They are among the biggest and most useful innovations for the retail investor since the advent of mutual funds. But it is time for those investors to look a little more closely at exchange traded funds.
The industry itself is reconsidering. As the Financial Times reported this week, after a race to get on board the ETF bandwagon, a quarter of the funds listed in the US have failed to attract enough cash to be viable. The shakeout of the $1.7tn industry, which is still pulling billions away from traditional mutual funds, is solidly under way.
Retail investors have faith in ETFs, and in many ways they are right. They are flexible instruments that allow them to invest in indices such as the S&P 500 and the FTSE 100 more cheaply than alternatives. Instead of the complexities of trading in stocks and bonds, or the expense of actively-managed funds, they can track the market efficiently.