ETF Industry Headed for Another Record Year

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Exchange-traded funds experienced unprecedented growth this year, with a record 132 new products hitting the market through November, according to the Investment Company Institute. But 2007 could be even bigger, particularly if the Securities and Exchange Commission streamlines its review process for these baskets of stocks and other securities.

ETFs resemble mutual funds but trade throughout the day on an exchange like stocks. Because this hybrid structure doesn't fit neatly into investment regulations, they are required to apply for "exemptive" relief, lengthening the time it takes to bring them to market. But recently, Andrew Donohue, new director of the SEC's division of investment management, has been speaking about initiatives under way to speed up the application process.

Providers are also looking for ways to make ETFs available through retirement plans, which could be another huge catalyst for growth.

"If we thought [the ETF industry] heated up in 2006, it's absolutely going to heat up in 2007," says Joe Keenan, managing director of Bank of New York.

He says there could be another 200 or 300 new rollouts next year.

Industry observers expect many of next year's new offerings to focus on commodities and bonds. (In some cases, the products under development aren't technically ETFs, because they are structured differently, but they generally behave the same way as ETFs.)