ETFs Becoming Popular In 401(k) Plans

January 13, 2010 11:18 AM EST
ETFs have not traditionally been popular among retirement plans, despite the fact that funds have taking the investment world by the horns over the years, but now that may be changing.

According to a an article in the Wall Street Journal the trend may be changing, with ETFs garnering more attention in the 401(k) market these days.

The largest sponsor of ETFs, BlackRock Inc. estimates that investors currently hold $2 billion worth of iShares ETFs, including $500 million in fund shares bought last year, in 401(k) plans.

The estimates suggest that investors may have a total of $4 billion put into ETF as part of 401(k) plans, since iShares controls roughly half of the ETF market.

This is a simple fraction of the total $1 trillion that investors have place in mutual funds from 401(k) assets. However there has been significant growth, as several years ago ETFs were nearly nonexistent in retirement 401(k) plans.

The appeal for ETFs to investors is that flexibility and low cost that they offer, and ETFs can be traded throughout the day, unlike open-end mutual funds. ETFs do resemble the open-ended mutual funds, but they trade like a stock on exchanges.

The advantages of ETFs are somewhat neutralized when placed into 401(k) plans that typically pool many individual investors' trades, and do not allow them the ability to trade all day long. Also the tax benefits of ETFs become null, as retirement plans already allow investors to avoid taxes on capital gains.

Financial advisors and consumer advocates are thinking that investing in ETFs as a part of retirement plans does provide the benefit of making it easier to keep tabs on what investors are actually putting money into.

On the other side Vanguard Group Inc., the third largest ETF company and a large provider of retirement planning, has not included ETFs into its retirement plans based on there being no reason to displace nearly-identical index mutual funds.

Some of the most popular ETFs:
SPDR Select Sector Fund - Financial (NYSE: XLF)
PowerShares QQQ Trust (Nasdaq: QQQQ)
iShares MSCI Emerging Index Fund (NYSE: EEM)
Direxion Financial Bear 3x Shares (NYSE: FAZ)
iShares Russell 2000 (NYSE: IWM)
ProShares UltraShort S&P500 (NYSE: SDS)
ProShares Ultra Financials (NYSE: UYG)
United States Natural Gas Fund LP (NYSE: UNG)
Direxion Financial Bull 3x Shares (NYSE: FAS)

You May Also Be Interested In

Related Categories

General News

Related Entities

Standard & Poor's, Vanguard