The Future of the ETF Industry and Why It Matters to You

NEW YORK (TheStreet) -- This week Barron's had a roundtable on exchange-traded funds, and one of the participants was Rod Smyth from Riverfront Investment Group, which manages $4 billion in ETF-based portfolios. Riverfront's clients are primarily investment advisers who outsource portfolio management.

Riverfront's large amount of assets under management allows it to influence the creation of new ETFs. Smyth took credit for spurring the creation of the wildly successful WisdomTree Japan Hedged Equity Fund (DXJ)DXJ because Riverfront wanted exposure to Japanese equities but not the yen.

Pricewaterhouse Coopers recently published a report titled The Next Generation of ETFs; Why every asset manager needs an ETF strategy.

It notes that two years ago 71% of advisers expected to increase their use of ETFs. That number fell to 49% in 2013. This reflects the wide discovery and adoption of ETFs by advisers.

Also from Pricewaterhouse Coopers: As U.S.-based investment advice continues to move toward a fee-based model, advisers have increasingly taken on the role of portfolio manager. ETFs are facilitating a shift in the center of gravity from security selection to asset allocation.

There are 600 managed ETF strategies with $73 billion assets under management in early 2013, while there is $1.5 trillion worth of ETFs overall, Pricewaterhouse Coopers noted.

There's still plenty of room for growth, however, because that $1.5 trillion in ETFs is dwarfed by the nearly $10 trillion in traditional mutual funds.

Besides Riverfront, there are countless advisory firms such as Wealthfront and Betterment getting into the business of all-ETF portfolio construction. These firms offer solutions directly to retail investors, too. Wealthfront is working with Twitter (TWTR) to help its employees manage their newfound wealth after the microblogger's initial public offering earlier this month.

If you liked this article you might like

Japan's Victory for Abenomics Leaves Investors Hungry for More

Want to Know Why Japan Stocks Are Lagging? These Charts Tell the Story

Japan's G7 Summit to Raise Questions About Growth

Japan's G7 Summit to Raise Questions About Growth

Novice Trade: iShares MSCI Japan

Novice Trade: iShares MSCI Japan

Should You Invest in Currency-Hedged Exchange-Traded Funds?