF norms. The company began by issuing ETFs that were simply pegged to a specific index of stocks. Now, however, many of WisdomTree’s funds are offering a currency hedge element to their active management. WisdomTree also has chosen to depart from following the standard market-cap weighting in their indexes. WisdomTree’s approach is to focus on the dividend growth of companies in their products, an approach based on the research conducted by Jeremy Schwartz, WisdomTree founder and chief investment officer.

First Trust is another ETF issuer that takes a different approach to indexing. In August, I met with representatives from the First Trust Fund family, and I must say they made an impressive presentation outlining their strategies, and how their funds differed from run-of-the-mill fund offerings. The biggest difference is the company’s unique indexing methodology, which offers investors an interesting hybrid form of a managed/index ETF.

The final fund issuer now posturing to increase its presence in the ETF space is Fidelity. Of course, Fidelity is no newcomer to the investment business, but it is a relative newcomer when it comes to ETFs. According to Tony Rochte, the executive in charge of SelectCo, Fidelity’s ETF unit, the company actually is already a big player in the ETF segment. Rochte has said publicly that the $135 billion in ETF assets under management on Fidelity’s platform represents more than 8% of the $1.64 trillion of total U.S.-listed ETF assets. Rochte also has made it clear that this is just the beginning of the Fidelity footprint on the ETF industry.

I expect to see a slew of both index-oriented and actively managed ETFs come to market from Fidelity in 2014. This situation is going to be an important development to watch, as Fidelity’s size and marketing prowess undoubtedly will make the company a force to reckon with when it comes to the battle for investment dollars.

I think the conclusion that can be drawn by these innovations in the ETF industry is that the tools that enable investors to succeed are all around us — and that opportunity is definitely one that makes me feel thankful.

Now the trick is to employ the right tools for the right circumstances.

For more on how to do just that, I invite you to check out my Successful Investing newsletter today. It’s packed with info and recommendations on which ETFs are right for growth- and income-oriented portfolios. More importantly, the service includes buy and sell signals that let you know when to get in, and when to get out, of specific sectors.

Happy Thanksgiving!