Exchange-Traded Funds Continue to Grow in 2001

When the number of exchange-traded funds -- mutual funds based on equity indices that trade like a single stock and can be bought or sold intraday -- first began taking off two years ago, an all-out media frenzy ensued.

ETF assets multiplied 10 times from $6.7 billion in January 1998 to $66 billion as of the end of March 2001. Some predicted that assets in this new type of mutual fund would swell to as much as $500 billion by 2005. Others went so far as to say ETFs could overtake traditional equity mutual funds in popularity.

While the hoopla over ETFs has died down somewhat and their assets are now only projected to reach $200 billion by 2005, ETFs have continued to be popular, even during the recent market downturn. During the past year, ETFs have had $42 billion in net inflows, compared with net outflows of $80 billion for equity funds, according to the Investment Company Institute. And in March, ETFs reaped $8.9 billion in inflows, while equity mutual funds lost $20 billion. ...